##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended March 28,
    2004                                                    
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-7604



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Crown Crafts, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                         |  |                                     
|---------------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                                 |  | 58-0678148                          
|(State of Incorporation)                                                                 |  | (I.R.S. Employer Identification No.)
|                                                                                        
|916 S. Burnside Ave.
    Gonzales, Louisiana(Address of principal executive
    offices) |  | 70737(Zip Code)                     

Registrants Telephone Number, including
area code:

(225) 647-9100


Securities registered pursuant to
Section 12(b) of the Act:

|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of class                |  | Name of exchange on which registered
|                              |  |                                     
|Common Stock, $0.01 par value |  | OTC Bulletin Board                  
|Common Share Purchase Rights  |  | OTC Bulletin Board                  

Securities registered pursuant to
Section 12(g) of the Act:

None


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     þ

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

As of September 28, 2003, 9,504,937 shares
of Common Stock were outstanding, and the aggregate market value
of the Common Stock (based upon the closing price of these
shares on that date) held by persons other than Officers,
Directors, and 5% shareholders was approximately $3,727,011.

As of June 1, 2004, 9,504,937 shares of the
Companys Common Stock were outstanding.

Documents Incorporated by Reference:

Crown Crafts, Inc. Proxy Statement in connection
with its 2004 Annual Meeting of Shareholders (Part III
hereof).



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TABLE OF CONTENTS



|                                                |                                                                                                                         |  |  |  |  |  |  | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                         
|                                                | Item 1. Business                                                                                                       
|                                                | Item 2. Properties                                                                                                     
|                                                | Item 3. Legal Proceedings                                                                                              
|                                                | Item 4. Submission of Matters to a Vote of Security Holders                                                            
|PART II                                        
|                                                | Item 5. Market for the Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                | Item 6. Selected Financial Data                                                                                        
|                                                | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                          
|                                                | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                    
|                                                | Item 8. Financial Statements and Supplementary Data                                                                    
|                                                | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           
|                                                | Item 9A. Controls and Procedures                                                                                       
|PART III                                       
|                                                | Item 10. Directors and Executive Officers of the Registrant                                                            
|                                                | Item 11. Executive Compensation                                                                                        
|                                                | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                
|                                                | Item 13. Certain Relationships and Related Transactions                                                                
|                                                | Item 14. Principal Accountant Fees and Services                                                                        
|PART IV                                        
|                                                | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                              
|SIGNATURES                                     
|Amended/Restated Severance Protection Agreement
|Amended/Restated Employee Agreement-Samson     
|Amended/Restated Employee Agreement-Freeman    
|Code of Ethics                                 
|Subsidiaries of the Company                    
|Consent of Independent Public Accounting Firm  
|Certification by the Company's CEO             
|Certification by the Company's CFO             
|Section 1350 Certification by the CEO          
|Section 1350 Certification by the CFO          



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##### Table of Contents






PART I




Item 1.     Business

Crown Crafts, Inc. is a Delaware corporation as a
result of the Companys reincorporation in Delaware
completed in 2003. The Company was originally formed as a
Georgia corporation in 1957. The Company operates indirectly
through its subsidiaries (Hamco, Inc.; Churchill Weavers,
Inc.; Crown Crafts Infant Products, Inc. and, previously,
Burgundy Interamericana) in the Infant Products segment within
the Consumer Products industry. The Infant Products segment
consists of infant bedding, bibs, soft goods and accessories.
Sales are generally made directly to retailers, primarily mass
merchants, large chain stores and gift stores. These products
are marketed under a variety of Company-owned trademarks,
under trademarks licensed from others, without trademarks as
unbranded merchandise and with customers private labels.

In response to changing business conditions in
the consumer products industry, the Company made significant
changes in its business operations over the last four years.
In addition to a program of cost reductions and
rationalization, the Company outsourced virtually all of its
manufacturing to domestic and foreign contract manufacturers,
with the exception of the specialty hand wovens produced by
Churchill Weavers and, until recently, screen-printed infant
bibs produced by Burgundy in Mexico. The Woven Products
division, with manufacturing primarily in north Georgia, was
sold on November 14, 2000 and net proceeds of
$32.3 million were used to reduce debt. Following the
outsourcing of adult bedding and bath, the Roxboro, North
Carolina plant was sold on June 14, 2001 and the proceeds
of $8.0 million were used to reduce debt. Also, the Company
made a decision to exit the adult bedding and bath business, and
its net assets related to that business of $12.4 million
were sold effective July 23, 2001. Proceeds of the sale
were $8.5 million cash plus the assumption of liabilities
of $3.4 million as well as the assumption of certain
contingent liabilities. Cash from the sale was used to reduce
debt. After that sale, the Company has operated primarily in the
infant and juvenile products business, but in describing the
results of operations for fiscal 2002, reference is made to all
of the product groups. Because of the sale of assets and the
refinancing that occurred July 23, 2001, the Companys
historical results for fiscal 2002 and prior are not indicative
of the Companys future operations.

In December 2002, the Company adopted a formal
plan to change its sourcing strategy for certain products and
close the Mexican manufacturing facility operated by Burgundy.
This decision was based on extensive research by management
which indicated that, due to lower wages and the elimination of
certain governmental quotas on the importation of bibs,
outsourcing the supply of products then being manufactured by
Burgundy to Asian manufacturers was more cost-effective and
competitive than maintaining operations in Mexico. Under the
plan, Burgundy continued to operate through the first quarter of
fiscal 2004, at which time the Company began to liquidate
Burgundys assets. As a result of the decision of
the Company to discontinue its Mexican operations, the Company
recorded a $1.8 million restructuring charge to operations
in the quarter ended December 29, 2002, which consisted
primarily of a write-down of the property and equipment at the
Mexican facility of approximately $800,000, inventory items
deemed to be in excess of production requirements of
approximately $600,000, an accrual for contractual termination
benefits of approximately $300,000 due Burgundys entire
workforce (approximately 130 employees) under the
provisions of Mexicos labor regulations and the write-off
of goodwill of approximately $60,000. The Company paid
approximately $189,000 of the severance benefits in the first
quarter of fiscal 2004 and paid the remainder through October
2003. The Company continued to charge the ongoing operating
costs associated with Burgundys production in the period
in which the costs were incurred. The Company incurred a loss of
approximately $85,000 related to the operation and closure of
this facility for the three-month period ended June 29,
2003, at which time the closure was complete.

Products

The Companys primary focus is on infant and
juvenile products. Infant products include crib bedding, diaper
stackers, mobiles, bibs, receiving blankets, burp cloths,
bathing accessories and other infant soft goods and accessories.
The Company also produces hand-woven throws for infants and
adults, which are manufactured and imported in a variety of
colors, designs and fabrics, including cotton, acrylic,
cotton/acrylic blends, rayon, wool, fleece and chenille.

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Historically, the companys products also
included two additional groups: 1) bedroom and bath
products and 2) imported and jacquard woven throws. Bedroom
products included comforters, comforter sets, sheets,
pillowcases, sheet sets, pillow shams, bed skirts, duvets,
decorative pillows, coverlets and jacquard-woven bedspreads.

The table below indicates the allocation of sales
of the Companys products.

|                             |  |             |    |      |  |      |    |   |  |  |    |  
|---------------------------- |  | ----------- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                             |  |            
|                             |  | Fiscal Year
|                             |  |            
|                             |  | 2004        |    | 2003 |  | 2002
|                             |  |             |    |      |  |     
|Infant and Juvenile Products |  |             | 97 | %    |  |      | 97 | % |  |  | 80 | %
|Throws                       |  |             | 3  | %    |  |      | 3  | % |  |  | 3  | %
|Bedroom and Bath Products    |  |             | 0  | %    |  |      | 0  | % |  |  | 17 | %

Product Design and Styling

Research and development expenditures focus
primarily on product design and styling. The Company believes
styling and design are key components to its success. The
Companys designers and stylists work closely with the
marketing staff and licensors to develop new designs. These
designs, which are developed internally and obtained from
numerous additional sources, including graphic artists,
decorative fabric manufacturers, apparel designers and
employees, include traditional, contemporary, textured and
whimsical patterns across a broad spectrum of retail price
points. The Company is continually developing new designs for
all of its product groups using computer-aided-design systems to
increase design flexibility, reduce costs and shorten the time
for responding to customer demands and changing market trends.
The Company also creates designs for exclusive sale by certain
of its customers.

Sales and Marketing, Customers

Products are marketed through a national sales
force consisting of salaried sales executives and employees and
independent commissioned sales representatives. Independent
representatives are used most significantly in sales to the gift
trade and infant markets. Sales outside the United States are
made primarily through distributors.

The Companys customers consist principally
of mass merchants, chain stores, department stores, specialty
home furnishings stores, wholesale clubs, gift stores and
catalogue and direct mail houses. The table below indicates
customers representing more than 10% of gross sales.

|                      |  |             |    |      |  |      |    |   |  |  |    |  
|--------------------- |  | ----------- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                      |  |            
|                      |  | Fiscal Year
|                      |  |            
|                      |  | 2004        |    | 2003 |  | 2002
|                      |  |             |    |      |  |     
|Toys R Us             |  |             | 36 | %    |  |      | 31 | % |  |  | 26 | %
|Wal-Mart Stores, Inc. |  |             | 27 | %    |  |      | 30 | % |  |  | 22 | %
|Target Corporation    |  |             | 12 | %    |  |      | 10 | % |  |  | *  |  






|  |               
|- | --------------
|* | Less than 10%.

The Companys sales offices are located in
Huntington Beach, California; Gonzales, Louisiana; Berea,
Kentucky and Rogers, Arkansas. Substantially all products are
sold to retailers for resale to consumers. The Companys
infant product subsidiaries generally introduce new products
once each year during the annual Juvenile Products
Manufacturers Association (JPMA) trade show.
Private label products are introduced throughout the year. New
product introductions for the gift trade are concentrated in
January through March and June through August when Churchill
Weavers participates in numerous local and regional
gift shows.

In fiscal 2004, approximately 1% of the
Companys gross sales were made through its retail store in
Berea, Kentucky. Stores in Calhoun, Georgia and Rancho Santa
Margarita, California were closed in fiscal 2001 and a store in
Roxboro, North Carolina was sold in fiscal 2002.

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Manufacturing

The Companys infant products are produced
primarily by domestic and foreign contract manufacturers. These
products are then warehoused and shipped from facilities in
Compton, California and Gonzales, Louisiana.

Raw Materials

The principal raw materials used in the
manufacture of infant comforters, sheets and accessories are
printed and solid color cotton and polycotton fabrics, with
polyester fibers used as filling material. The principal raw
materials used in the manufacture of throws and other products
are natural-color and pre-dyed 100% cotton yarns, rayon yarns
and acrylic yarns. The principal raw materials used in the
production of infant bibs are knit-terry polycotton, woven
polycotton and vinyl fabrics. Although the Company usually
maintains supply relationships with only a limited number
of suppliers, the Company believes these raw materials presently
are available from several sources in quantities sufficient to
meet the Companys requirements.

The Company uses significant quantities of
cotton, either in the form of cotton fabric or polycotton
fabric. Cotton is subject to ongoing price fluctuations. The
price fluctuations are a result of cotton being an agricultural
product subject to weather patterns, disease and other factors
as well as supply and demand considerations, both domestically
and internationally. Significant increases in the price of
cotton could adversely affect the Companys operations.

Seasonality, Inventory Management

Historically, the Company has experienced a
seasonal sales pattern, in which sales are lowest in the first
fiscal quarter. In fiscal 2004, sales peaked in the fourth
fiscal quarter and in fiscal 2002 and 2003, sales peaked in the
second fiscal quarter.

The Company carries normal inventory levels to
meet delivery requirements of customers. Customer returns of
merchandise shipped are historically approximately 0.6% of gross
sales.

Order Backlog

Management estimates the backlog of unfilled
customer orders were $4.4 million and $3.4 million at
March 28, 2004 and March 30, 2003, respectively. The
majority of these unfilled orders are shipped within
approximately eight weeks, and none are expected to be shipped
beyond the completion of the fiscal year ending March 27,
2005. Due to the prevalence of quick-ship programs adopted by
its customers, the Company does not believe that its backlogs
are a meaningful indicator of future business.

Trademarks, Copyrights and Patents

The Company considers its trademarks to be of
material importance to its business. Products are marketed in
part under well-known trademarks such as Red Calliope®,
Cuddle Me®, NoJo®, Hamco®, Pinky Baby® and
Churchill Weavers®. Protection for these trademarks is
obtained through domestic and foreign registrations.

Certain products are manufactured and sold
pursuant to licensing agreements for trademarks that include,
among others, Disney®. The licensing agreements for the
Companys designer brands generally are for an initial term
of one to five years, and may or may not be subject to renewal
or extension. Sales of product under the Companys licenses
with Disney Enterprises, Inc. accounted for 33% of the
Companys total gross sales volume during fiscal 2004.

Many of the designs used by the Company are
copyrighted by other parties, including trademark licensors, and
are available to the Company through copyright licenses. Other
designs are the subject of copyrights and design patents owned
by the Company.

During the fiscal year ended March 28, 1999,
the Company entered into licensing agreements with Calvin Klein,
Inc. and Disney Enterprises, Inc. The Calvin Klein license
granted the Company the right to produce

4



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and sell bedroom and bath products under the
Calvin Klein brand. The Disney license expands the
Companys right to produce and sell products featuring
Disney characters. The current Disney license expires
December 31, 2004. In connection with the sale of the
adult bedding and bath business effective July 23, 2001,
the rights of the Company under the Calvin Klein license were
terminated.


The Companys aggregate commitment for
minimum guaranteed royalty payments under all of its license
agreements is $3.3 million, $0.2 million and $0 for
fiscal 2005, 2006, and thereafter, respectively. The Company
believes that future sales of royalty products will exceed
amounts required to cover the minimum royalty guarantees. The
Companys total royalty expense, net of royalty income, was
$5.7 million, $6.5 million and $7.5 million for
fiscal 2004, 2003 and 2002, respectively.

Competition

The infant consumer products industry is highly
competitive. The Company competes with a variety of distributors
and manufacturers on the basis of quality, design, price,
service and packaging and is a leader in its respective industry
segment. Its leadership results from the integration of
extensive proprietary product design with low-cost, high-quality
global sourcing to produce and market high-value merchandise to
major customers. With a strong commitment to customer
service, the Company develops distinctive programs for
individual customers and maximizes retail productivity with
aggressive pricing, quick replenishment merchandise management
and efficient customer order execution. These qualities have
enabled the Company to become the largest producer of infant bed
coverings and bibs for distribution to mass and mid-tier
merchants, enjoying approximately one-third of the infant
bedding market share and one-half of the bib market share in
the U.S.

Government Regulation, Environmental
Control

The Company is subject to various federal, state
and local environmental laws and regulations which regulate,
among other things, the discharge, storage, handling and
disposal of a variety of substances and wastes and to laws
and regulations relating to employee safety and health,
principally the Occupational Safety and Health Administration
Act and regulations thereunder. The Company believes that it
currently complies in all material respects with applicable
environmental, health and safety laws and regulations and that
future compliance with such existing laws or regulations will
not have a material adverse effect on its capital
expenditures, earnings or competitive position. However, there
can be no assurances that such requirements will not become more
stringent in the future or that the Company will not incur
significant costs in the future to comply with such requirements.

Employees

At March 28, 2004, the Company had
approximately 241 employees, none of whom are represented
by a labor union. The Company attracts and maintains
qualified personnel by paying competitive salaries and benefits
and offering opportunities for advancement. The Company
considers its relationship with its employees to be good.

International Sales

Sales to customers in foreign countries outside
the United States are not currently material to the
Companys business.




Item 2.     Properties

The Companys headquarters are located in
Gonzales, Louisiana. The Company rents approximately 17,211
square feet at this location under a lease that expires
April 25, 2007.

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The following table summarizes certain
information regarding the Companys principal properties.

|                             |  |                                                                                    |  |             |         |        |  |          
|---------------------------- |  | ---------------------------------------------------------------------------------- |  | ----------- | ------- | ------ |  | ---------
|                             |  |                                                                                    |  | Approximate |         | Owned/
|Location                     |  | Use                                                                                |  | Square Feet |         | Leased
|                             |  |                                                                                    |  |             |         |       
|Gonzales, Louisiana          |  | Administrative and sales office                                                    |  |             | 17,211  |        |  | Leased(1)
|Berea, Kentucky              |  | Offices, manufacturing, warehouse and
    distribution facilities and retail store |  |             | 53,000  |        |  | Owned    
|Compton, California          |  | Offices, warehouse and distribution center                                         |  |             | 157,400 |        |  | Leased(2)
|Compton, California          |  | Warehouse                                                                          |  |             | 35,000  |        |  | Leased(3)
|Gonzales, Louisiana          |  | Offices, warehouse and distribution center                                         |  |             | 60,000  |        |  | Leased(4)
|Huntington Beach, California |  | Offices                                                                            |  |             | 2,229   |        |  | Leased(5)
|Huntington Beach, California |  | Offices                                                                            |  |             | 7,574   |        |  | Leased(6)
|Rogers, Arkansas             |  | Sales office                                                                       |  |             | 1,625   |        |  | Leased(7)






|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|(1) | Lease expires April 25, 2007.                                                                    
|   
|(2) | Lease expires May 31, 2006.                                                                      
|   
|(3) | Lease expires May 31, 2004 (upon expiration,
    the Company has discontinued use of this space).
|   
|(4) | Lease expires March 31, 2005.                                                                    
|   
|(5) | Lease expires December 31, 2005.                                                                 
|   
|(6) | Lease expires April 30, 2007.                                                                    
|   
|(7) | Lease expires November 30, 2005.                                                                 

Management believes that its properties are
suitable for the purposes for which they are used, are in
generally good condition and provide adequate capacity for
current and anticipated future operations. The Companys
business is somewhat seasonal so that during certain times of
the year these facilities are fully utilized, while at other
times of the year the Company has excess capacity.




Item 3.Legal
Proceedings

From time to time, the Company is 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 condition or results of operations.




Item
4.Submission of Matters to a
Vote of Security Holders

No matters were submitted to a vote of security
holders during the fourth quarter of the year ended
March 28, 2004.




PART II






|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Stock, Related Stockholder Matters and Issuer Purchases of
    Equity Securities

The Company is authorized by its Articles of
Incorporation to issue up to 75,000,000 shares of capital stock,
74,000,000 of which are designated common stock, par value
$0.01 per share, and 1,000,000 of which are designated
preferred stock, par value $0.01 per share.

Common Stock

Effective April 10, 2001, the Companys
common stock was removed from the listing of the New York
Stock Exchange (NYSE) as it fell below the minimum
standards of market capitalization for continued listing by the
NYSE. The common stock currently trades on the OTC Bulletin
Board with the ticker symbol

6



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CRWS. The following table presents
quarterly information on the price range of the Companys
common stock for the fiscal years ended March 28, 2004 and
March 30, 2003. This information indicates the high and low
sale prices as reported on the OTC Bulletin Board.


|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|Quarter        |  | High |      | Low
|               |  |      |      |    
|Fiscal 2004    |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 0.90 |     |  | $ | 0.46 | 
|Second Quarter |  |      | 0.95 |     |  |   | 0.62 | 
|Third Quarter  |  |      | 0.80 |     |  |   | 0.47 | 
|Fourth Quarter |  |      | 0.80 |     |  |   | 0.50 | 
|Fiscal 2003    |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 0.80 |     |  | $ | 0.43 | 
|Second Quarter |  |      | 1.05 |     |  |   | 0.55 | 
|Third Quarter  |  |      | 0.60 |     |  |   | 0.41 | 
|Fourth Quarter |  |      | 0.55 |     |  |   | 0.45 | 

As of June 1, 2004 there were 9,504,937
shares of the companys common Stock issued and outstanding
held by approximately 726 registered holders and the closing
stock price was $0.52. The Company has not paid a dividend since
December 26, 1999 and has no plans to resume payment of
dividends.

Equity
Compensation Plans

The following table sets forth information
regarding shares of the Companys common stock that may be
issued upon the exercise of options, warrants and other rights
granted to employees, consultants or directors under all of the
Companys existing equity compensation plans, as of
March 28, 2004.

|                                                            |                   |                   |  |                   |  |                     |   |      |  |  |  |         | 
|----------------------------------------------------------- | ----------------- | ----------------- |  | ----------------- |  | ------------------- | - | ---- |  |  |  | ------- | 
|                                                            |                   |                   |  |                   |  | Number of          
|                                                            |                   | Number of         |  | Weighted-         |  | securities         
|                                                            |                   | securities to be  |  | average           |  | remaining          
|                                                            |                   | issued upon       |  | exercise price of |  | available          
|                                                            |                   | exercise of       |  | outstanding       |  | for future issuance
|                                                            |                   | outstanding       |  | options,          |  | under equity       
|                                                            |                   | options, warrants |  | warrants          |  | compensation       
|Plan Category                                               |                   | and rights        |  | and rights        |  | plans              
|                                                            |                   |                   |  |                   |  |                    
|Equity compensation plans approved by security
    holders: |                   |                   |  |                   |  |                     |   |      |  |  |  |        
|                                                            | Amended 1995      |                   |  |                   |  |                     |   |      |  |  |  |         | 
|                                                            | Stock Option Plan |                   |  | 577,900           |  |                     | $ | 0.95 |  |  |  | 419,600 | 




Item
6.     Selected Financial
Data

The selected financial data presented below for
the five years ended March 28, 2004 is from the
Companys financial statements. The data should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the
financial statements and related notes included elsewhere in
this Annual Report.

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|                                    |  |                                     |        |      |  |      |        |      |  |      |         |  |  |   |         |   |  |   |         |  
|----------------------------------- |  | ----------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- |  |  | - | ------- | - |  | - | ------- | -
|                                    |  |                                    
|                                    |  | Fiscal Year                        
|                                    |  |                                    
|                                    |  | 2004                                |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                                    |  |                                     |        |      |  |      |        |      |  |     
|                                    |  |                                    
|                                    |  | In thousands, except per share data
|For the year                        |  |                                     |        |      |  |      |        |      |  |      |         |  |  |   |         |   |  |   |         |  
|Net sales                           |  | $                                   | 86,227 |      |  | $    | 94,735 |      |  | $    | 117,591 |  |  | $ | 247,515 |   |  | $ | 319,893 |  
|Gross profit                        |  |                                     | 19,594 |      |  |      | 21,420 |      |  |      | 25,928  |  |  |   | 18,542  |   |  |   | 35,156  |  
|Income (loss) from operations       |  |                                     | 7,436  |      |  |      | 6,948  |      |  |      | 5,022   |  |  |   | (59,555 | ) |  |   | (19,558 | )
|Net income (loss)                   |  |                                     | 3,103  |      |  |      | 2,487  |      |  |      | 27,002  |  |  |   | (73,587 | ) |  |   | (29,148 | )
|Basic net income (loss) per share   |  |                                     | 0.33   |      |  |      | 0.26   |      |  |      | 2.95    |  |  |   | (8.55   | ) |  |   | (3.39   | )
|Diluted net income (loss) per share |  |                                     | 0.14   |      |  |      | 0.12   |      |  |      | 1.37    |  |  |   | (8.55   | ) |  |   | (3.39   | )
|Cash dividends per share            |  |                                     |       |      |  |      |       |      |  |      |        |  |  |   |        |   |  |   | 0.09    |  
|At year end                         |  |                                     |        |      |  |      |        |      |  |      |         |  |  |   |         |   |  |   |         |  
|Total assets                        |  | $                                   | 58,387 |      |  | $    | 57,926 |      |  | $    | 60,200  |  |  | $ | 90,678  |   |  | $ | 215,004 |  
|Long-term debt                      |  |                                     | 28,447 |      |  |      | 30,895 |      |  |      | 36,773  |  |  |   | 47,650  |   |  |   | 106,593 |  
|Shareholders equity (deficit)      |  |                                     | 18,437 |      |  |      | 15,265 |      |  |      | 12,813  |  |  |   | (16,773 | ) |  |   | 56,815  |  




Item
7.     Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The Company operates indirectly through its
subsidiaries, Crown Crafts Infant Products, Inc., Hamco, Inc.
and Churchill Weavers, Inc., primarily in the Infant Products
segment within the Consumer Products industry. The
Companys offices are located in Huntington Beach and
Compton, California; Gonzales, Louisiana; Berea, Kentucky and
Rogers, Arkansas.

The Infant Products segment consists of infant
bedding, bibs, soft goods and accessories. The infant products
are marketed under a variety of Company-owned trademarks, under
trademarks licensed from others, without trademarks as unbranded
merchandise and with customers private labels. The
products are produced primarily by foreign contract
manufacturers, then warehoused and shipped from facilities in
Compton, California and Gonzales, Louisiana. Sales are generally
made directly to retailers, primarily mass merchants, large
chain stores and gift stores.

The Company also produces hand-woven adult
throws, adult scarves and infant blankets. Sales are generally
made to major department stores, specialty shops and designer
showrooms.

The infant consumer products industry is highly
competitive. The Company competes with a variety of distributors
and manufacturers and believes that it is the largest producer
of infant bed coverings and bibs, enjoying approximately
one-third of the infant bedding market share and one-half of the
infant bib market share within these segments. The Company
competes on the basis of quality, design, price, service and
packaging.

Acquisitions and Dispositions

In response to changing business conditions in
the consumer products industry, the Company made significant
changes in its business operations over the last three years. In
addition to a program of cost reductions and rationalization,
the Company outsourced virtually all of its manufacturing to
domestic and foreign contract manufacturers with the exception
of the specialty hand wovens produced by Churchill Weavers and,
until recently, screen-printed infant bibs produced by Burgundy
in Mexico. The Woven Products division, with manufacturing
primarily in north Georgia, was sold on November 14, 2000
and net proceeds of $32.3 million were used to reduce debt.
Following the outsourcing of the Companys adult bedding
and bath products, the Companys Roxboro, North Carolina
plant was sold on June 14, 2001 and the proceeds of
$8.0 million were used to reduce debt. Also, the Company
made a decision to exit the adult bedding and bath business, and
its net assets related to that business of $12.4 million were
sold effective July 23, 2001. Proceeds of the sale were
$8.5 million cash plus the assumption of liabilities of
$3.4 million as well as the assumption of certain
contingent liabilities. Cash from the sale was used to reduce
debt. Following the sale of the adult bedding and bath business,
the Company is now primarily in the infant and juvenile products
business, but in describing the results of operations for fiscal
2002, reference is made to all of the product

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groups. Because of the sale of assets and the
refinancing that occurred July 23, 2001, the historical
results for 2002 and prior are not indicative of the
Companys future operations.


Restructuring Charge

In December 2002, the Company adopted a formal
plan to change its sourcing strategy for certain products and
close the Mexican manufacturing facility operated by its
majority-owned subsidiary, Burgundy. This decision was based on
extensive research by management which indicated that, due to
lower wages and the elimination of certain governmental quotas
on the importation of bibs, outsourcing the supply of products
then being manufactured by Burgundy to Asian manufacturers was
more cost-effective and competitive than maintaining operations
in Mexico. Under the plan, Burgundy continued to operate through
the first quarter of fiscal 2004, at which time the Company
began to liquidate Burgundys assets. As a result of the
decision of the Company to discontinue its Mexican operations,
the Company recorded a $1.8 million restructuring charge to
operations in the quarter ended December 29, 2002, which
consisted primarily of a write-down of the property and
equipment at the Mexican facility of approximately $800,000,
inventory items deemed to be in excess of production
requirements of approximately $600,000, an accrual for
contractual termination benefits of approximately $300,000 due
Burgundys entire workforce (approximately 130 employees)
under the provisions of Mexicos labor regulations and the
write-off of goodwill of approximately $60,000. The Company paid
approximately $189,000 of the severance benefits in the first
quarter of fiscal 2004 and paid the remainder through October
2003. The Company continued to charge the ongoing operating
costs associated with Burgundys production in the period
in which the costs were incurred. The Company incurred a loss of
approximately $85,000 related to the operation and closure of
this facility for the three-month period ended June 29,
2003, at which time the closure was complete.

Results of Operations: Fiscal 2004 Compared to
Fiscal 2003

Net sales for fiscal 2004 decreased
$8.5 million, or 9.0%, to $86.2 million from
$94.7 million for fiscal 2003. Net sales of throws
decreased $180,000, or 7.0%, to $2.4 million, as sales volumes
of high-end luxury throws were negatively impacted for the first
six months of the current year by the recent downturn in
the economy. Net sales of infant and juvenile products decreased
$8.3 million, or 9.0%, to $83.8 million. This decline
in sales, which occurred primarily in the second quarter of
fiscal year 2004, is attributable to changes in buying patterns
by several customers, some of whom lowered on-hand inventory
levels in response to the sluggish economy, and changes in
internal business strategies. Also, during fiscal year 2003, the
Company shipped several new product placements to key customers,
which were not repeated at the same levels in the current year.
The Companys Pillow Buddies® business has been
comparatively weaker in the current year because retail dollars
have not been allocated to the product and increased competition
for character licenses has driven royalty commitments higher
than management is comfortable guaranteeing.

Cost of sales as a percentage of net sales
remained level at 77.3% for fiscal 2004 compared to 77.4% for
fiscal 2003. Although the Companys gross margin benefited
in the current fiscal year from improvements attributable to its
sourcing efforts, most of the savings was passed on to customers
as a result of pricing pressure.

Marketing and administrative expenses decreased
by $0.5 million, or 4.1%, in the current fiscal year
compared to the prior fiscal year and were 14.1% of net sales
for the current fiscal year compared to 13.4% in the prior
fiscal year. The Company achieved reductions in labor and
commissions expenses in fiscal year 2004; however, these
reductions were partially offset by costs related to the
Companys Delaware reincorporation of approximately
$396,000.

As discussed in Note 4 to the Companys
Consolidated Financial Statements, the Company recorded a
$1.8 million restructuring charge in the quarter ended
December 29, 2002 related to the closure of the
Companys Mexican manufacturing facility.

Interest expense for fiscal 2004 decreased by
$0.5 million because of a lower average debt balance and
reduced interest rates. As discussed in Financial
Position, Liquidity and Capital Resources below, the
Company had $28.4 million in long-term debt at
March 28, 2004 compared to $30.9 million at
March 30,

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2003. This $2.5 million decrease in debt
includes payments totaling $3 million on senior notes and a
decrease in the Companys revolving credit facility of
$0.3 million offset by a $0.6 million increase in debt
related to the amortization of the discount discussed in
Financial Position, Liquidity and Capital Resources
and the issuance of a promissory note in the amount of $268,000
related to the payment of interest on the Companys senior
subordinated notes.


Income tax expense for fiscal 2004 includes a
benefit for a revision of federal alternative minimum taxes of
$99,000 and an expense for state and local income taxes of
$321,000. For fiscal 2003, the Company recorded income tax
expense of $103,000 related to federal taxes, including
alternative minimum taxes, and $161,000 related to estimated
state and local taxes. Income tax expense for both periods was
reduced by the utilization of a portion of the Companys
net operating loss carryforwards.

Results of Operations: Fiscal 2003 Compared to
Fiscal 2002

Total net sales for fiscal 2003 decreased
$22.9 million, or 19.4%, to $94.7 million from
$117.6 million for fiscal 2002. Net sales of bedroom and
bath products decreased $19.9 million, or 100%, net sales
of throws decreased $635,000, or 19.9%, to $2.6 million,
and net sales of infant and juvenile products decreased
$2.2 million, or 2.3%, to $92.2 million.

The decrease in sales of bedroom and bath
products was the result of the sale of the adult bedding and
bath division on July 23, 2001. The decrease in sales of
infant and juvenile products is primarily due to lost sales
resulting from the West Coast port slowdown in September 2002
and the subsequent closure in October 2002 and lower reorders in
ongoing business due to SKU reduction by certain major customers.

In fiscal 2003, cost of sales decreased to 77.4%
of net sales from 78.0% for fiscal 2002. The decrease relates
primarily to changes in product mix as a result of the
divestment referenced above.

Marketing and administrative expenses decreased
by $8.2 million, or 39.3%, in the current fiscal year
compared to the prior fiscal year and were 13.4% of net sales
for the current fiscal year compared to 17.7% in the prior
fiscal year. The decrease is a result of the divestment
referenced above as well as the elimination of duplicate
positions and locations.

As discussed in Note 4 to the Companys
Consolidated Financial Statements, the Company recorded a
$1.8 million restructuring charge in the quarter ended
December 29, 2002 related to the closure of the
Companys Mexican manufacturing facility.

Interest expense for fiscal 2003 decreased by
$2.4 million because of a lower average debt balance and
reduced interest rates. As discussed in Financial
Position, Liquidity and Capital Resources below, the
Company had $30.9 million in long-term debt at
March 30, 2003 compared to $36.8 million at
March 31, 2002. This $5.9 million decrease in debt
includes payments totaling $3 million on senior notes and a
decrease in the Companys revolving credit facility of
$3.7 million offset by an increase in debt related to the
amortization of the discount discussed below and the issuance of
a promissory note in the amount of $274,000 related to the
payment of interest on the Companys senior subordinated
notes.

Due to accumulated losses, the income tax
provision for fiscal 2003 includes a provision for federal
alternative minimum tax of $103,000, along with a provision for
state income taxes of $161,000, for a total tax provision of
$264,000. For fiscal 2002, the Company recorded an income tax
benefit of $1.9 million.

Financial Position, Liquidity and Capital
Resources

Net cash provided by operating activities was
$3.2 million for the year ended March 28, 2004
compared to net cash provided by operating activities of
$6.8 million for the year ended March 30, 2003. The
decrease in cash provided by operating activities was primarily
due to the receipt of a one-time income tax refund of
$1.8 million in the prior year and a $1.3 million
decrease in prepaid expenses and other current assets in the
prior year. Net cash used by investing activities was
$0.1 million in 2004 compared to net cash used by investing
activities of $0.4 million in the prior year period. The
decrease in cash used by investing activities was due in large
part to net proceeds from the sale of assets disposed of in
connection with the closure of

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Burgundy in the current fiscal year of $244,000.
Net cash used for financing activities was $3.3 million
compared to net cash used for financing activities of
$6.7 million in the prior year period. The decrease in cash
used in financing activities was due to a lower net payment
of long-term debt in the current fiscal year as compared to the
prior fiscal year. A portion of the long-term debt
reduction in the prior fiscal year resulted from the use of the
tax refund discussed above to reduce the Companys
revolver. Total debt outstanding decreased to $31.5 million
at March 28, 2004 from $33.9 million at March 30,
2003. As of March 28, 2004, letters of credit of
$1.325 million were outstanding against the $3 million
sub-limit for letters of credit associated with the
Companys $19 million revolving credit facility. As of
March 28, 2004, the Company had revolving credit
availability of $15.5 million.


The Companys ability to make scheduled
payments of principal, to pay the interest on or to refinance
its maturing indebtedness, to fund capital expenditures or to
comply with its debt covenants will depend upon future
performance. The Companys future performance is, to a
certain extent, subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond
its control. Based upon the current level of operations, the
Company believes that cash flow from operations together with
revolving credit availability will be adequate to meet liquidity
needs.

At March 28, 2004 and March 30, 2003,
long-term debt consisted of (in thousands):

|                                          |  |           |        |           |  |   |        |  
|----------------------------------------- |  | --------- | ------ | --------- |  | - | ------ | -
|                                          |  | March 28, |        | March 30,
|                                          |  | 2004      |        | 2003     
|                                          |  |           |        |          
|Promissory notes                          |  | $         | 24,054 |           |  | $ | 27,068 |  
|Floating rate revolving credit facilities |  |           | 1,495  |           |  |   | 1,799  |  
|Non-interest bearing notes                |  |           | 8,541  |           |  |   | 8,274  |  
|Original issue discount                   |  |           | (2,627 | )         |  |   | (3,232 | )
|                                          |  |           |        |           |  |   |        |  
|                                          |  |           | 31,463 |           |  |   | 33,909 |  
|Less current maturities                   |  |           | 3,016  |           |  |   | 3,014  |  
|                                          |  |           |        |           |  |   |        |  
|                                          |  | $         | 28,447 |           |  | $ | 30,895 |  
|                                          |  |           |        |           |  |   |        |  

The Companys existing credit facilities
include the following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revolving Creditof up to
    $19 million including a $3 million sub-limit for
    letters of credit. The interest rate is prime plus 1.00% (5.00%
    at March 28, 2004) for base rate borrowings and LIBOR plus
    2.75% (3.84% at March 28, 2004) for Euro-dollar borrowings.
    The maturity date is June 30, 2005. The facility is secured
    by a first lien on all assets. The balance at March 28,
    2004 was $1.5 million. The Company had $15.5 million
    available at March 28, 2004. As of March 28, 2004,
    letters of credit of $1.325 million were outstanding
    against the $3 million sub-limit for letters of credit
    associated with the $19 million revolving credit facility.                                                                                                                                                                                                                                                                                                                                                                     
|
| | Senior Notesof $8 million with a
    fixed interest rate of 10% plus additional interest contingent
    upon cash flow availability of 3%. The maturity date is
    June 30, 2006 and the notes are secured by a first lien on
    all assets. Minimum principal payments of $500,000 are due at
    the end of each calendar quarter. In the event that required
    debt service exceeds 85% of free cash flow (EBITDA
    (as hereinafter defined) less capital expenditures and cash
    taxes paid), the excess of contingent interest and principal
    amortization over 85% will be deferred until maturity of the
    Senior Notes in June 2006. Contingent interest plus
    additional principal payments will be due annually up to 85% of
    free cash flow. On September 30, 2002 and
    September 30, 2003, the Company made payments to the
    lenders of $1.6 million and $1.3 million,
    respectively, related to excess cash flow. The Company
    anticipates that it will make another excess cash flow payment
    of $1.3 million on September 30, 2004.
|
| | Senior Subordinated Notesof
    $16 million with a fixed interest rate of 10% plus an
    additional 1.65% payable by delivery of a promissory note due
    July 23, 2007. The maturity date is July 23, 2007 and
    the notes are secured by a second lien on all assets. In
    addition to principal and interest, a payment of
    $8 million is due on the earliest of (i) maturity of
    the notes, (ii) prepayment of the notes, or (iii) sale
    of the Company. The original issue discount of $4.1 million
    on this non-interest bearing note at a market                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | interest rate of 12% is being amortized over the
    life of the notes. The remaining balance of $2.6 million is
    included in the Consolidated Balance Sheet as of
    March 28, 2004.

These credit facilities contain covenants
regarding minimum levels of Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA), maximum
total debt to EBITDA, maximum senior debt to EBITDA, minimum
EBITDA to cash interest and minimum shareholders equity.
The bank facilities also place restrictions on the amounts the
Company may expend on acquisitions and purchases of treasury
stock and currently prohibit the payment of dividends.

Minimum annual maturities are as follows (in
thousands):

|       |  |          |       |              |  |           |       |           |  |       |        |   |  |   |     |  |  |   |        | 
|------ |  | -------- | ----- | ------------ |  | --------- | ----- | --------- |  | ----- | ------ | - |  | - | --- |  |  | - | ------ | 
|Fiscal |  | Revolver |       | Senior Notes |  | Sub Notes |       | PIK Notes |  | Total
|       |  |          |       |              |  |           |       |           |  |      
|2005   |  | $        |      |              |  | $         | 2,000 |           |  | $     |       |   |  | $ |    |  |  | $ | 2,000  | 
|2006   |  |          |      |              |  |           | 2,500 |           |  |       |       |   |  |   |    |  |  |   | 2,500  | 
|2007   |  |          | 1,495 |              |  |           | 3,500 |           |  |       |       |   |  |   |    |  |  |   | 4,995  | 
|2008   |  |          |      |              |  |           |      |           |  |       | 24,000 | * |  |   | 541 |  |  |   | 24,541 | 
|       |  |          |       |              |  |           |       |           |  |       |        |   |  |   |     |  |  |   |        | 
|Total  |  | $        | 1,495 |              |  | $         | 8,000 |           |  | $     | 24,000 |   |  | $ | 541 |  |  | $ | 34,036 | 
|       |  |          |       |              |  |           |       |           |  |       |        |   |  |   |     |  |  |   |        | 






|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|* | Includes $8 million non-interest bearing
    note issued at an original issue discount of $4.1 million.

As part of the Companys refinancing of its
credit facilities in July 2001, the Company issued to the
lenders warrants for non-voting common stock that are
convertible into common stock equivalent to 65% of the shares of
the Company on a fully diluted basis at a price of
11.3 cents per share. The warrants are non-callable and
expire in six years from their date of issuance. The value of
the warrants of $2.4 million using the Black-Scholes option
pricing model was credited to additional paid-in capital in the
second quarter of fiscal 2002. The dilutive effect of these
warrants on earnings per share for the fiscal periods ended
March 28, 2004 and March 30, 2003 was $0.18 per
share and $0.15 per share, respectively. Also, in the second
quarter of fiscal 2002, the Company recognized a gain of
$25.0 million representing forgiveness of indebtedness
income (net of $2.9 million of expenses incurred) in
connection with the refinancing.

To reduce its exposure to credit losses and to
enhance its cash flow, the Company assigns the majority of its
trade accounts receivable to a commercial factor. The
Companys factor establishes customer credit lines and
accounts for and collects receivable balances. Under the terms
of the factoring agreement, which expires in July, 2005, the
factor remits payments to the Company on the average due date of
each group of invoices assigned. If a customer fails to pay the
factor on the due date, the Company is charged interest at the
greater of 6% or prime, which was 4.00% at March 28, 2004,
until payment is received. The factor bears credit losses with
respect to assigned accounts receivable that are within approved
credit limits. The Company bears losses resulting from returns,
allowances, claims and discounts. The Companys factor at
any time may terminate or limit its approval of shipments to a
particular customer. If such a termination occurs, the Company
may either assume the credit risks for shipments after the date
of such termination or cease shipments to such customer.

The following table summarizes the maturity or
expiration dates of mandatory financial obligations and
commitments for the following periods.

|                              |  |                        |        |        |  |       |       |       |  |         |       |  |  |   |        |  |  |   |   | 
|----------------------------- |  | ---------------------- | ------ | ------ |  | ----- | ----- | ----- |  | ------- | ----- |  |  | - | ------ |  |  | - | - | 
|                              |  |                       
|                              |  | Payments Due by Period
|                              |  |                       
|                              |  |                        |        | Less   |  |       |       | More 
|                              |  |                        |        | Than   |  | 1 - 3 |       | 3 - 5 |  | Than   
|                              |  | Total                  |        | 1 Year |  | Years |       | Years |  | 5 Years
|                              |  |                        |        |        |  |       |       |       |  |        
|                              |  |                       
|                              |  | (in thousands)        
|Contractual Obligations       |  |                        |        |        |  |       |       |       |  |         |       |  |  |   |        |  |  |   |   | 
|Long-Term Debt Obligations    |  | $                      | 34,036 |        |  | $     | 2,000 |       |  | $       | 7,495 |  |  | $ | 24,541 |  |  | $ |  | 
|Capital Lease Obligations     |  |                        | 54     |        |  |       | 14    |       |  |         | 36    |  |  |   | 4      |  |  |   |  | 
|Operating Lease Obligations   |  |                        | 3,080  |        |  |       | 1,373 |       |  |         | 1,637 |  |  |   | 70     |  |  |   |  | 
|Purchase Obligations          |  |                        | 755    |        |  |       | 732   |       |  |         | 23    |  |  |   | 1      |  |  |   |  | 
|Minimum Royalty Obligations   |  |                        | 3,513  |        |  |       | 3,277 |       |  |         | 236   |  |  |   |       |  |  |   |  | 
|                              |  |                        |        |        |  |       |       |       |  |         |       |  |  |   |        |  |  |   |   | 
|Total Contractual Obligations |  | $                      | 41,438 |        |  | $     | 7,396 |       |  | $       | 9,427 |  |  | $ | 24,616 |  |  | $ |  | 
|                              |  |                        |        |        |  |       |       |       |  |         |       |  |  |   |        |  |  |   |   | 

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Management does not believe that inflation has
had a material effect on the Companys operations. If
inflation increases, the Company will attempt to increase its
prices to offset its increased expenses. No assurance can be
given, however, that the Company will be able to adequately
increase its prices in response to inflation.

During fiscal 2002, the Company incurred
approximately $1.5 million in non-recurring charges related
to the sale of the adult bedding and bath division in July,
2001, the sale of the woven products division in November, 2000,
and the relocation of the Companys corporate headquarters.
These costs included $850,000 in wages and benefits (including
severance) paid to temporary and terminated employees, $795,000
in operating expenses and $206,000 in data collection and
transfer costs offset by $356,000 in vendor discounts and
allowances.

Critical Accounting Policies

While the listing below is not inclusive of all
of the Companys accounting policies, the Companys
management believes that the following policies are those which
are most critical and embody the most significant management
judgments due to the uncertainties affecting their application
and the likelihood that materially different amounts would be
reported under different conditions or using different
assumptions. These critical policies are:

Revenue Recognition:Sales are recorded when goods are
shipped to customers, and are reported net of returns and
allowances in the consolidated statements of operations and
comprehensive income.

Sales Returns and Other Allowances and
Allowance for Doubtful Accounts:The
preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of
assets and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Specifically,
management must make estimates of potential future product
returns related to current period product revenues. The
Companys sales arrangements do not generally include
acceptance provisions or clauses. Additionally, the Company does
not typically grant its distributors or other customers price
protection rights or rights to return products bought, other
than normal and customary rights of return for defects in
materials or workmanship, and is not obligated to accept product
returns for any other reason. Actual returns have not
historically been significant. Management analyzes historical
returns, current economic trends and changes in customer demand
when evaluating the adequacy of its sales returns and other
allowances.

The Company factors the majority of its
receivables. In the event a factored receivable becomes
uncollectible due to credit worthiness, the factor bears the
risk of loss. The Companys management must make estimates
of the uncollectibility of its non-factored accounts receivable.
Management specifically analyzes accounts receivable, historical
bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in its customers
payment terms when evaluating the adequacy of its allowance for
doubtful accounts. The Companys accounts receivable at
March 28, 2004 totaled $17.2 million, net of
allowances of $2.1 million.

Inventory Valuation:The preparation of the Companys
financial statements requires careful determination of the
appropriate dollar amount of the Companys inventory
balances. Such amount is presented as a current asset in the
Companys balance sheet and is a direct determinant of cost
of goods sold in the statement of operations and, therefore, has
a significant impact on the amount of net income reported in an
accounting period. The basis of accounting for inventories is
cost, which is the sum of expenditures and charges, both direct
and indirect, incurred to bring the inventory quantities to
their existing condition and location. The Companys
inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out (FIFO)
method, which assumes that inventory quantities are sold in the
order in which they are manufactured or purchased. The Company
utilizes standard costs as a management tool. The Companys
standard cost valuation of its inventories is adjusted at
regular intervals to reflect the approximate cost of the
inventory under FIFO. The determination of the indirect charges
and their allocation to the Companys work-in-process and
finished goods inventories is complex and requires significant
management judgment and estimates. Material differences may
result in the valuation of the Companys inventories and in
the amount

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and timing of the Companys cost of goods
sold and resulting net income for any period if management made
different judgments or utilized different estimates.


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 may not reasonably be expected to be
used or sold within the normal operating cycles of the
Companys operations. To the extent that any of these
conditions are believed to exist or the utility of the inventory
quantities in the ordinary course of business is no longer as
great as their carrying value, an allowance against the
inventory valuation is established. To the extent that this
allowance is established or increased during an accounting
period, an expense is recorded in the Companys statement
of operations in cost of goods sold. 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 may need to establish
additional allowances which could materially impact the
Companys financial position and results of operation.

As of March 28, 2004, the Companys
inventories totaled $14.4 million, net of allowances for
discontinued, irregular, slow moving and obsolete inventories of
$1.0 million. Management believes that the Companys
inventory valuation results in carrying the inventory at lower
of cost or market.

Derivative Instruments and Hedging Activities:The Company accounts for derivative
instruments and hedging activities in accordance with Statement
of Financial Accounting Standards (SFAS) 133,
Accounting for Derivative Instruments and Hedging
Activities, which was adopted by the Company on
April 2, 2001. Under SFAS 133, derivative instruments
are recognized in the balance sheet at fair value and changes in
the fair value of such instruments are recognized currently in
earnings unless specific hedge accounting criteria are met. At
March 28, 2004 and March 30, 2003 the Company had no
derivative instruments.

Provisions for Income Taxes:The provisions for income taxes
include all currently payable federal, state and local taxes
that are based upon the Companys taxable income and the
change during the fiscal year in net deferred income tax assets
and liabilities. 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.
Deferred tax assets have been reduced by a valuation allowance,
if necessary, in the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

Valuation of Long-Lived Assets, Identifiable
Intangibles and Goodwill:The Company
reviews for impairment long-lived assets and certain
identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of any asset may
not be recoverable. In the event of impairment, the asset is
written down to its fair market value. Assets to be disposed of
are recorded at the lower of net book value or fair market value
less cost to sell at the date management commits to a plan of
disposal and are classified as assets held for sale on the
consolidated balance sheet.

Goodwill, which represents the unamortized excess
of purchase price over fair value of net identifiable assets
acquired in business combinations, was amortized through
March 31, 2002 using the straight-line method over periods
of up to 30 years. As discussed below, the Company
discontinued amortization of goodwill effective April 1,
2002. The Company reviews the carrying value of goodwill
annually and if facts and circumstances suggest that the asset
may be impaired. Impairment of goodwill and write-downs, if any,
are measured based on estimates of future cash flows. Goodwill
is stated net of accumulated amortization of $6.3 million
at March 28, 2004, March 30, 2003 and March 31,
2002. Net intangible assets, long-lived assets and goodwill,
including property and equipment, amounted to $24.8 million
as of March 28, 2004.

As discussed below, on April 1, 2002, the
Company implemented SFAS 142, Goodwill and Other
Intangible Assets, and as a result, the Company discontinued
amortizing approximately $23.0 million of goodwill but
continued to amortize other long-lived intangible assets.
Goodwill amortization expense recorded during 2002 amounted to
approximately $1.1 million. In lieu of amortization, the
Company is required to perform an annual impairment review of
its goodwill. The Company has performed a transitional fair value

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based impairment test on its goodwill in
accordance with SFAS 142 and has determined that the fair
value exceeded the recorded value at April 1, 2002 and
March 31, 2003.


Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS 141, Business
Combinations, and SFAS 142, Goodwill and Other
Intangible Assets. SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting and eliminates the
use of the pooling-of-interests method. The application of
SFAS 141 did not affect any of the Companys
previously reported amounts included in goodwill or other
intangible assets. SFAS 142 requires that the amortization
of goodwill cease prospectively upon adoption and that instead
the carrying value of goodwill be evaluated using an impairment
approach. Identifiable intangible assets continue to be
amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS 142 was effective for fiscal years beginning
after December 15, 2001, and was implemented by the Company
on April 1, 2002. Beginning in fiscal 2003, the Company
discontinued amortizing goodwill but continues to amortize other
long-lived intangible assets. The Company performed fair value
based impairment tests on its goodwill in accordance with
SFAS 142 and determined that the fair value exceeded the
recorded value at April 1, 2002 and March 31, 2003.
Following is a reconciliation of previously reported net income
and basic and diluted net income per share to the amounts that
would have been reported if SFAS 142 had been effective as
of April 2, 2001 and the amortization of goodwill had been
discontinued as of that date.

|                          |  |      |       |      |  |      |       |  |  |   |        | 
|------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                          |  | 2004 |       | 2003 |  | 2002
|                          |  |      |       |      |  |     
|Reported net income       |  | $    | 3,103 |      |  | $    | 2,487 |  |  | $ | 27,002 | 
|Goodwill amortization     |  |      |      |      |  |      |      |  |  |   | 1,054  | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 
|Adjusted net income       |  | $    | 3,103 |      |  | $    | 2,487 |  |  | $ | 28,056 | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 
|Basic income per share:   |  |      |       |      |  |      |       |  |  |   |        | 
|Reported net income       |  | $    | 0.33  |      |  | $    | 0.26  |  |  | $ | 2.95   | 
|Goodwill amortization     |  |      |      |      |  |      |      |  |  |   | 0.11   | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 
|Adjusted net income       |  | $    | 0.33  |      |  | $    | 0.26  |  |  | $ | 3.06   | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 
|Diluted income per share: |  |      |       |      |  |      |       |  |  |   |        | 
|Reported net income       |  | $    | 0.14  |      |  | $    | 0.12  |  |  | $ | 1.37   | 
|Goodwill amortization     |  |      |      |      |  |      |      |  |  |   | 0.05   | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 
|Adjusted net income       |  | $    | 0.14  |      |  | $    | 0.12  |  |  | $ | 1.42   | 
|                          |  |      |       |      |  |      |       |  |  |   |        | 

In August 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Although SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, it retains most of the
concepts of that standard, except that it eliminates the
requirement that goodwill be allocated to long-lived assets for
impairment testing purposes and it requires that a long-lived
asset to be abandoned or exchanged for a similar asset be
considered held and used until it is disposed of (i.e., the
depreciable life should be revised until the asset is actually
abandoned or exchanged). Also, SFAS 144 includes the basic
provisions of Accounting Principles Board (APB)
Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for
presentation of discontinued operations in the income statement
but broadens that presentation to include a component of an
entity rather than a segment of a business, where that component
can be clearly distinguished from the rest of the entity.
SFAS 144 was effective for fiscal years beginning after
December 15, 2001 and was implemented by the Company on
April 1, 2002. The adoption of SFAS 144 did not have a
significant effect on the Companys financial statements on
the date of adoption.

In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 provides, among other things,
that gains on the extinguishments of debt will generally no
longer be classified as extraordinary items in the

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statements of operations. It also provides that
gains on extinguishments be reclassified in prior years
financial statements presented for comparative purposes.
SFAS 145 was effective for fiscal years beginning after
May 15, 2002 with earlier adoption encouraged. The Company
adopted SFAS 145 effective July 1, 2002. The adoption
of SFAS 145 required that a gain on debt refinancing of
$25 million realized in the second quarter of fiscal 2002
be reclassified into income before extraordinary items.


In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which was effective for transactions initiated
after December 31, 2002. SFAS 146 requires companies to
recognize costs associated with restructurings, discontinued
operations, plant closings, or other exit or disposal
activities, when incurred rather than at the date a plan is
committed to. The adoption of FAS 146 did not have a material
impact on the Companys consolidated financial statements
on the date of adoption.

In December 2002, the FASB issued SFAS 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends FASB 123 to provide alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, FASB 148 amends the disclosure requirements of FASB
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 was effective for the
Companys fiscal period ended March 30, 2003. The
Company adopted this standard on that date and determined that
it would continue to utilize the intrinsic method of accounting
and included the additional disclosures in the current period
financial statements.

Forward-Looking Information

This annual report contains forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based upon
managements current expectations, projections, estimates
and assumptions. Words such as expects,
believes, anticipates and variations of
such words and similar expressions identify such forward-looking
statements. Forward-looking statements involve known and unknown
risks and uncertainties that may cause future results to differ
materially from those suggested by the forward-looking
statements. These risks include, among others, general economic
conditions, changing competition, the level and pricing of
future orders from the Companys customers, the
Companys dependence upon third-party suppliers, including
some located in foreign countries with unstable political
situations, the Companys ability to successfully implement
new information technologies and the Companys dependence
upon licenses from third parties.




Item
7A.     Quantitative and Qualitative
Disclosures About Market Risk

The Company is exposed to market risk from
changes in interest rates on debt, changes in commodity prices,
the concentration of the Companys customers and the
Companys reliance upon licenses. The exposure to interest
rate risk relates to floating rate debt, $1.5 million of
which was outstanding at March 28, 2004 compared to
$1.8 million at March 30, 2003. Each
1.0 percentage point increase in interest rates would
impact pretax earnings by $15,000 at the debt level of
March 28, 2004 and $18,000 at the debt level of
March 30, 2003. The exposure to commodity price risk
primarily relates to changes in the price of cotton, which is a
principal raw material in a substantial number of the
Companys products. Additionally, the Companys top
three customers represent 75% of net sales, and 49% of the
Companys net sales is of licensed products. The Company
could be materially impacted by the loss of one or more of these
customers or licenses.




Item
8.     Financial Statements and
Supplementary Data

See pages 24 and F-1 through F-18 hereof.

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Item
9.     Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure

The Company has neither changed its independent
accountants nor had any disagreements on accounting or financial
disclosure with such accountants.




Item
9A.     Controls and
Procedures

The Companys Chief Executive Officer and
Chief Financial Officer have evaluated the effectiveness of the
Companys disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the period covered by this report,
as required by paragraph (b) of Rule 13a-15 or 15d-15
of the Exchange Act. Based on such evaluation, such officers
have concluded that, as of the end of the period covered by this
report, the Companys disclosure controls and procedures
are effective in alerting them on a timely basis to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys
periodic filings under the Exchange Act. Since such evaluation,
there have not been any significant changes in the
Companys internal controls or in other factors that could
significantly affect such controls.




PART III






Item
10.     Directors and Executive
Officers of the Registrant


The information with respect to the
Companys directors and executive officers is set forth in
the Companys Proxy Statement for the Annual Meeting of
Shareholders (the Proxy Statement) under the
captions Election of Directors and Executive
Officers and is incorporated herein by reference. The
information with respect to Item 405 of Regulation S-K
is set forth in the Proxy Statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance and is incorporated herein by reference. The
information with respect to Item 406 of Regulation S-K
is set forth in the Proxy Statement under the caption Code
of Ethics and is incorporated herein by reference.




Item
11.     Executive
Compensation

The information set forth under the caption
Executive Compensation in the Proxy Statement is
incorporated herein by reference.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information set forth under the caption
Security Ownership of Management and Certain Beneficial
Owners in the Proxy Statement is incorporated herein by
reference.




Item
13.     Certain Relationships and
Related Transactions

The information set forth under the caption
Compensation Committee Interlocks and Insider
Participation in the Proxy Statement is incorporated
herein by reference.




Item
14.     Principal Accountant Fees
and Services

The information set forth under the captions
Audit Fees, Audit-Related Fees,
Tax Fees, All Other Fees, and
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Auditors in
the Proxy Statement is incorporated herein by reference.

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PART IV






Item
15.     Exhibits, Financial
Statement Schedules, and Reports on Form 8-K


(a)1. Financial Statements

The following consolidated financial statements
of the Company are filed with this report and included in Part
II, Item 8:

|                                                                                                                                           |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                                           |  | Page
|                                                                                                                                           |  |     
|Report of Independent Registered Public
    Accounting Firm                                                                                |  |      | F-1 | 
|Consolidated Balance Sheets as of March 28,
    2004 and March 30, 2003                                                                    |  |      | F-2 | 
|Consolidated Statements of Income and
    Comprehensive Income for the Three Fiscal Years in the Period
    Ended March 28, 2004           |  |      | F-3 | 
|Consolidated Statements of Changes in
    Shareholders Equity (Deficit) for the Three Fiscal Years
    in the Period Ended March 28, 2004 |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the
    Three Fiscal Years in the Period Ended March 28, 2004                                    |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                                                 |  |      | F-6 | 

(a)2. Financial Statement
Schedule

The following financial statement schedule of the
Company is filed with this report:

|                                                    |  |  |          | 
|--------------------------------------------------- |  |  | -------- | 
|Schedule II  Valuation and
    Qualifying Accounts |  |  | Page  19 | 

All other schedules not listed above have been
omitted because they are not applicable or the required
information is included in the financial statements or notes
thereto.

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CROWN CRAFTS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

SCHEDULE II

|                                            |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|------------------------------------------- |  | --------------------------------- | ----- | ---------- |  | ------------- | ----- | ---------- |  |  | ----- |  |  |  | ----- | 
|                                            |  |                                  
|                                            |  | Valuation and Qualifying Accounts
|                                            |  |                                  
|Column A                                    |  | Column B                          |       | Column C   |  | Column D      |       | Column E  
|                                            |  |                                   |       |            |  |               |       |           
|                                            |  |                                   |       | Charged to |  |               |       |           
|                                            |  |                                   |       | Costs and  |  |               |       |           
|                                            |  | Balance at                        |       | (reversed  |  |               |       | Balance at
|                                            |  | Beginning                         |       | from)      |  |               |       | End of    
|                                            |  | of Period                         |       | Expenses   |  | Deductions(1) |       | Period    
|                                            |  |                                   |       |            |  |               |       |           
|                                            |  |                                  
|                                            |  | (in thousands)                   
|Accounts Receivable Valuation
    Accounts: |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Year Ended March 31, 2002                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for doubtful accounts             |  |                                   | 176   |            |  |               | 46    |            |  |  | 28    |  |  |  | 194   | 
|Allowance for customer deductions           |  |                                   | 1,761 |            |  |               | (114  | )          |  |  |      |  |  |  | 1,647 | 
|Year Ended March 30, 2003                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for doubtful accounts             |  |                                   | 194   |            |  |               | 172   |            |  |  | 183   |  |  |  | 183   | 
|Allowance for customer deductions           |  |                                   | 1,647 |            |  |               | 97    |            |  |  |      |  |  |  | 1,744 | 
|Year Ended March 28, 2004                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for doubtful accounts             |  |                                   | 183   |            |  |               | 66    |            |  |  | 217   |  |  |  | 32    | 
|Allowance for customer deductions           |  |                                   | 1,744 |            |  |               | 282   |            |  |  |      |  |  |  | 2,026 | 
|Inventory Valuation Accounts:               |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Year Ended March 31, 2002                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for discontinued and irregulars   |  |                                   | 2,150 |            |  |               | 19    |            |  |  |      |  |  |  | 2,169 | 
|Year Ended March 30, 2003                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for discontinued and irregulars   |  |                                   | 2,169 |            |  |               | (536  | )          |  |  |      |  |  |  | 1,633 | 
|Year Ended March 28, 2004                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for discontinued and irregulars   |  |                                   | 1,633 |            |  |               | (630  | )          |  |  |      |  |  |  | 1,003 | 
|Restructuring Reserve:                      |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Year ended March 31, 2002                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for restructuring costs           |  |                                   |      |            |  |               | 554   | (2)        |  |  |      |  |  |  | 554   | 
|Year ended March 30, 2003                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for restructuring costs           |  |                                   | 554   |            |  |               | 1,775 | (3)        |  |  | 608   |  |  |  | 1,721 | 
|Year ended March 28, 2004                   |  |                                   |       |            |  |               |       |            |  |  |       |  |  |  |       | 
|Allowance for restructuring costs           |  |                                   | 1,721 |            |  |               |      |            |  |  | 1,691 |  |  |  | 30    | 






|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions from the allowance for doubtful
    accounts represent the amount of accounts written off reduced by
    any subsequent recoveries.
|   
|(2) | Reserve relates to the closure of the adult
    bedding and bath division in July 2001.                                                       
|   
|(3) | Reserve relates to the decision to close the
    Companys Mexican manufacturing facility.                                                    

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(a)3. Exhibits

Exhibits required to be filed by Item 601 of
Regulation S-K are included as Exhibits to this report as
follows:

|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ----- |  |  | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 2.1   |  |  |                        |  | Merger Agreement dated as of July 23, 2001
    by and among the Company, Crown Crafts Designer, Inc., Design
    Works Holding Company and Design Works, Inc. (the Merger
    Agreement) (2)                                                                                                                                                                                                                                                      
|        | 3.1   |  |  |                        |  | Amended and Restated Certificate of Incorporation
    of the Company (7)                                                                                                                                                                                                                                                                                                                                                                            
|        | 3.2   |  |  |                        |  | Bylaws of the Company (7)                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1   |  |  |                        |  | Instruments defining the rights of security
    holders are contained in the Amended and Restated Certificate of
    Incorporation of the Company (7)                                                                                                                                                                                                                                                                                               
|        | 4.2   |  |  |                        |  | Instruments defining the rights of security
    holders are contained in the Bylaws of the Company (7)                                                                                                                                                                                                                                                                                                                                              
|        | 4.3   |  |  |                        |  | Form of Registration Rights Agreement entered
    into in connection with the Subordinated Note and Warrant
    Purchase Agreement dated as of July 23, 2001 by and among
    the Company, as Borrowers, Wachovia Bank, N.A., as Agent, and
    Wachovia Bank, N.A., Bank of America, N.A., and The Prudential
    Insurance Company of America, as Lenders, (the Sub Debt
    Agreement)(included as Exhibit C to the Sub Debt
    Agreement) (2)
|        | 10.1  |  |  |                        |  | Crown Crafts, Inc. Amended 1995 Stock Option
    Plan (1)                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.2  |  |  |                        |  | Form of Nonstatutory Stock Option Agreement
    (pursuant to 1995 Stock Option Plan) (1)                                                                                                                                                                                                                                                                                                                                                            
|        | 10.3  |  |  |                        |  | Form of Nonstatutory Stock Option Agreement for
    Nonemployee Directors (pursuant to 1995 Stock Option
    Plan) (1)                                                                                                                                                                                                                                                                                                                              
|        | 10.4  |  |  |                        |  | Form of Restricted Stock Agreement entered into
    in connection with the Merger Agreement (2)                                                                                                                                                                                                                                                                                                                                                     
|        | 10.5  |  |  |                        |  | Credit Agreement dated as of July 23, 2001
    by and among the Company, Churchill Weavers, Inc., Hamco, Inc.,
    Crown Crafts Infant Products, Inc. (collectively, the
    Borrowers), Wachovia Bank, N.A., as Agent, and
    Wachovia Bank, N.A., Bank of America, N.A., and The Prudential
    Insurance Company of America (collectively, the
    Lenders) (the Credit Agreement) (2)                                                    
|        | 10.6  |  |  |                        |  | Form of Revolving Note issued in connection with
    the Credit Agreement (included as Exhibit A-1 to the Credit
    Agreement) (2)                                                                                                                                                                                                                                                                                                                 
|        | 10.7  |  |  |                        |  | Form of Term Note issued in connection with the
    Credit Agreement (included as Exhibit A-2 to the Credit
    Agreement) (2)                                                                                                                                                                                                                                                                                                                      
|        | 10.8  |  |  |                        |  | Form of Domestic Stock Pledge Agreement entered
    into in connection with the Credit Agreement (included as
    Exhibit N to the Credit Agreement) (2)                                                                                                                                                                                                                                                                                            
|        | 10.9  |  |  |                        |  | Form of Foreign Stock Pledge Agreement entered
    into in connection with the Credit Agreement (included as
    Exhibit T to the Credit Agreement) (2)                                                                                                                                                                                                                                                                                             
|        | 10.10 |  |  |                        |  | Mortgage, Security Agreement and Fixture
    Financing Statement dated September 22, 1999 from Churchill
    Weavers, Inc. (Churchill) to Wachovia Bank, N.A., as
    Collateral Agent for the Lenders, as amended by that First
    Amendment to Mortgage, Security Agreement and Fixture Financing
    Statement dated July 23, 2001, entered into in connection
    with the Credit Agreement (2)                                              
|        | 10.11 |  |  |                        |  | Sub Debt Agreement (2)                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.12 |  |  |                        |  | Form of Note issued in connection with the Sub
    Debt Agreement (included as Exhibit A-1 to the Sub Debt
    Agreement) (2)                                                                                                                                                                                                                                                                                                                       
|        | 10.13 |  |  |                        |  | Form of Warrant issued in connection with the Sub
    Debt Agreement (included as Exhibit B to the Sub Debt
    Agreement) (2)                                                                                                                                                                                                                                                                                                                      
|        | 10.14 |  |  |                        |  | Form of Domestic Stock Pledge Agreement entered
    into in connection with the Sub Debt Agreement (included as
    Exhibit D to the Sub Debt Agreement) (2)                                                                                                                                                                                                                                                                                        
|        | 10.15 |  |  |                        |  | Form of Foreign Stock Pledge Agreement entered
    into in connection with the Sub Debt Agreement (included as
    Exhibit E to the Sub Debt Agreement) (2)                                                                                                                                                                                                                                                                                         

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|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ----- |  |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.16 |  |  |                        |  | Form of Security Agreement entered into in
    connection with the Sub Debt Agreement (included as
    Exhibit F to the Sub Debt Agreement) (2)                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.17 |  |  |                        |  | Mortgage, Security Agreement and Fixture
    Financing Statement dated July 23, 2001 from Churchill to
    Wachovia Bank, N.A., as Collateral Agent for the Lenders,
    entered into in connection with the Sub Debt Agreement (2)                                                                                                                                                                                                                                                                                                  
|        | 10.18 |  |  |                        |  | Amended and Restated Security Agreement dated as
    of July 23, 2001 by and among the Borrowers and Wachovia
    Bank, N.A, as Collateral Agent for the Lenders, entered into in
    connection with the Credit Agreement (2)                                                                                                                                                                                                                                                                                                       
|        | 10.19 |  |  |                        |  | Form of Non-Competition and Non-Disclosure
    Agreement entered into in connection with the Merger Agreement
    (included as Exhibit E to the Merger Agreement) (2)                                                                                                                                                                                                                                                                                                                                                                
|        | 10.20 |  |  |                        |  | Employment Agreement dated July 23, 2001 by
    and between the Company and E. Randall Chestnut (2)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.21 |  |  |                        |  | Second Amendment to Subordinated Note and Warrant
    Purchase Agreement dated as of February 10, 2003 by and
    among the Company, Banc of America Strategic Solutions, Inc.
    (assignee of Bank of America, N.A.), The Prudential Insurance
    Company of America and Wachovia Bank, National Association
    (successor by merger to Wachovia Bank, N.A.) (3)                                                                                                                                                                 
|        | 10.22 |  |  |                        |  | Third Amendment to Credit Agreement dated as of
    February 10, 2003 by and among the Company, Churchill
    Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc.,
    Wachovia Bank, National Association (successor by merger to
    Wachovia Bank, N.A.), as Agent, and Wachovia Bank, National
    Association (successor by merger to Wachovia Bank, N.A.), Banc
    of America Strategic Solutions, Inc. (assignee of Bank of
    America, N.A.) and The Prudential Insurance Company of America,
    as Lenders (3)
|        | 10.23 |  |  |                        |  | Global Amendment Agreement dated as of
    April 29, 2003 by and among the Company, Churchill Weavers,
    Inc., Hamco, Inc., Crown Crafts Infant Products, Inc., Wachovia
    Bank National Association, Banc of America Strategic Solutions,
    Inc., The Prudential Insurance Company of America and Bank of
    America, N.A. (4)                                                                                                                                                                                               
|        | 10.24 |  |  |                        |  | Amendment to the Companys Amended 1995
    Stock Option Plan Adopted by the Board of Directors on
    April 29, 2003 (5)                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.25 |  |  |                        |  | Fourth Amendment to Subordinated Note and Warrant
    Purchase Agreement dated as of August 1, 2003, by and among
    the Company, Banc of America Strategic Solutions, Inc. (assignee
    of Bank of America, N.A.), The Prudential Insurance Company of
    America and Wachovia Bank, National Association (successor by
    merger to Wachovia Bank, N.A.) (6)                                                                                                                                                                   
|        | 10.26 |  |  |                        |  | Fifth Amendment to Credit Agreement dated as of
    August 1, 2003 by and among the Company, Churchill Weavers,
    Inc., Hamco, Inc., Crown Crafts Infant Products, Inc., Wachovia
    Bank, National Association (successor by merger to Wachovia
    Bank, N.A.), as Agent, and Wachovia Bank, National Association
    (successor by merger to Wachovia Bank, N.A.), Banc of America
    Strategic Solutions, Inc. (assignee of Bank of America, N.A.)
    and The Prudential Insurance Company of America, as
    Lenders (6)   
|        | 10.27 |  |  |                        |  | Amended and Restated Support Agreement dated as
    of August 6, 2003 by and between the Company and Wynnefield
    Capital Management, LLC (6)                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.28 |  |  |                        |  | Sixth Amendment to Credit Agreement dated as of
    December 16, 2003 by and among the Company, Churchill
    Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc.,
    Wachovia Bank, National Association (successor by merger to
    Wachovia Bank, N.A.), as Agent, and Wachovia Bank, National
    Association (successor by merger to Wachovia Bank, N.A.), Banc
    of America Strategic Solutions, Inc. (assignee of Bank of
    America, N.A.) and The Prudential Insurance Company of America,
    as Lenders (7)
|        | 10.29 |  |  |                        |  | Amended and Restated Severance Protection
    Agreement dated April 20, 2004 by and between the Company
    and E. Randall Chestnut (8)                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.30 |  |  |                        |  | Amended and Restated Employment Agreement dated
    April 20, 2004 by and between the Company and Amy Vidrine
    Samson (8)                                                                                                                                                                                                                                                                                                                                                                                                         

21



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##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                        
|------- | ----- |  |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.31 |  |  |                        |  | Amended and Restated Employment Agreement dated
    April 20, 2004 by and between the Company and Nanci
    Freeman (8)
|        | 14.1  |  |  |                        |  | Code of Ethics (8)                                                                                                     
|        | 21    |  |  |                        |  | Subsidiaries of the Company (8)                                                                                        
|        | 23    |  |  |                        |  | Consent of Independent Registered Public
    Accounting Firm (8)                                                       
|        | 31.1  |  |  |                        |  | Rule 13a-14(a)/15d-14(a) Certification by
    the Companys Chief Executive Officer (8)                                
|        | 31.2  |  |  |                        |  | Rule 13a-14(a)/15d-14(a) Certification by
    the Companys Chief Financial Officer (8)                                
|        | 32.1  |  |  |                        |  | Section 1350 Certification by the
    Companys Chief Executive Officer (8)                                            
|        | 32.2  |  |  |                        |  | Section 1350 Certification by the
    Companys Chief Financial Officer (8)                                            






|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated herein by reference to
    Registrants Definitive Proxy Statement filed
    October 14, 1999.                    
|(2) | Incorporated herein by reference to
    Registrants Current Report on Form 8-K dated
    July 23, 2001.                       
|(3) | Incorporated herein by reference to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 29, 2002.
|(4) | Incorporated herein by reference to
    Registrants Current Report on Form 8-K dated
    May 9, 2003.                         
|(5) | Incorporated herein by reference to
    Registrants Annual Report on Form 10-K for the fiscal
    year ended March 30, 2003.  
|(6) | Incorporated herein by reference to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 29, 2003.    
|(7) | Incorporated herein by reference to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended December 28, 2003.
|(8) | Filed herewith.                                                                                                                

(b) Reports on Form 8-K

The Company filed the following Current Reports
on Form 8-K during the quarter ended March 28, 2004:



| |     |                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The Companys Current Report on
    Form 8-K filed with the SEC on February 11, 2004,
    setting forth under Item 12 of such report a press release
    discussing the Companys financial results for the third
    quarter of fiscal year 2004, which ended December 28, 2003.

22



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##### Table of Contents






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.



| |                   
| | ------------------
| | CROWN CRAFTS, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ E. RANDALL CHESTNUT

| |                        
| | -----------------------
| |                        
| | E. Randall Chestnut    
| | Chief Executive Officer

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:

|                                             |  |                                                      |  |             
|-------------------------------------------- |  | ---------------------------------------------------- |  | ------------
|Signatures                                   |  | Title                                                |  | Date        
|                                             |  |                                                      |  |             
|/s/ E. RANDALL CHESTNUTE. Randall Chestnut   |  | Chief Executive Officer,
    Director                |  | June 8, 2004
|                                            
|/s/ WILLIAM T. DEYO, JR.William T. Deyo, Jr. |  | Director                                             |  | June 8, 2004
|                                            
|/s/ STEVEN E. FOXSteven E. Fox               |  | Director                                             |  | June 8, 2004
|                                            
|/s/ SIDNEY KIRSCHNERSidney Kirschner         |  | Director                                             |  | June 8, 2004
|                                            
|/s/ ZENON S. NIEZenon S. Nie                 |  | Director                                             |  | June 8, 2004
|                                            
|/s/ WILLIAM P. PAYNEWilliam Porter Payne     |  | Director                                             |  | June 8, 2004
|                                            
|/s/ DONALD RATAJCZAKDonald Ratajczak         |  | Director                                             |  | June 8, 2004
|                                            
|/s/ JAMES A. VERBRUGGEJames A. Verbrugge     |  | Director                                             |  | June 8, 2004
|                                            
|/s/ AMY VIDRINE SAMSONAmy Vidrine Samson     |  | Chief Financial Officer
    Chief Accounting Officer |  | June 8, 2004

23



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##### Table of Contents



Item 8.     Financial
Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                    |                                                                                                                                                            |      |  |      | 
|----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                    |                                                                                                                                                            | Page
|                                    |                                                                                                                                                            |     
|Audited Financial Statements:       |                                                                                                                                                            |      |  |     
|                                    | Report of Independent Registered Public
    Accounting Firm                                                                                                |      |  | F-1  | 
|                                    | Consolidated Balance Sheets as of March 28,
    2004 and March 30, 2003                                                                                    |      |  | F-2  | 
|                                    | Consolidated Statements of Income and
    Comprehensive Income for the Fiscal Years
    Ended March 28, 2004, March 30, 2003, and
    March 31, 2002       |      |  | F-3  | 
|                                    | Consolidated Statements of Changes in
    Shareholders Equity (Deficit) for the Fiscal Years Ended
    March 28, 2004, March 30, 2003, and March 31, 2002 |      |  | F-4  | 
|                                    | Consolidated Statements of Cash Flows for the
    Fiscal Years Ended March 28, 2004,
    March 30, 2003, and March 31, 2002                                |      |  | F-5  | 
|                                    | Notes to Consolidated Financial Statements                                                                                                                 |      |  | F-6  | 
|Supplemental Financial Information: |                                                                                                                                                            |      |  |     
|                                    | Selected Quarterly Financial Information
    (unaudited)                                                                                                   |      |  | F-18 | 

24



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

Board of Directors and Shareholders

Crown Crafts, Inc.


We have audited the accompanying consolidated
balance sheets of Crown Crafts, Inc. and subsidiaries (the
Company) as of March 28, 2004 and
March 30, 2003, and the related consolidated statements of
income and comprehensive income, changes in shareholders
equity (deficit), and cash flows for each of the three years in
the period ended March 28, 2004. Our audit also included
the financial statement schedule listed at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as of March 28, 2004 and
March 30, 2003, and the results of its operations and its
cash flows for each of the three years in the period ended
March 28, 2004, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assetsin the year ended March 30, 2003.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

June 4, 2004


F-1



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 28, 2004 and March 30,
2003


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


|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                                                                                                                                                                |                                                | 2004                                |         | 2003  
|                                                                                                                                                                                                                                                |                                                |                                     |         |       
|ASSETS                                                                                                                                                                                                                                         
|Current assets:                                                                                                                                                                                                                                 |                                                |                                     |         |        |        |   |         |       
|Cash and cash equivalents                                                                                                                                                                                                                       |                                                | $                                   | 7       |        |        | $ | 194     |       
|Accounts receivable (net of allowances of $2,058
    in 2004 and $1,927 in 2003)                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                | Due from factor                                |                                     |         | 16,259 |        |   |         | 14,472 |       
|                                                                                                                                                                                                                                                | Other                                          |                                     |         | 962    |        |   |         | 1,304  |       
|Inventories, net                                                                                                                                                                                                                                |                                                |                                     | 14,394  |        |        |   | 15,548  |       
|Prepaid Expenses                                                                                                                                                                                                                                |                                                |                                     | 1,622   |        |        |   | 1,026   |       
|Other current assets                                                                                                                                                                                                                            |                                                |                                     | 94      |        |        |   | 88      |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Total current assets                |         |        | 33,338 |   |         |        | 32,632 | 
|Property, plant and equipment  at
    cost:                                                                                                                                                                                                    |                                                |                                     |         |        |        |   |         |       
|Land, buildings and improvements                                                                                                                                                                                                                |                                                |                                     | 1,803   |        |        |   | 1,920   |       
|Machinery and equipment                                                                                                                                                                                                                         |                                                |                                     | 2,802   |        |        |   | 3,285   |       
|Furniture and fixtures                                                                                                                                                                                                                          |                                                |                                     | 664     |        |        |   | 677     |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                |                                     | 5,269   |        |        |   | 5,882   |       
|Less accumulated depreciation                                                                                                                                                                                                                   |                                                |                                     | 3,435   |        |        |   | 3,644   |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Property, plant and equipment  net |         |        | 1,834  |   |         |        | 2,238  | 
|Other assets:                                                                                                                                                                                                                                   |                                                |                                     |         |        |        |   |         |       
|Goodwill, net                                                                                                                                                                                                                                   |                                                |                                     | 22,974  |        |        |   | 22,974  |       
|Other                                                                                                                                                                                                                                           |                                                |                                     | 241     |        |        |   | 82      |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Total other assets                  |         |        | 23,215 |   |         |        | 23,056 | 
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                | Total Assets                                   |                                     | $       | 58,387 |        |   | $       | 57,926 |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                                                                                       
|Current liabilities:                                                                                                                                                                                                                            |                                                |                                     |         |        |        |   |         |       
|Accounts payable                                                                                                                                                                                                                                |                                                | $                                   | 5,117   |        |        | $ | 4,524   |       
|Accrued wages and benefits                                                                                                                                                                                                                      |                                                |                                     | 1,408   |        |        |   | 1,413   |       
|Accrued royalties                                                                                                                                                                                                                               |                                                |                                     | 1,274   |        |        |   | 1,454   |       
|Other accrued liabilities                                                                                                                                                                                                                       |                                                |                                     | 688     |        |        |   | 1,361   |       
|Current maturities of long-term debt                                                                                                                                                                                                            |                                                |                                     | 3,016   |        |        |   | 3,014   |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Total current liabilities           |         |        | 11,503 |   |         |        | 11,766 | 
|Non-current liabilities:                                                                                                                                                                                                                        |                                                |                                     |         |        |        |   |         |       
|Long-term debt                                                                                                                                                                                                                                  |                                                |                                     | 28,447  |        |        |   | 30,895  |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Total non-current liabilities       |         |        | 28,447 |   |         |        | 30,895 | 
|Commitments and contingencies                                                                                                                                                                                                                   |                                                |                                     |        |        |        |   |        |       
|Shareholders equity:                                                                                                                                                                                                                           |                                                |                                     |         |        |        |   |         |       
|Common stock  par value $0.01 per
    share, 74,000,000 shares authorized, 9,504,937 shares
    outstanding at March 28, 2004; par value $1.00 per share,
    50,000,000 shares authorized, 9,421,437 shares
    outstanding at March 30, 2003 |                                                |                                     | 95      |        |        |   | 9,421   |       
|Additional paid-in capital                                                                                                                                                                                                                      |                                                |                                     | 38,244  |        |        |   | 28,857  |       
|Accumulated deficit                                                                                                                                                                                                                             |                                                |                                     | (19,902 | )      |        |   | (22,988 | )     
|Cumulative currency translation adjustment                                                                                                                                                                                                      |                                                |                                     |        |        |        |   | (25     | )     
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                |                                                | Total shareholders equity          |         |        | 18,437 |   |         |        | 15,265 | 
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       
|                                                                                                                                                                                                                                                | Total Liabilities and Shareholders
    Equity |                                     | $       | 58,387 |        |   | $       | 57,926 |       
|                                                                                                                                                                                                                                                |                                                |                                     |         |        |        |   |         |       

See notes to consolidated financial
statements.

F-2



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

Fiscal years ended March 28, 2004,
March 30, 2003, and March 31, 2002


(amounts in thousands, except per share
amounts)


|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |        |    | 
|------------------------------------------------- | ------------------------------ | --------------------------------------- | ------ | ------ | -- | ---- | ------ | ------ | --- | - | ------- | ------ | -- | 
|                                                  |                                | 2004                                    |        | 2003   |    | 2002
|                                                  |                                |                                         |        |        |    |     
|Net sales                                         |                                | $                                       | 86,227 |        |    | $    | 94,735 |        |     | $ | 117,591 |       
|Cost of products sold                             |                                |                                         | 66,633 |        |    |      | 73,315 |        |     |   | 91,663  |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Gross profit                                      |                                |                                         | 19,594 |        |    |      | 21,420 |        |     |   | 25,928  |       
|Marketing and administrative expenses             |                                |                                         | 12,160 |        |    |      | 12,686 |        |     |   | 20,872  |       
|(Gain) loss on disposition of assets              |                                |                                         | (2     | )      |    |      | 11     |        |     |   | 34      |       
|Restructuring charge                              |                                |                                         |       |        |    |      | 1,775  |        |     |   |        |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Income from operations                            |                                |                                         | 7,436  |        |    |      | 6,948  |        |     |   | 5,022   |       
|Other income (expense):                           |                                |                                         |        |        |    |      |        |        |     |   |         |       
|                                                  | Interest expense               |                                         |        | (4,055 | )  |      |        | (4,548 | )   |   |         | (6,943 | ) 
|                                                  | Gain on extinguishment of debt |                                         |        |       |    |      |        |       |     |   |         | 25,008 |   
|                                                  | Other  net                    |                                         |        | (56    | )  |      |        | 351    |     |   |         | 2,035  |   
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Income before income taxes                        |                                |                                         | 3,325  |        |    |      | 2,751  |        |     |   | 25,122  |       
|Income tax expense (benefit)                      |                                |                                         | 222    |        |    |      | 264    |        |     |   | (1,880  | )     
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Net income                                        |                                |                                         | 3,103  |        |    |      | 2,487  |        |     |   | 27,002  |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Other comprehensive income, net of tax:           |                                |                                         |        |        |    |      |        |        |     |   |         |       
|                                                  |                                | Foreign currency translation adjustment |        |        | 25 |      |        |        | (35 | ) |         |        | 76 | 
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Comprehensive income                              |                                | $                                       | 3,128  |        |    | $    | 2,452  |        |     | $ | 27,078  |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Basic income per share                            |                                | $                                       | 0.33   |        |    | $    | 0.26   |        |     | $ | 2.95    |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Diluted income per share                          |                                | $                                       | 0.14   |        |    | $    | 0.12   |        |     | $ | 1.37    |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Weighted average shares outstanding 
    basic   |                                |                                         | 9,485  |        |    |      | 9,421  |        |     |   | 9,167   |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       
|Weighted average shares outstanding 
    diluted |                                |                                         | 22,393 |        |    |      | 21,471 |        |     |   | 19,759  |       
|                                                  |                                |                                         |        |        |    |      |        |        |     |   |         |       

See notes to consolidated financial
statements.

F-3



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY (DEFICIT)

Fiscal years ended March 28, 2004,
March 30, 2003, and March 31, 2002


(dollar amounts in thousands)


|                                                   |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   |     |   |  |   |         |  
|-------------------------------------------------- |  | ------------- | --------- | ---------- |  | ------- | ------ | ----------- |  | ----------- | ------ | ---------------- |  | - | ------- | - |  | - | --- | - |  | - | ------- | -
|                                                   |  |               |           |            |  |         |        |             |  |            
|                                                   |  | Common Shares |           |            |  |         |        | Cumulative  |  |            
|                                                   |  |               |           | Additional |  |         |        | Currency    |  | Total      
|                                                   |  | Number of     |           |            |  | Paid-in |        | Accumulated |  | Translation |        | Shareholders   
|                                                   |  | Shares        |           | Amount     |  | Capital |        | Deficit     |  | Adjustment  |        | Equity/(Deficit)
|                                                   |  |               |           |            |  |         |        |             |  |             |        |                 
|Balances  April 1,
    2001                       |  |               | 8,608,843 |            |  |         | 8,609  |             |  |             | 27,161 |                  |  |   | (52,477 | ) |  |   | (66 | ) |  |   | (16,773 | )
|Purchase 401 (k) shares                            |  |               | (14,406   | )          |  |         | (15    | )           |  |             | 10     |                  |  |   |         |   |  |   |     |   |  |   | (5      | )
|Issuance of warrants                               |  |               |           |            |  |         |        |             |  |             | 2,381  |                  |  |   |         |   |  |   |     |   |  |   | 2,381   |  
|Issuance of shares                                 |  |               | 827,000   |            |  |         | 827    |             |  |             | (695   | )                |  |   |         |   |  |   |     |   |  |   | 132     |  
|Net income                                         |  |               |           |            |  |         |        |             |  |             |        |                  |  |   | 27,002  |   |  |   |     |   |  |   | 27,002  |  
|Currency translation adjustment                    |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   | 76  |   |  |   | 76      |  
|                                                   |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   |     |   |  |   |         |  
|Balances  March 31,
    2002                      |  |               | 9,421,437 |            |  |         | 9,421  |             |  |             | 28,857 |                  |  |   | (25,475 | ) |  |   | 10  |   |  |   | 12,813  |  
|Net income                                         |  |               |           |            |  |         |        |             |  |             |        |                  |  |   | 2,487   |   |  |   |     |   |  |   | 2,487   |  
|Currency translation adjustment                    |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   | (35 | ) |  |   | (35     | )
|                                                   |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   |     |   |  |   |         |  
|Balances  March 30,
    2003                      |  |               | 9,421,437 |            |  |         | 9,421  |             |  |             | 28,857 |                  |  |   | (22,988 | ) |  |   | (25 | ) |  |   | 15,265  |  
|Issuance of shares                                 |  |               | 83,500    |            |  |         | 84     |             |  |             | (23    | )                |  |   |         |   |  |   |     |   |  |   | 61      |  
|Conversion from $1.00 par value to $0.01 par value |  |               |           |            |  |         | (9,410 | )           |  |             | 9,410  |                  |  |   |         |   |  |   |     |   |  |   |        |  
|Net income                                         |  |               |           |            |  |         |        |             |  |             |        |                  |  |   | 3,103   |   |  |   |     |   |  |   | 3,103   |  
|Currency translation adjustment                    |  |               |           |            |  |         |        |             |  |             |        |                  |  |   | (17     | ) |  |   | 25  |   |  |   | 8       |  
|                                                   |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   |     |   |  |   |         |  
|Balances  March 28,
    2004                      |  |               | 9,504,937 |            |  | $       | 95     |             |  | $           | 38,244 |                  |  | $ | (19,902 | ) |  | $ |    |   |  | $ | 18,437  |  
|                                                   |  |               |           |            |  |         |        |             |  |             |        |                  |  |   |         |   |  |   |     |   |  |   |         |  

See notes to consolidated financial
statements.

F-4



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Fiscal years ended March 28, 2004,
March 30, 2003, and March 31, 2002


(amounts in thousands)


|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |        |         |        |  
|------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------- | ---- | --- | ------ | ------- | --- | ----- | ------ | ------- | ------ | ------- | ------ | -
|                                                                                      |                                              | 2004                                                      |                                                   | 2003 |     | 2002  
|                                                                                      |                                              |                                                           |                                                   |      |     |       
|Operating activities:                                                                 |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Net income                                                                            |                                              | $                                                         | 3,103                                             |      |     | $      | 2,487   |     |       | $      | 27,002  |       
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|                                                                                      |                                              | Gain on debt refinancing                                  |                                                   |      |    |        |         |     |      |        |         |        | (25,008 | )     
|                                                                                      |                                              | Depreciation of property, plant and equipment             |                                                   |      | 532 |        |         |     | 724   |        |         |        | 971     |       
|                                                                                      |                                              | Amortization of goodwill                                  |                                                   |      |    |        |         |     |      |        |         |        | 1,054   |       
|                                                                                      |                                              | (Gain) loss on sale of property, plant, and
    equipment |                                                   |      | (2  | )      |         |     | 11    |        |         |        | 34      |       
|                                                                                      |                                              | Discount accretion                                        |                                                   |      | 605 |        |         |     | 537   |        |         |        | 324     |       
|                                                                                      |                                              | Restructuring charge                                      |                                                   |      |    |        |         |     | 1,775 |        |         |        |        |       
|                                                                                      |                                              | Changes in assets and liabilities                         |                                                   |      |     |        |         |     |       |        |         |        |         |       
|                                                                                      |                                              |                                                           | Accounts receivable                               |      |     | (1,445 | )       |     |       | (3,244 | )       |        |         | 4,970  |  
|                                                                                      |                                              |                                                           | Inventories, net                                  |      |     | 1,154  |         |     |       | 300    |         |        |         | 3,113  |  
|                                                                                      |                                              |                                                           | Income tax receivable                             |      |     |       |         |     |       | 1,820  |         |        |         | (1,820 | )
|                                                                                      |                                              |                                                           | Other current assets                              |      |     | (601   | )       |     |       | 1,352  |         |        |         | (233   | )
|                                                                                      |                                              |                                                           | Other assets                                      |      |     | (159   | )       |     |       | 96     |         |        |         | 142    |  
|                                                                                      |                                              |                                                           | Accounts payable                                  |      |     | 593    |         |     |       | 829    |         |        |         | (4,775 | )
|                                                                                      |                                              |                                                           | Accrued liabilities                               |      |     | (575   | )       |     |       | 187    |         |        |         | (2,651 | )
|                                                                                      |                                              |                                                           | Other long term liabilities                       |      |     |       |         |     |       | (35    | )       |        |         | (745   | )
|                                                                                      |                                              |                                                           | Liabilities assumed by purchaser of adult bedding |      |     |       |         |     |       |       |         |        |         | 3,372  |  
|                                                                                      |                                              | Reclassification of current assets to held for
    sale   |                                                   |      |    |        |         |     |      |        |         |        | (39     | )     
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Net cash provided by operating
    activities                                         |                                              |                                                           | 3,205                                             |      |     |        | 6,839   |     |       |        | 5,711   |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Investing activities:                                                                 |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Capital expenditures                                                                  |                                              |                                                           | (422                                              | )    |     |        | (397    | )   |       |        | (309    | )     
|Proceeds from disposition of assets                                                   |                                              |                                                           | 282                                               |      |     |        | 73      |     |       |        | 18,216  |       
|Other                                                                                 |                                              |                                                           | 6                                                 |      |     |        | (35     | )   |       |        | 76      |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Net cash (used in) provided by investing
    activities                               |                                              |                                                           | (134                                              | )    |     |        | (359    | )   |       |        | 17,983  |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Financing activities:                                                                 |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Payment of long-term borrowing                                                        |                                              |                                                           | (38,595                                           | )    |     |        | (41,835 | )   |       |        | (63,769 | )     
|Long-term borrowing                                                                   |                                              |                                                           | 35,276                                            |      |     |        | 35,161  |     |       |        | 39,449  |       
|Increase in advances from factor                                                      |                                              |                                                           |                                                  |      |     |        |        |     |       |        | 299     |       
|Issuance of common stock                                                              |                                              |                                                           | 61                                                |      |     |        |        |     |       |        | 127     |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Net cash used in financing
    activities                                             |                                              |                                                           | (3,258                                            | )    |     |        | (6,674  | )   |       |        | (23,894 | )     
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Net decrease in cash and cash
    equivalents                                         |                                              |                                                           | (187                                              | )    |     |        | (194    | )   |       |        | (200    | )     
|Cash and cash equivalents at beginning of year                                        |                                              |                                                           | 194                                               |      |     |        | 388     |     |       |        | 588     |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Cash and cash equivalents at end of
    year                                          |                                              | $                                                         | 7                                                 |      |     | $      | 194     |     |       | $      | 388     |       
|                                                                                      |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Supplemental cash flow information:                                                   |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|Income taxes paid (refunded)                                                          |                                              | $                                                         | 276                                               |      |     | $      | (1,635  | )   |       | $      | (191    | )     
|Interest paid                                                                         |                                              |                                                           | 3,267                                             |      |     |        | 3,597   |     |       |        | 7,801   |       
|Supplemental disclosure of non-cash investing
    and financing activities            |                                              |                                                           |                                                   |      |     |        |         |     |       |        |         |       
|                                                                                      | Forgiveness of indebtedness                  |                                                           | $                                                 |     |     |        | $       |    |       |        | $       | 25,008 |        
|                                                                                      | Issuance of warrants                         |                                                           |                                                   |     |     |        |         |    |       |        |         | 2,381  |        
|                                                                                      | Accrued interest converted to long-term debt |                                                           |                                                   | 268  |     |        |         | 274 |       |        |         |       |        

See notes to consolidated financial
statements.

F-5



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Fiscal Years Ended March 28, 2004,
March 30, 2003 and March 31, 2002


Note 1  Description of
Business

Crown Crafts, Inc. and its subsidiaries
(collectively, the Company) operate in the Infant
Products segment within the Consumer Products industry. The
Infant Products segment consists of infant bedding, bibs, infant
soft goods and accessories. Sales are generally made directly to
retailers, primarily mass merchants, large chain stores, gift
stores and department and specialty stores.

Note 2  Summary of Significant
Accounting Policies

Basis of Presentation:The consolidated financial statements
include the accounts of Crown Crafts, Inc. and its subsidiaries.
All significant intercompany balances and transactions are
eliminated in consolidation.

The Companys fiscal year ends on the Sunday
nearest March 31. Fiscal years are designated in the
consolidated financial statements and notes thereto by reference
to the calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks for
fiscal years 2004, 2003 and 2002.

Cash and Cash Equivalents:The Company considers all highly
liquid investments purchased with original maturities of three
months or less to be cash equivalents.

Use of Estimates:The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant estimates are made with respect to the
allowances related to accounts receivable for customer
deductions for returns, allowances, and disputes. The Company
has a certain amount of discontinued and irregular raw materials
and finished goods which necessitate the establishment of
inventory reserves which are highly subjective. Actual results
could differ from those estimates.

Revenue Recognition:Sales are recorded when goods are
shipped to customers, and are reported net of allowances for
estimated returns and allowances in the consolidated statements
of operations and comprehensive income. Allowances for returns
and allowances are estimated based on historical rates.

Inventory Valuation:Inventories are valued at the lower of
first-in, first-out, cost or market.

Depreciation and Amortization:Depreciation of property, plant and
equipment is computed using the straight-line method over the
estimated useful lives of the respective assets. Estimated
useful lives are 15 to 40 years for buildings, three to
seven and one-half years for machinery and equipment, five years
for data processing equipment, and eight years for furniture and
fixtures. The cost of improvements to leased premises is
amortized over the shorter of the estimated life of the
improvement or the term of the lease.

Impairment of Long-lived Assets, Identifiable
Intangibles and Goodwill:The Company
reviews for impairment long-lived assets and certain
identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of any asset may
not be recoverable. In the event of impairment, the asset is
written down to its fair market value. Assets to be disposed of
are recorded at the lower of net book value or fair market value
less cost to sell at the date management commits to a plan of
disposal and are classified as assets held for sale on the
consolidated balance sheet.

Goodwill, which represents the unamortized excess
of purchase price over fair value of net identifiable assets
acquired in business combinations, was amortized through
March 31, 2002 using the straight-line method over periods
of up to 30 years. As discussed below, the Company
discontinued amortization of goodwill effective April 1,
2002. The Company reviews the carrying value of goodwill
annually and if facts and circumstances suggest that the asset
may be impaired. Impairment of goodwill and write-downs, if any,
are

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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

measured based on estimates of future cash flows.
Goodwill is stated net of accumulated amortization of
$6.3 million at March 28, 2004, March 30, 2003
and March 31, 2002.

Foreign Currency Translation:The assets and liabilities of the
Companys Mexican subsidiary are translated into U.S.
dollars at current exchange rates, and revenues and expenses are
translated at average exchange rates. The effect of foreign
currency transactions was not material to the Companys
results of operations for fiscal years 2004, 2003 and 2002.

Provisions for Income Taxes:The provisions for income taxes
include all currently payable federal, state and local taxes
that are based upon the Companys taxable income and the
change during the fiscal year in net deferred income tax assets
and liabilities. 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.
Deferred tax assets have been reduced by a valuation allowance,
if necessary, in the amount of any tax benefits that based on
available evidence, are not expected to be realized.

Stock-Based Compensation:The Company accounts for its stock
option plans using the intrinsic value method established by APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretations. Accordingly,
no compensation cost has been recognized in the Companys
financial statements for its stock-based compensation plans. The
Company complies with the disclosure requirements of SFAS
No. 123, Accounting for Stock
Based-Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure, which requires pro forma
disclosure regarding net earnings and earnings per share
determined as if the Company had accounted for employee stock
options using the fair value method of that statement.

The weighted-average grant-date fair value of
options granted in 2004, 2003, and 2002, respectively, was
$0.23, $0.25, and $0.11 per share. For purposes of the pro forma
disclosure, the fair value of each option was estimated as of
the date of grant using the Black-Scholes option-pricing model
and is amortized to expense ratably as the option vests. The
following table summarizes the assumptions used to value
options. Had compensation costs for the Companys stock
option plans been determined based on the fair value at the
grant date, consistent with the method under SFAS No. 123,
the Companys net earnings and earnings per share would
have been as indicated below:

|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ------ | ---- | 
|                                                                                                                    |                       | 2004                  |       | 2003 |  | 2002
|                                                                                                                    |                       |                       |       |      |  |     
|                                                                                                                    |                       |                      
|                                                                                                                    |                       | (in thousands, except
|                                                                                                                    |                       | per share data)      
|Net income, as reported                                                                                             |                       | $                     | 3,103 |      |  | $    | 2,487 |      |  | $ | 27,002 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                       |                       | 35    |      |  |      | 25    |      |  |   | 74     |     
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     
|Pro forma net income                                                                                                |                       | $                     | 3,068 |      |  | $    | 2,462 |      |  | $ | 26,928 |     
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     
|Earnings per share:                                                                                                 |                       |                       |       |      |  |      |       |      |  |   |        |     
|                                                                                                                    | Basic  as reported   |                       | $     | 0.33 |  |      | $     | 0.26 |  |   | $      | 2.95 | 
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     
|                                                                                                                    | Basic  pro forma     |                       | $     | 0.33 |  |      | $     | 0.26 |  |   | $      | 2.94 | 
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     
|                                                                                                                    | Diluted  as reported |                       | $     | 0.14 |  |      | $     | 0.12 |  |   | $      | 1.37 | 
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     
|                                                                                                                    | Diluted  pro forma   |                       | $     | 0.14 |  |      | $     | 0.11 |  |   | $      | 1.36 | 
|                                                                                                                    |                       |                       |       |      |  |      |       |      |  |   |        |     

F-7



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                        |  |                                        |     |      |  |      |     |  |  |  |     | 
|----------------------- |  | -------------------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                        |  | 2004                                   |     | 2003 |  | 2002
|                        |  |                                        |     |      |  |     
|                        |  |                                       
|                        |  | (in percentages, except expected life)
|Dividend yield          |  |                                        |    |      |  |      |    |  |  |  |    | 
|Expected volatility     |  |                                        | 10  |      |  |      | 20  |  |  |  | 50  | 
|Risk free interest rate |  |                                        | 4.5 |      |  |      | 4.2 |  |  |  | 2.5 | 
|Expected life, years    |  |                                        | 7.9 |      |  |      | 8.0 |  |  |  | 6.5 | 

Segments and Related Information:The Company adopted Statement of
Financial Accounting Standards (SFAS) 131,
Disclosures about Segments of an Enterprise and Related
Information. This statement requires certain information
to be reported about operating segments on a basis consistent
with the Companys internal organizational structure.
Managements analysis concluded that the Company operated
in two operating segments, 1) adult home furnishings and
juvenile products, and 2) infant products. Following the sale of
the Adult Bedding and Bath division in July, 2001, the Company
operates primarily in the infant products segment. Required
disclosures have been made in Note 12.

Net Income Per Share:Net income per share is calculated in
accordance with SFAS 128, Earnings per Share, which requires
dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex
capital structures. Earnings per common share are based on the
weighted average number of shares outstanding during the period.
Basic and diluted weighted average shares are calculated in
accordance with the treasury stock method, which assumes that
the proceeds from the exercise of all options are used to
repurchase common shares at market value. The number of shares
remaining after the exercise proceeds are exhausted represents
the potentially dilutive effect of the options. The following
table sets forth the computation of basic and diluted net income
per common share for fiscal years 2004, 2003 and 2002.

|                              |                                               |                        |   |        |  |      |   |        |  |  |   |        | 
|----------------------------- | --------------------------------------------- | ---------------------- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                              |                                               | 2004                   |   | 2003   |  | 2002
|                              |                                               |                        |   |        |  |     
|                              |                                               |                       
|                              |                                               | (Amounts in thousands,
|                              |                                               | except per share data)
|Basic Net Income per Share:   |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Net Income                                    |                        | $ | 3,103  |  |      | $ | 2,487  |  |  | $ | 27,002 | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Weighted Average Number of Shares Outstanding |                        |   | 9,485  |  |      |   | 9,421  |  |  |   | 9,167  | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Basic Net Income per Share                    |                        | $ | 0.33   |  |      | $ | 0.26   |  |  | $ | 2.95   | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|Diluted Net Income per Share: |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Net Income                                    |                        | $ | 3,103  |  |      | $ | 2,487  |  |  | $ | 27,002 | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Weighted Average Number of Shares Outstanding |                        |   | 9,485  |  |      |   | 9,421  |  |  |   | 9,167  | 
|                              | Effect of Dilutive Securities                 |                        |   | 12,908 |  |      |   | 12,050 |  |  |   | 10,592 | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Average Shares  Diluted                      |                        |   | 22,393 |  |      |   | 21,471 |  |  |   | 19,759 | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       
|                              | Diluted Net Income per Share                  |                        | $ | 0.14   |  |      | $ | 0.12   |  |  | $ | 1.37   | 
|                              |                                               |                        |   |        |  |      |   |        |  |  |   |       

Derivative Instruments and Hedging Activities:The Company accounts for derivative
instruments and hedging activities in accordance with SFAS 133,
Accounting for Derivative Instruments and Hedging Activities,
which was adopted by the Company on April 2, 2001. Under
SFAS 133, derivative instruments are recognized in the balance
sheet at fair value and changes in the fair value of such
instruments are recognized currently in earnings unless specific
hedge accounting criteria are met. At March 28, 2004 and
March 30, 2003 the Company had no derivative instruments.

Recently Issued Accounting Standards:In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS 141, Business
Combinations, and SFAS 142, Goodwill and Other
Intangible Assets. SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and eliminates the use of the
pooling-of-interests method. The application of SFAS 141

F-8



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

did not affect any of the Companys
previously reported amounts included in goodwill or other
intangible assets. SFAS 142 requires that the amortization of
goodwill cease prospectively upon adoption and that instead the
carrying value of goodwill be evaluated using an impairment
approach. Identifiable intangible assets continue to be
amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS 142 was effective for fiscal years beginning
after December 15, 2001, and was implemented by the Company
on April 1, 2002. Beginning in fiscal 2003, the Company
discontinued amortizing goodwill but continues to amortize other
long-lived intangible assets. The Company performed fair value
based impairment tests on its goodwill in accordance with
SFAS 142 and determined that the fair value exceeded the
recorded value at April 1, 2002 and March 31, 2003.
Following is a reconciliation of previously reported net income
and basic and diluted net income per share to the amounts that
would have been reported if SFAS 142 had been effective as of
April 2, 2001 and the amortization of goodwill had been
discontinued as of that date.

|                          |                       |      |       |      |  |      |       |      |  |   |        |      | 
|------------------------- | --------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ------ | ---- | 
|                          |                       | 2004 |       | 2003 |  | 2002
|                          |                       |      |       |      |  |     
|Reported net income       |                       | $    | 3,103 |      |  | $    | 2,487 |      |  | $ | 27,002 |     
|Goodwill amortization     |                       |      |      |      |  |      |      |      |  |   | 1,054  |     
|                          |                       |      |       |      |  |      |       |      |  |   |        |     
|Adjusted net income       |                       | $    | 3,103 |      |  | $    | 2,487 |      |  | $ | 28,056 |     
|                          |                       |      |       |      |  |      |       |      |  |   |        |     
|Basic income per share:   |                       |      |       |      |  |      |       |      |  |   |        |     
|                          | Reported net income   |      | $     | 0.33 |  |      | $     | 0.26 |  |   | $      | 2.95 | 
|                          | Goodwill amortization |      |       |     |  |      |       |     |  |   |        | 0.11 | 
|                          |                       |      |       |      |  |      |       |      |  |   |        |     
|                          | Adjusted net income   |      | $     | 0.33 |  |      | $     | 0.26 |  |   | $      | 3.06 | 
|                          |                       |      |       |      |  |      |       |      |  |   |        |     
|Diluted income per share: |                       |      |       |      |  |      |       |      |  |   |        |     
|                          | Reported net income   |      | $     | 0.14 |  |      | $     | 0.12 |  |   | $      | 1.37 | 
|                          | Goodwill amortization |      |       |     |  |      |       |     |  |   |        | 0.05 | 
|                          |                       |      |       |      |  |      |       |      |  |   |        |     
|                          | Adjusted net income   |      | $     | 0.14 |  |      | $     | 0.12 |  |   | $      | 1.42 | 
|                          |                       |      |       |      |  |      |       |      |  |   |        |     

In August 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Although SFAS 144 supersedes SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, it retains most of the concepts of
that standard, except that it eliminates the requirement that
goodwill be allocated to long-lived assets for impairment
testing purposes and it requires that a long-lived asset to be
abandoned or exchanged for a similar asset be considered held
and used until it is disposed of (i.e., the depreciable life
should be revised until the asset is actually abandoned or
exchanged). Also, SFAS 144 includes the basic provisions of
Accounting Principles Board (APB) Opinion
No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for presentation of discontinued operations in
the income statement but broadens that presentation to include a
component of an entity rather than a segment of a business,
where that component can be clearly distinguished from the rest
of the entity. SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and was implemented by the Company
on April 1, 2002. The adoption of SFAS 144 did not
have a significant effect on the Companys financial
statements on the date of adoption.

In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 provides, among other things, that
gains on the extinguishments of debt will generally no longer be
classified as extraordinary items in the statements of
operations. It also provides that gains on extinguishments be
reclassified in prior years financial statements presented for
comparative purposes. SFAS 145 is effective for fiscal
years beginning after May 15, 2002 with earlier adoption
encouraged. The Company adopted SFAS 145 effective
July 1, 2002. The adoption of SFAS 145 required that a
gain on debt refinancing of $25 million realized in the
second quarter of fiscal 2002 be reclassified into income before
extraordinary items.

F-9



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which was effective for transactions initiated
after December 31, 2002. SFAS 146 requires companies
to recognize costs associated with restructurings, discontinued
operations, plant closings, or other exit or disposal
activities, when incurred rather than at the date a plan is
committed to. The adoption of FAS 146 did not have a
material impact on the Companys consolidated financial
statements on the date of adoption.

In December 2002, the FASB issued SFAS 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement
No. 123. SFAS 148 amends FASB 123 to provide
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, FASB 148 amends the disclosure
requirements of FASB 123 to require prominent disclosures
in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS 148 was
effective for the Companys fiscal period ended
March 30, 2003. The Company adopted this standard on that
date and determined that it would continue to utilize the
intrinsic method of accounting and included the additional
disclosures in the current period financial statements.

Reclassifications:Certain prior year financial statement
balances have been reclassified to conform with the current
years presentation.

Note 3  Discontinuance of Certain
Businesses

On June 14, 2001, the Company completed the
sale of the Timberlake, North Carolina plant. Proceeds of
$8.0 million were used to reduce debt. On July 17,
2001, the Roxboro, North Carolina outlet store was sold and the
proceeds of $500,000 were used to reduce debt.

As part of the plan to reduce debt and restore
profitability, the Company made a decision to exit the Adult
Bedding and Bath business and its net assets related to that
business of $12.4 million were sold effective July 23,
2001. Proceeds of the sale were $8.5 million cash plus the
assumption of liabilities of $3.4 million as well as the
assumption of certain contingent liabilities. Cash from the sale
was used to reduce debt.

Note 4  Restructuring
Charge

In December 2002, the Company adopted a formal
plan to change its sourcing strategy for certain products and
close the Mexican manufacturing facility operated by its
majority-owned subsidiary, Burgundy Interamericana
(Burgundy). This decision was based on extensive
research by management which indicated that, due to lower wages
and the elimination of the quota on bibs, outsourcing the supply
of products then being manufactured by Burgundy to Asian
manufacturers was more cost-effective and competitive than
maintaining operations in Mexico. Under the plan, Burgundy
continued to operate through the first quarter of fiscal 2004,
at which time the Company began to liquidate Burgundys
assets. As a result of the decision of the Company to
discontinue its Mexican operations, the Company recorded a
$1.8 million restructuring charge to operations in the
quarter ended December 29, 2002, which consisted primarily
of a write-down of the property and equipment at the Mexican
facility of approximately $800,000, inventory items deemed to be
in excess of production requirements of approximately $600,000,
an accrual for contractual termination benefits of approximately
$300,000 due Burgundys entire workforce (approximately 130
employees) under the provisions of Mexicos labor
regulations and the write-off of goodwill of approximately
$60,000. The Company paid approximately $189,000 of the
severance benefits in the first quarter of fiscal 2004 and paid
the remainder through October 2003. The Company continued
to charge the ongoing operating costs associated with
Burgundys production in the period in which the costs were
incurred. The Company incurred a loss of approximately $85,000
related to the operation and closure of this facility for the
three-month period ended June 29, 2003, at which time the
closure was complete.

F-10



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 5  Inventories

Major classes of inventory were as follows:

|                |  |           |        |           |  |   |        | 
|--------------- |  | --------- | ------ | --------- |  | - | ------ | 
|                |  | March 28, |        | March 30,
|                |  | 2004      |        | 2003     
|                |  |           |        |          
|Raw Materials   |  | $         | 1,116  |           |  | $ | 2,991  | 
|Work in Process |  |           | 1,028  |           |  |   | 1,411  | 
|Finished Goods  |  |           | 12,250 |           |  |   | 11,146 | 
|                |  |           |        |           |  |   |        | 
|                |  | $         | 14,394 |           |  | $ | 15,548 | 
|                |  |           |        |           |  |   |        | 

Inventory is net of reserves for inventories
classified as irregular or discontinued of $1.0 million at
March 28, 2004 and $1.6 million at March 30, 2003.

Note 6  Financing
Arrangements

Factoring Agreement:The Company assigns the majority of
its trade accounts receivable to a commercial factor. Under
the terms of the factoring agreement, the factor remits payments
to the Company on the average due date of each group of invoices
assigned. The factor bears credit losses with respect to
assigned accounts receivable that are within approved credit
limits. The Company bears losses resulting from returns,
allowances, claims and discounts. Factoring fees, which are
included in marketing and administrative expenses in the
consolidated statements of operations, were $384,000, $492,000
and $761,000, respectively, in 2004, 2003, and 2002. Factor
advances were at $0 at both March 28, 2004 and
March 30, 2003.

Notes Payable and Other Credit
Facilities:At March 28, 2004 and
March 30, 2003, long term debt consisted of:

|                                          |  |           |        |           |  |   |        |  
|----------------------------------------- |  | --------- | ------ | --------- |  | - | ------ | -
|                                          |  | March 28, |        | March 30,
|                                          |  | 2004      |        | 2003     
|                                          |  |           |        |          
|Promissory notes                          |  | $         | 24,054 |           |  | $ | 27,068 |  
|Floating rate revolving credit facilities |  |           | 1,495  |           |  |   | 1,799  |  
|Non-interest bearing notes                |  |           | 8,541  |           |  |   | 8,274  |  
|Original issue discount                   |  |           | (2,627 | )         |  |   | (3,232 | )
|                                          |  |           |        |           |  |   |        |  
|                                          |  |           | 31,463 |           |  |   | 33,909 |  
|Less current maturities                   |  |           | 3,016  |           |  |   | 3,014  |  
|                                          |  |           |        |           |  |   |        |  
|                                          |  | $         | 28,447 |           |  | $ | 30,895 |  
|                                          |  |           |        |           |  |   |        |  

On July 23, 2001 the Company completed a
refinancing of its debt. These credit facilities include the
following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revolving Creditof up to
    $19 million including a $3 million sub-limit for
    letters of credit. The interest rate is prime plus 1.00% (5.00%
    at March 28, 2004) for base rate borrowings and LIBOR plus
    2.75% (3.84% at March 28, 2004) for Euro-dollar borrowings.
    The maturity date is June 30, 2005. The facility is secured
    by a first lien on all assets. The balance at March 28,
    2004 was $1.5 million. The Company had $15.5 million
    available at March 28, 2004. As of March 28, 2004,
    letters of credit of $1.325 million were outstanding
    against the $3 million sub-limit for letters of credit
    associated with the $19 million revolving credit facility.
|
| | Senior Notesof $8 million with a
    fixed interest rate of 10% plus additional interest contingent
    upon cash flow availability of 3%. The maturity date is
    June 30, 2006 and the notes are secured by a first lien on
    all assets. Minimum principal payments of $500,000 are due at
    the end of each calendar quarter. In the event that required
    debt service exceeds 85% of free cash flow (EBITDA
    (as hereinafter defined) less                                                                                                                                                                                                                                                     

F-11



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | capital expenditures and cash taxes paid), the
    excess of contingent interest and principal amortization over
    85% will be deferred until maturity of the Senior Notes in June
    2006. Contingent interest plus additional principal payments
    will be due annually up to 85% of free cash flow. On September
    30, 2002 and September 30, 2003, the Company made payments
    to the lenders of $1.6 million and $1.3 million,
    respectively, related to excess cash flow. The Company
    anticipates that it will make another excess cash flow payment
    of $1.3 million on September 30, 2004.                                                                                                                                               
|
| | Senior Subordinated Notes of
    $16 million with a fixed interest rate of 10% plus an
    additional 1.65% payable by delivery of a promissory note due
    July 23, 2007. The maturity date is July 23, 2007 and the
    notes are secured by a second lien on all assets. In addition to
    principal and interest, a payment of $8 million is due on
    the earliest of (i) maturity of the notes,
    (ii) prepayment of the notes, or (iii) sale of the
    Company. The original issue discount of $4.1 million on
    this non-interest bearing note at a market interest rate of 12%
    is being amortized over the life of the notes. The remaining
    balance of $2.6 million is included in the Consolidated
    Balance Sheet as of March 28, 2004.

These credit facilities contain covenants
regarding minimum levels of Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA), maximum
total debt to EBITDA, maximum senior debt to EBITDA, minimum
EBITDA to cash interest and minimum shareholders equity.
Certain covenants included in the credit facilities were amended
in conjunction with the liquidation of Burgundy, as discussed in
Note 4 to the Companys Consolidated Financial Statements,
in order to account for the recording of the related
restructuring charge. The bank facilities also place
restrictions on the amounts the Company may expend on
acquisitions and purchases of treasury stock and currently
prohibit the payment of dividends.

Minimum annual maturities are as follows (in
thousands):

|       |  |          |       |        |  |           |       |       |  |       |        |   |  |   |     |  |  |   |        | 
|------ |  | -------- | ----- | ------ |  | --------- | ----- | ----- |  | ----- | ------ | - |  | - | --- |  |  | - | ------ | 
|       |  |          |       | Senior |  |           |       | PIK   |  |      
|Fiscal |  | Revolver |       | Notes  |  | Sub Notes |       | Notes |  | Total
|       |  |          |       |        |  |           |       |       |  |      
|2005   |  | $        |      |        |  | $         | 2,000 |       |  | $     |       |   |  | $ |    |  |  | $ | 2,000  | 
|2006   |  |          |      |        |  |           | 2,500 |       |  |       |       |   |  |   |    |  |  |   | 2,500  | 
|2007   |  |          | 1,495 |        |  |           | 3,500 |       |  |       |       |   |  |   |    |  |  |   | 4,995  | 
|2008   |  |          |      |        |  |           |      |       |  |       | 24,000 | * |  |   | 541 |  |  |   | 24,541 | 
|       |  |          |       |        |  |           |       |       |  |       |        |   |  |   |     |  |  |   |        | 
|Total  |  | $        | 1,495 |        |  | $         | 8,000 |       |  | $     | 24,000 |   |  | $ | 541 |  |  | $ | 34,036 | 
|       |  |          |       |        |  |           |       |       |  |       |        |   |  |   |     |  |  |   |        | 






|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|* | Includes $8 million non-interest bearing
    note issued at an original issue discount of $4.1 million.

As part of the refinancing, the Company issued to
the lenders warrants for non-voting common stock that are
convertible into common stock equivalent to 65% of the shares of
the Company on a fully diluted basis at a price of 11.3 cents
per share. The warrants are non-callable and expire in six years
from their date of issuance. The value of the warrants of
$2.4 million using the Black-Scholes option pricing model
was credited to additional paid-in capital in the second quarter
of fiscal 2002. The dilutive effect of these warrants on
earnings per share for the fiscal periods ended March 28,
2004 and March 30, 2003 was $0.18 per share and $0.15 per
share, respectively. Also, in the second quarter of fiscal 2002,
the Company recognized a gain of $25.0 million representing
forgiveness of indebtedness income (net of $2.9 million of
expenses incurred) in connection with the refinancing.

F-12



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 7  Income Taxes

Income tax expense (benefit) is summarized
as follows:

|                        |                 |                |     |      |   |      |     |     |   |   |        |        |  
|----------------------- | --------------- | -------------- | --- | ---- | - | ---- | --- | --- | - | - | ------ | ------ | -
|                        |                 | 2004           |     | 2003 |   | 2002
|                        |                 |                |     |      |   |     
|                        |                 |               
|                        |                 | (in thousands)
|Current:                |                 |                |     |      |   |      |     |     |   |   |        |       
|                        | Federal         |                | $   | 24   |   |      | $   | 127 |   |   | $      | (1,820 | )
|                        | State and local |                |     | 296  |   |      |     | 161 |   |   |        | (60    | )
|                        |                 |                |     |      |   |      |     |     |   |   |        |       
|Total current           |                 |                | 320 |      |   |      | 288 |     |   |   | (1,880 | )     
|                        |                 |                |     |      |   |      |     |     |   |   |        |       
|Deferred:               |                 |                |     |      |   |      |     |     |   |   |        |       
|                        | Federal         |                |     | (98  | ) |      |     | (24 | ) |   |        |       |  
|                        | State and local |                |     |     |   |      |     |    |   |   |        |       |  
|                        |                 |                |     |      |   |      |     |     |   |   |        |       
|Total deferred          |                 |                | (98 | )    |   |      | 24  |     |   |   |       |       
|                        |                 |                |     |      |   |      |     |     |   |   |        |       
|Total expense (benefit) |                 | $              | 222 |      |   | $    | 264 |     |   | $ | (1,880 | )     
|                        |                 |                |     |      |   |      |     |     |   |   |        |       

The tax effects of temporary differences that
comprise the deferred tax liabilities and assets are as follows:

|                                            |  |                |        |      |  |   |        |  
|------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                            |  | 2004           |        | 2003
|                                            |  |                |        |     
|                                            |  |               
|                                            |  | (in thousands)
|Gross deferred income tax liabilities:      |  |                |        |      |  |   |        |  
|Property, plant and equipment               |  | $              | 5      |      |  | $ | 14     |  
|                                            |  |                |        |      |  |   |        |  
|Total gross deferred income tax liabilities |  |                | 5      |      |  |   | 14     |  
|                                            |  |                |        |      |  |   |        |  
|Gross deferred income tax assets:           |  |                |        |      |  |   |        |  
|Employee benefit accruals                   |  |                | 448    |      |  |   | 413    |  
|Accounts receivable and inventory reserves  |  |                | 1,165  |      |  |   | 1,091  |  
|Net operating loss carryforward             |  |                | 5,535  |      |  |   | 5,777  |  
|Other                                       |  |                | 4      |      |  |   | 159    |  
|                                            |  |                |        |      |  |   |        |  
|Total gross deferred income tax assets      |  |                | 7,152  |      |  |   | 7,440  |  
|                                            |  |                |        |      |  |   |        |  
|Deferred tax asset valuation allowance      |  |                | (7,049 | )    |  |   | (7,426 | )
|                                            |  |                |        |      |  |   |        |  
|Net deferred income tax asset               |  | $              | 98     |      |  | $ |       |  
|                                            |  |                |        |      |  |   |        |  

As of March 28, 2004, the Company has
federal income tax net operating loss carryforwards totaling
$14.6 million which begin expiring in the year ending March
2021.

The following reconciles the income tax expense
(benefit) at the U.S. federal income tax statutory rate to
that in the financial statements:

|                                                          |  |                |       |      |  |      |        |   |  |   |         |  
|--------------------------------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                          |  | 2004           |       | 2003 |  | 2002
|                                                          |  |                |       |      |  |     
|                                                          |  |               
|                                                          |  | (in thousands)
|Tax expense at statutory rate                             |  | $              | 1,131 |      |  | $    | 936    |   |  | $ | 8,541   |  
|Nondeductible amortization of goodwill                    |  |                |      |      |  |      |       |   |  |   | 284     |  
|State income taxes, net of Federal income tax
    benefit |  |                | 200   |      |  |      | 106    |   |  |   | 1,030   |  
|Valuation allowance                                       |  |                | (377  | )    |  |      | (1,776 | ) |  |   | (27,533 | )
|Disposition of subsidiary                                 |  |                | (836  | )    |  |      |       |   |  |   | 15,203  |  
|Foreign subsidiary losses                                 |  |                | 29    |      |  |      | 797    |   |  |   | 288     |  
|Other                                                     |  |                | 75    |      |  |      | 201    |   |  |   | 307     |  
|                                                          |  |                |       |      |  |      |        |   |  |   |         |  
|Income tax expense (benefit)                              |  | $              | 222   |      |  | $    | 264    |   |  | $ | (1,880  | )
|                                                          |  |                |       |      |  |      |        |   |  |   |         |  

F-13



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 8  Retirement Plans

Effective January 1, 1996, the Company
established an Employee Savings Plan under Section 401(k)
of the Internal Revenue Code. The plan covers substantially all
employees. In fiscal 2002, employees could elect to exclude up
to 15% of their compensation from amounts subject to income tax
as a salary deferral contribution. In fiscal 2003, the potential
deferral was changed from 15% to a maximum of $11,000 and in
fiscal 2004 was increased to a maximum of $12,000 in accordance
with changes in federal regulations. The Board of Directors
determines each calendar year the portion, if any, of employee
contributions that will be matched by the Company. The
Companys matching contribution to the plan including the
utilization of forfeitures was approximately $165,000, $156,000,
and $186,000, respectively, for fiscal 2004, 2003, and 2002.
This matching represents an amount equal to 100% of the first 2%
and 50% of the next 1% contributed by the employee.

Note 9  Stock Options

The Company accounts for its stock option plans
using the intrinsic value method established by APB Opinion
No. 25, Accounting for Stock Issued to
Employees, and its related interpretations. Accordingly,
no compensation cost has been recognized in the Companys
financial statements for its stock based compensation plans. The
Company complies with the disclosure requirements of SFAS
No. 123, Accounting for Stock Based
Compensation, which requires pro forma disclosure
regarding net earnings and earnings per share determined as if
the Company had accounted for employee stock options using the
fair value method of that statement.

The Companys 1995 Stock Option Plan
provides for the grant of non-qualified and incentive stock
options to officers and key employees at prices no less than the
market price of the stock on the date of each grant. It also
provides for a fixed annual grant of 2,000 non-qualified stock
options to each non-employee director the day after each
years annual meeting of shareholders. Through
April 1, 2001, non-employee directors had been issued a
total of 54,000 options which were canceled effective with the
sale of the Adult Bedding and Bath division in July, 2001.
During each of fiscal years 2004, 2003, and 2002, 14,000
non-qualified options were issued to non-employee directors.
One-third of the non-qualified options become exercisable on
each of the first three anniversaries of their issuances and the
options expire on the fifth anniversary of their issuance.

A total of 1,930,000 shares of common stock had
been authorized for issuance under the plan until July 21,
2003 when the number authorized for issuance was amended to be
1,292,513. At March 28, 2004, 577,900 options were reserved
for future issuance. The options outstanding at March 28,
2004 expire through November 7, 2013, have a weighted
average remaining contractual life of 7.85 years, and
include 288,159 options exercisable at March 28, 2004
with a weighted average exercise price of $0.96.

Options outstanding prior to and through the
fiscal year ended March 31, 2002 also included options
issued under the Companys 1976 Stock Option Plan, which
was replaced by the 1995 Stock Option Plan. As of March 28,
2004, there were no options issued or outstanding under the 1976
Stock Option Plan.

The following table summarizes stock option
activity during each of the most recent three fiscal years:

F-14



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                    |  |           |            |                |  |                |              |  |  |   |      | 
|----------------------------------- |  | --------- | ---------- | -------------- |  | -------------- | ------------ |  |  | - | ---- | 
|                                    |  |           |            |                |  | Weighted      
|                                    |  | Number    |            | Exercise Price |  | Average       
|                                    |  | of Shares |            | per Share      |  | Exercise Price
|                                    |  |           |            |                |  |               
|Options outstanding, April 1, 2001  |  |           | 1,336,961  |                |  | $              | 0.47 - 18.75 |  |  | $ | 6.37 | 
|Options granted                     |  |           | 63,750     |                |  |                | 0.18 - 0.41  |  |  |   | 0.23 | 
|Options canceled                    |  |           | (1,142,611 | )              |  |                | 0.47-18.75   |  |  |   | 6.69 | 
|                                    |  |           |            |                |  |                |              |  |  |   |      | 
|Options outstanding, March 31, 2002 |  |           | 258,100    |                |  |                | 0.18-17.50   |  |  |   | 3.42 | 
|Options granted                     |  |           | 328,000    |                |  |                | 0.71         |  |  |   | 0.71 | 
|Options canceled                    |  |           | (61,550    | )              |  |                | 0.18-17.50   |  |  |   | 7.18 | 
|                                    |  |           |            |                |  |                |              |  |  |   |      | 
|Options outstanding, March 30, 2003 |  |           | 524,550    |                |  |                | 0.18-8.06    |  |  |   | 1.28 | 
|Options granted                     |  |           | 174,750    |                |  |                | 0.65         |  |  |   | 0.65 | 
|Options exercised                   |  |           | 2,500      |                |  |                | 0.18         |  |  |   | 0.18 | 
|Options canceled                    |  |           | 118,900    |                |  |                | 0.18-8.06    |  |  |   | 2.73 | 
|                                    |  |           |            |                |  |                |              |  |  |   |      | 
|Options outstanding, March 28, 2004 |  |           | 577,900    |                |  | $              | 0.18-2.31    |  |  | $ | 0.95 | 
|                                    |  |           |            |                |  |                |              |  |  |   |      | 

The following table summarizes information about
stock options outstanding and exercisable at March 28, 2004
by range of exercise price:

|                |              |             |  |               |         |                |  |             |            |                |  |   |      |  |  |  |         |  |  |   |      | 
|--------------- | ------------ | ----------- |  | ------------- | ------- | -------------- |  | ----------- | ---------- | -------------- |  | - | ---- |  |  |  | ------- |  |  | - | ---- | 
|                |              |             |  | Weighted Avg. |         | Weighted Avg.  |  |             |            | Weighted Avg. 
|                |              | Number of   |  | Remaining     |         | Exercise Price |  | Number of   |            | Exercise Price
|Range of        |              | Options     |  | Contractual   |         | Of Options     |  | Shares      |            | of Shares     
|Exercise Prices |              | Outstanding |  | Life          |         | Outstanding    |  | Exercisable |            | Exercisable   
|                |              |             |  |               |         |                |  |             |            |               
|$               | 0.18  $0.41 |             |  |               | 47,000  |                |  |             | 5.94 years |                |  | $ | 0.25 |  |  |  | 42,338  |  |  | $ | 0.23 | 
|                | 0.65         |             |  |               | 164,750 |                |  |             | 9.19 years |                |  |   | 0.65 |  |  |  |        |  |  |   |     | 
|                | 0.71         |             |  |               | 246,250 |                |  |             | 8.13 years |                |  |   | 0.71 |  |  |  | 125,921 |  |  |   | 0.71 | 
|                | 1.06  2.31  |             |  |               | 119,900 |                |  |             | 6.16 years |                |  |   | 1.47 |  |  |  | 119,900 |  |  |   | 1.47 | 
|                |              |             |  |               |         |                |  |             |            |                |  |   |      |  |  |  |         |  |  |   |      | 
|                |              |             |  |               | 577,900 |                |  |             |            |                |  |   |      |  |  |  | 288,159 |  |  |   |      | 
|                |              |             |  |               |         |                |  |             |            |                |  |   |      |  |  |  |         |  |  |   |      | 

Option holders may pay the option price of
options exercised by surrendering to the Company shares of the
Companys stock that the option holder has owned for at
least six months prior to the date of such exercise. Option
holders may also satisfy their required income tax withholding
obligations upon the exercise of options by requesting the
Company to withhold the number of otherwise issuable shares with
a market value equal to such tax withholding obligation.

Note 10  Major Customers

The table below indicates customers representing
more than 10% of sales.

|                      |  |             |    |      |  |      |    |   |  |  |    |  
|--------------------- |  | ----------- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                      |  |            
|                      |  | Fiscal Year
|                      |  |            
|                      |  | 2004        |    | 2003 |  | 2002
|                      |  |             |    |      |  |     
|Toys R Us             |  |             | 36 | %    |  |      | 31 | % |  |  | 26 | %
|Wal-Mart Stores, Inc. |  |             | 27 | %    |  |      | 30 | % |  |  | 22 | %
|Target Corporation    |  |             | 12 | %    |  |      | 10 | % |  |  | *  |  






|  |               
|- | --------------
|* | Less than 10%.

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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 11  Commitments and
Contingencies

The following table summarizes the maturity or
expiration dates of mandatory financial obligations and
commitments for the following periods.

|                              |  |                        |        |           |  |             |       |             |  |         |       |  |  |   |        |  |  |   |   | 
|----------------------------- |  | ---------------------- | ------ | --------- |  | ----------- | ----- | ----------- |  | ------- | ----- |  |  | - | ------ |  |  | - | - | 
|                              |  |                       
|                              |  | Payments Due by Period
|                              |  |                       
|                              |  |                        |        | Less Than |  |             |       | More Than  
|                              |  | Total                  |        | 1 Year    |  | 1 - 3 Years |       | 3 - 5 Years |  | 5 Years
|                              |  |                        |        |           |  |             |       |             |  |        
|                              |  |                       
|                              |  | (in thousands)        
|Contractual Obligations       |  |                        |        |           |  |             |       |             |  |         |       |  |  |   |        |  |  |   |   | 
|Long-Term Debt Obligations    |  | $                      | 34,036 |           |  | $           | 2,000 |             |  | $       | 7,495 |  |  | $ | 24,541 |  |  | $ |  | 
|Capital Lease Obligations     |  |                        | 54     |           |  |             | 14    |             |  |         | 36    |  |  |   | 4      |  |  |   |  | 
|Operating Lease Obligations   |  |                        | 3,080  |           |  |             | 1,373 |             |  |         | 1,637 |  |  |   | 70     |  |  |   |  | 
|Purchase Obligations          |  |                        | 755    |           |  |             | 732   |             |  |         | 23    |  |  |   | 1      |  |  |   |  | 
|Minimum Royalty Obligations   |  |                        | 3,513  |           |  |             | 3,277 |             |  |         | 236   |  |  |   |       |  |  |   |  | 
|                              |  |                        |        |           |  |             |       |             |  |         |       |  |  |   |        |  |  |   |   | 
|Total Contractual Obligations |  | $                      | 41,438 |           |  | $           | 7,396 |             |  | $       | 9,427 |  |  | $ | 24,616 |  |  | $ |  | 
|                              |  |                        |        |           |  |             |       |             |  |         |       |  |  |   |        |  |  |   |   | 

Total rent expense was $1.7 million,
$1.6 million, and $2.3 million for the years ended
March 28, 2004, March 30, 2003, and March 31,
2002, respectively.

Total royalty expense, net of royalty income, was
$5.7 million, $6.5 million, and $7.5 million, for
fiscal 2004, 2003, and 2002, respectively.

Note 12  Segment and Related
Information

The Companys principal segments
include 1) adult home furnishing and juvenile products
and 2) infant products. The adult home furnishing and
juvenile products segment consists of bedroom and bath products
(adult comforters, sheets and towels), throws and juvenile
products (primarily Pillow Buddies®). The infant products
segment consists of infant bedding, bibs, and infant soft goods.
The Company tracks revenues and operating profit information for
these two business segments. After the sale of the Adult Bedding
and Bath division in July, 2001, the Company is primarily in the
infant products segment.

The Companys manufacturing and distribution
operations were also divided into adult home furnishing and
juvenile and infant products. The Companys facilities in
North Carolina (sold July, 2001) and Kentucky support adult home
furnishing and juvenile products. The Companys facilities
in Louisiana, California and Mexico support infant products.
Assets, capital expenditures, depreciation and amortization are
tracked for adult home furnishing and juvenile products as a
whole and for infant products.

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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Financial information attributable to the
Companys business segments for the years ended
March 28, 2004, March 30, 2003, and March 31,
2002, is as follows (in thousands):

|                               |  |      |        |      |  |      |        |   |  |   |         |  
|------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                               |  | 2004 |        | 2003 |  | 2002
|                               |  |      |        |      |  |     
|Net sales:                     |  |      |        |      |  |      |        |   |  |   |         |  
|Adult home furnishing products |  | $    | 2,377  |      |  | $    | 2,557  |   |  | $ | 23,227  |  
|Infant & juvenile products     |  |      | 83,850 |      |  |      | 92,178 |   |  |   | 94,364  |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|                               |  | $    | 86,227 |      |  | $    | 94,735 |   |  | $ | 117,591 |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|Income (loss) from operations: |  |      |        |      |  |      |        |   |  |   |         |  
|Adult home furnishing products |  | $    | (102   | )    |  | $    | (109   | ) |  | $ | (3,075  | )
|Infant & juvenile products     |  |      | 7,538  |      |  |      | 7,057  |   |  |   | 8,097   |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|                               |  | $    | 7,436  |      |  | $    | 6,948  |   |  | $ | 5,022   |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|Assets:                        |  |      |        |      |  |      |        |   |  |   |         |  
|Adult home furnishing products |  | $    | 1,803  |      |  | $    | 2,013  |   |  | $ | 3,183   |  
|Infant & juvenile products     |  |      | 56,584 |      |  |      | 55,913 |   |  |   | 57,017  |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|                               |  | $    | 58,387 |      |  | $    | 57,926 |   |  | $ | 60,200  |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|Capital expenditures:          |  |      |        |      |  |      |        |   |  |   |         |  
|Adult home furnishing products |  | $    | 9      |      |  | $    | 1      |   |  | $ |        |  
|Infant & juvenile products     |  |      | 413    |      |  |      | 396    |   |  |   | 309     |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|                               |  | $    | 422    |      |  | $    | 397    |   |  | $ | 309     |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|Depreciation and amortization: |  |      |        |      |  |      |        |   |  |   |         |  
|Adult home furnishing products |  | $    | 63     |      |  | $    | 65     |   |  | $ | 195     |  
|Infant & juvenile products     |  |      | 468    |      |  |      | 659    |   |  |   | 1,830   |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  
|                               |  | $    | 531    |      |  | $    | 724    |   |  | $ | 2,025   |  
|                               |  |      |        |      |  |      |        |   |  |   |         |  

The key features used by decision makers are the
level of operating income relative to revenues and assets. In
addition, EBITDA is used as a key management tool.

Revenues for individual product groups within
these business segments are summarized below.

|                             |  |      |        |      |  |      |        |  |  |   |         | 
|---------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|                             |  | 2004 |        | 2003 |  | 2002
|                             |  |      |        |      |  |     
|Bedding & bath products      |  | $    |       |      |  | $    |       |  |  | $ | 19,937  | 
|Throws                       |  |      | 2,377  |      |  |      | 2,557  |  |  |   | 3,192   | 
|Infant and juvenile products |  |      | 83,850 |      |  |      | 92,178 |  |  |   | 94,463  | 
|                             |  |      |        |      |  |      |        |  |  |   |         | 
|                             |  | $    | 86,227 |      |  | $    | 94,735 |  |  | $ | 117,592 | 
|                             |  |      |        |      |  |      |        |  |  |   |         | 

F-17



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##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CROWN CRAFTS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

Selected Quarterly Financial
Information


UNAUDITED QUARTERLY FINANCIAL
INFORMATION

in thousands, except per share amounts


|                                      |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        | 
|------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | 
|                                      |  | First   |        | Second  |  | Third   |        | Fourth 
|                                      |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                      |  |         |        |         |  |         |        |        
|Fiscal Year ended March 28,
    2004: |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        | 
|Net sales                             |  | $       | 18,465 |         |  | $       | 22,001 |         |  | $ | 20,717 |   |  | $ | 25,044 | 
|Gross profit                          |  |         | 4,161  |         |  |         | 4,872  |         |  |   | 4,489  |   |  |   | 6,072  | 
|Net income (loss)                     |  |         | (114   | )       |  |         | 924    |         |  |   | 719    |   |  |   | 1,574  | 
|Basic net income (loss) per share     |  |         | (0.01  | )       |  |         | 0.10   |         |  |   | 0.08   |   |  |   | 0.17   | 
|Diluted net income (loss) per share   |  |         | (0.01  | )       |  |         | 0.04   |         |  |   | 0.03   |   |  |   | 0.07   | 
|Fiscal Year ended March 30,
    2003: |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        | 
|Net sales                             |  | $       | 17,928 |         |  | $       | 28,399 |         |  | $ | 21,636 |   |  | $ | 26,772 | 
|Gross profit                          |  |         | 3,619  |         |  |         | 6,768  |         |  |   | 4,613  |   |  |   | 6,420  | 
|Net income (loss) (1)                 |  |         | (693   | )       |  |         | 2,079  |         |  |   | (991   | ) |  |   | 2,092  | 
|Basic net income (loss) per share     |  |         | (0.07  | )       |  |         | 0.22   |         |  |   | (0.11  | ) |  |   | 0.22   | 
|Diluted net income (loss) per share   |  |         | (0.07  | )       |  |         | 0.09   |         |  |   | (0.11  | ) |  |   | 0.10   | 






|    |                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the third quarter of fiscal year 2003, the
    Company recorded a restructuring charge of $1.8 million
    related to the closure of one of the Companys subsidiaries
    as discussed in Note 4, Restructuring Charge.

F-18