7. Notes Receivable

Culp, Inc.(U.S. Parent)

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

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

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

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

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

Rayonese Textile, Inc.

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

During the fourth quarter of fiscal 2026 we received cash proceeds for the remaining balance of $6.6 million CAD ($4.7 million USD). Accordingly, there was no notes receivable balance regarding this agreement as of August 2, 2026 and May 3, 2026.

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