NOTE

– Summary of Significant Accounting Policies:

a) Business description

Superior

’s Uniforms and Related Products segment, through its signature marketing brands Fashion Seal Healthcare

HPI Direct

, Superior I.D.™, Worklon

, and UniVogue

manufactures and sells a wide range of uniforms, corporate identity apparel, career apparel and accessories for the hospital and healthcare fields; hotels; fast food and other restaurants; transportation; and the private security, industrial and commercial markets. In excess of

95%

of Superior’s Uniforms and Related Products segment’s net sales are from the sale of uniforms and service apparel and directly-related products.

uperior services its Remote Staffing Solutions segment through multiple The Office Gurus entities, including its direct and indirect subsidiaries in El Salvador, Belize, and the United States, (collectively, “TOG”). TOG is a near-shore premium provider of cost effective multilingual telemarketing and total office support solutions.

The Promotional Products segment

, through the BAMKO, Public Identity and Tangerine brands, services customers that purchase primarily promotional and related products. The segment currently has sales offices in the United States and Brazil with support services in China, Hong Kong and India.

b) Basis of presentation

The consolidated financial statements include the accounts of Superior Uniform Group, Inc. and its wholly-owned subsidiaries, The

Office Gurus, LLC, SUG Holding, Fashion Seal Corporation, and BAMKO, LLC; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio

de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, and BAMKO UK, Limited, each a direct or indirect subsidiary of BAMKO, LLC, and BAMKO India Private Limited, a

99%

-owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as “the Company”. Intercompany items have been eliminated in consolidation.

c) Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of

three

months or less at the time of purchase to be cash equivalents.

Revenue recognition and allowance for doubtful accounts

The Company recognizes revenue as products are shipped and title passes

and as services are provided.

The Company collects sales tax for various taxing authorities. It is the Company’s policy to record these amounts on a net basis. Therefore, these amounts are

not

included in net sales for the Company. A provision for estimated returns and allowances is recorded based upon historical experience and current allowance programs. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. Charge-offs of accounts receivable are made once all collection efforts have been exhausted. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances

may

be required.

Accounts receivable-other

The Company purchases raw materials and has them delivered to certain suppliers of the Company. The Company pays for the raw materials and then deducts the cost of these materials from payments to the suppliers at the time the related finished goods are invoiced to the Company by those suppliers.

) Advertising expenses

The Company expenses advertising costs as incurred. Advertising costs for

each of the years ended

December 31, 2017,

2016

and

2015,

respectively, were

0.1

million.

) Cost of goods sold and shipping and handling fees and costs

Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing

, receiving and inspection costs, for our Uniforms and Related Products segment and our Promotional Products segment. Cost of goods sold for our Remote Staffing Solutions segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs are included in selling and administrative expenses and totaled

$10.9

million,

$10.6

million and

$9.3

million for the years ended

December 31, 2017,

2016

and

2015,

respectively.

) Inventories

Inventories are stated at the lower of cost (

first

-in,

first

-out method) or market value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs

may

be required.

) Property, plant and equipment

Property, plant and equipment are stated at cost

, less accumulated depreciation and amortization. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which do

not

improve or extend the life of the respective assets are expensed on a current basis. Costs of assets sold or retired and the related accumulated depreciation and amortization are eliminated from accounts and the net gain or loss is reflected in the consolidated statements of comprehensive income within selling and administrative expenses.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill for impairment annually as of

December

31st

and/or when an event occurs or circumstances change such that it is more likely than

not

that impairment

may

exist. Examples of such events and circumstances that the Company would consider include the following:

•	macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets;

•

industry and market considerations such as a deterioration in the environment in which the Company operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for the

Company's products or services, or a regulatory or political development;

•	cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;

•	overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods;

•	other relevant entity-specific events such as changes in management, key pe rsonnel, strategy, or customers.

Goodwill is tested at a level of reporting referred to as "the reporting unit." The

Company's reporting units are defined as each of its

three

reporting segments with its goodwill included in the Uniforms and Related Products segment of

$4.1

million and

$11.9

million in the Promotional Products segment.

An entity has the option to

first

assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than

not

(that is, a likelihood of more than

50%

) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is

not

more likely than

not

that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. The Company completed its assessment of the qualitative factors as of

December 31,

201

and determined that it was

not

more likely than

not

that the fair value of the reporting unit was less than its carrying value.

) Other intangible assets

Other intangible assets consist

of customer relationships, a non-compete agreement and trade names acquired in previous business acquisitions.

The cost, amortization and net value of customer relationships and non-compete agreement as of

December 31, 2017

and

2016

were as follows (In thousands):

	Customer Relationships			Weighted Average Life (years)		Non-Compete Agreemen t			Weighted Average Life (years )		Customer Backlo g			Weighted Average Life (years )
December 31, 201 7

Cos t	$	15,530			8.8	$	5,551			5.1	$	122			0.5
Accumulated amortizatio n		(4,782	)				(4,619	)				(10	)

Ne t	$	10,748				$	932				$	112
December 31, 201 6
Cos t	$	12,311			9.4	$	5,370			5.1	$	0			N/A
Accumulated amortizatio n		(4,490	)				(3,553	)				0
Ne t	$	7,821				$	1,817				$	0

Amortization expense for other intangible assets was

$2.4

million,

$2.3

million and

$2.1

million for the years ended

December 31, 2017,

2016

and

2015,

respectively.

Amortization expense for other intangible assets is expected to be

$2.5

million in

2018;

1.9

million in each of the years ending

December 31, 2019

through

2021;

$1.8

million in

2022;

$1.1

million in

2023

and

$0.5

million in

2024.

As part of the acquisition of HPI in

2013,

the Company recorded

$4.7

million as the fair value of the acquired trade name in other intangible assets. This asset is considered to have an indefinite life and as such is

not

being amortized.

As part of the acquisition of BAMKO in

2016,

the Company recorded

$8.9

million as the fair value of the acquired trade name in other intangible assets. This asset is considered to have an indefinite life and as such is

not

being amortized.

As part of the acquisitions of Public Identity and Tangerine in

2017,

the Company recorded

$0.5

million and

$3.2

million, respectively as the fair value of the acquired trade names in other intangible assets. These amounts are considered to have an indefinite life and as such are

not

being amortized.

) Depreciation and amortization

Plant and equipment are depreciated

on the straight-line basis at

2.5%

for buildings,

2.5%

20%

for improvements,

10%

33.33%

for machinery, equipment and fixtures and

20%

33.33%

for transportation equipment. Leasehold improvements are amortized over the terms of the leases inasmuch as such improvements have useful lives of at least the terms of the respective leases.

) Employee benefits

Pension plan costs are funded currently based on actuarial estimates, with prior service costs amortized over

years. The Company recognizes settlement gains and losses in its

consolidated financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year.

) Insurance

The Company self-insures for certain

obligations related to employee health programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have

not

been reported. The Company's estimates consider historical claim experience and other factors. The Company's liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability

may

be in excess of or less than the amounts recorded. Changes in claim experience, the Company's ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

) Taxes on income

Income taxes are provided for under the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required. The Company also reports interest and penalties related to uncertain income tax positions as income taxes. Refer to Note

) Impairment of long-lived assets

ong-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. There was

impairment of long-lived assets for the years ended

December 31, 2017,

2016,

and

2015.

) Share-based compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company

’s long-term success. Historically, the Company has granted options, stock-settled stock appreciation rights, and restricted stock. In

2016,

the Company began issuing performance shares as well. At

December 31, 2017,

the Company had

3,667,577

shares of common stock available for grant of awards of share-based compensation under its

2013

Incentive Stock and Awards Plan.

he Company recognizes share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period.

) Earnings per share

Historical basic per share data is based on the weighted average number of shares outstanding.

Historical diluted per share data is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options, stock-settled stock appreciation rights, and restricted stock.

) Comprehensive income

Other comprehensive income (loss) is defined as the change in equity during a period, from transactions and other events, excluding changes resulting from investments by owners (e.g., supplemental stock offering) and distributions to owners (e.g., dividends).

) Operating segments

The Financial Accounting Standards Board (“

FASB”) establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and services, geographic areas and major customers. The Company has reviewed the standard and determined that it has

three

reportable segments, Uniforms and Related Products, Remote Staffing Solutions and Promotional Products.

) Risks and concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts.

The Company manages this risk by maintaining all deposits in high quality financial institutions and periodically performing evaluations of the relative credit standing of the financial institutions.

When assessing credit risk the Company considers whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. At

December 31, 2017

and

2016,

the Company had

customers with an accounts receivable balance greater than

11.3

of the total accounts receivable. At

December 31, 2017

and

2016,

the top

five

accounts receivable customer balances totaled

$14.2

million and

$12.9

million, respectively, or approximately

28.0%

and

30.8%

of the respective total accounts receivable balances. The Company’s largest customer for each of the years ended

December 31, 2017,

2016,

and

2015

had net sales of approximately

$20.6

million,

$19.3

million and

$12.5

million, respectively, or approximately

7.7%,

7.6%

and

6.0%

of the respective total net sales for the Company. The Company’s

five

largest customers for the years ended

December 31, 2017,

2016

and

2015

had net sales of approximately

$50.7

million,

$57.6

million and

$48.9

million, respectively, or approximately

19.0%,

22.8%

and

23.3%

of the respective total net sales for the Company.

Included in accounts receivable-other on the Company

’s consolidated balance sheets at

December 31, 2017

and

2016

are receivable balances from a supplier in Haiti totaling

$1.5

million and

$2.3

million, respectively.

201

2016

and

2015,

approximately

28%,

31%

and

26%,

respectively, of our products for our Uniform and Related Products segment were sourced from or contained raw materials sourced from China. In

2017,

2016

and

2015,

approximately

32%,

32%

and

42%,

respectively, of our products for our Uniform and Related Products segment were obtained from suppliers located in Central America and Haiti. In

2017

and

2016,

approximately

67%

and

59%,

respectively, of our products for our Promotional Products segment were sourced from China. Any inability by the Company to continue to obtain its products from Central America and Haiti could significantly disrupt the Company’s business. Because the Company manufactures and sources products in Central America and Haiti, the Company is affected by economic conditions in those countries, including increased duties, possible employee turnover, labor unrest and lack of developed infrastructure.

) Fair value of financial instruments

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated f

air value as of

December 31, 2017

and

2016,

because of the relatively short maturities of these instruments. The carrying amount of the Company’s long-term debt approximated fair value as the rates are adjustable based upon current market conditions.

w) Stock Split

December 29, 2014,

the Board of Directors declared a

-for-

stock split of the Company

’s common stock. The record date of the split was

January 12, 2015,

and the stock split became effective

February 4, 2015.

All share and per share information in these consolidated interim financial statements have been restated for all periods presented, giving retroactive effect to the stock split. The Company revised certain historical amounts when it recorded the

-for-

stock split. The amounts were immaterial and reclassified within shareholders’ equity between par value and additional paid in capital.

) 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. Actual results could differ materially from those estimates.

y) Recent Accounting Pronouncements

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

) that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a

five

-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Additionally, the guidance requires disaggregated disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. The amendments are required to be adopted by the Company on

January 1, 2018.

Transition to the new guidance

may

be done using either a full or modified retrospective method.

The Company will use the modified retrospective transition method with the cumulative effect recorded to the opening balance of retained earnings. The Company’s assessment of the new standard is substantially complete. The timing of revenue recognition is

not

expected to change for our Remote Staffing Solutions segment. For our Uniforms and Related Products and Promotional Products segments, our revenue is generated from the sale of finished products to customers as products are shipped and title passes to the customers. For certain contracts with customers, the Company creates an asset with

alternative use to the Company, and the Company has enforceable right to payment for performance completed to date. For these contracts, we expect to move from a point in time model for revenue recognition to an over time model. We expect this to have a material impact on the timing of our revenue recognition. As of

December 31, 2017

we estimate a net cumulative increase to retained earnings between

$10.0

million and

$15.0

million. We expect the new standard will have

cash impact and does

not

affect the economics our underlying customer contracts. We do

not

expect this new guidance to have any other material impacts on our Consolidated Financial Statements but will significantly expand our disclosures.

April 2015,

the FASB issued ASU

No.

2015

to simplify the presentation of debt issuance costs. The amendments in this ASU require debt issuance costs to be presented on the balance sheet as a reduction from the carrying amount of the related debt liability. The amendment in this ASU is to be applied retrospectively and is effective for interim and annual reporting periods beginning after

December 15, 2015.

The Company adopted this ASU retrospectively effective

January 1, 2016,

and has reclassified all debt issuance costs as a reduction from the carrying amount of the related debt liability for both the current and prior period. (See Note

)

February 2016,

the FASB issued ASU

2016

that amends the accounting guidance on leases. The primary change in this ASU requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this ASU are to be applied using a modified retrospective approach and are effective for fiscal years beginning after

December 15, 2018.

The Company is in the preliminary phases of assessing the effect of this ASU. We have

not

yet selected a transition date nor have we yet determined the effect of this ASU on our results of operations, financial condition, or cash flows.

March 2016,

the FASB issued ASU

2016

09,

“Compensation

– Stock Compensation (Topic

718

): Improvements to Employee Share-Based Payment Accounting”. This update was issued as part of FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendment requires that excess tax benefits for share-based payments be recorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded in paid-in-capital and reflected within financing cash flows. The standard also clarifies that all cash payments when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows and provides for an accounting policy election to account for forfeitures when they occur. The amendments in this update are effective for annual and interim periods beginning after

December 15, 2016.

Early adoption was permitted in any interim or annual period but must be reflected as of the beginning of the fiscal year. The Company elected to early adopt the standard in the

fourth

quarter of

2016

which required us to reflect the adjustments as of

January 1, 2016.

The recognition of excess tax benefits in our provision for income taxes rather than paid-in-capital resulted in an income tax benefit of for the years ended

December 31, 2017

and

December 31, 2016

$1.8

million or

$0.12

per share and

$0.9

million or

$0.06

per share, respectively. Lastly, the company has made an accounting policy election to account for forfeitures in compensation cost when they occur. There was

material impact of this election in fiscal

2017.