NOTE

– Summary of Significant Interim Accounting Policies:

a) Basis of presentation

The consolidated interim 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; 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. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017,

and filed with the Securities and Exchange Commission. The interim financial information contained herein is

not

certified or audited; it reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The results of operations for any interim period are

not

necessarily indicative of results to be expected for the full year.

b) Revenue recognition and allowance for doubtful accounts

The Company recognizes revenue in accordance with ASC

606

effective

January 1, 2018.

The majority of our revenues are recognized as goods are shipped and title passes and as services are provided. Under the new standard revenue is recognized for on hand inventory that is covered by a contract termination clause and has

alternative use. See Note

(p). The Company collects sales tax for various taxing authorities. It is the Company’s policy to record revenues on a net basis. Therefore, sales taxes collected are

not

included in net sales for the Company. Variable consideration 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 and in establishing allowances for doubtful accounts. 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. 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.

c) Recognition of costs and expenses

Costs and expenses other than product costs are charged to income in interim periods as incurred, or allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Procedures adopted for assigning specific cost and expense items to an interim period are consistent with the basis followed by the registrant in reporting results of operations at annual reporting dates. However, when a specific cost or expense item charged to expense for annual reporting purposes benefits more than

one

interim period, the cost or expense item is allocated to the interim periods.

d) Amortization of other intangible assets

The Company amortizes identifiable intangible assets on a straight line basis over their expected useful lives. Amortization expense for other intangible assets was

$0.8

million and

$0.6

million for the

three

-month periods ended

March 31, 2018

and

2017,

respectively.

e) Advertising expenses

The Company expenses advertising costs as incurred. Advertising costs were

$0.1

million for each of the

three

-month periods ended

March 31, 2018

and

2017.

f) Shipping and handling fees and costs

The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with in-bound and out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs such as labor and overhead are included in selling and

administrative expenses

and totaled

$2.7

million and

$2.8

million for the

three

-month periods ended

March 31, 2018

and

2017,

respectively.

g) Inventories

Inventories at interim dates are determined by using both perpetual records on a

first

-in,

first

-out basis and gross profit calculations.

h) Accounting for income taxes

The provision for income taxes is calculated by using the effective tax rate anticipated for the full year.

i) Employee benefit plan settlements

The Company recognizes settlement gains and losses in its 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.

j) 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 appreciation rights, unvested shares, and performance shares.

k) Derivative financial instruments

The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates and foreign currency. The Company records derivatives on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. On the date a derivative contract is entered into, the Company

may

elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is highly effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in other comprehensive income (“OCI”), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. The Company discontinues hedge accounting prospectively when it is determined that the derivative is

longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is

longer appropriate. In situations in which the Company does

not

elect hedge accounting or hedge accounting is discontinued and the derivative is retained, the Company carries or continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value through earnings.

The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates and foreign currency. The Company does

not

enter into derivative instruments for speculative purposes. The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that

may

be undertaken, and by entering into transactions with high-quality counterparties.

Effective

March 3, 2017,

in order to reduce the interest rate risk on its future debt, the Company entered into an interest rate swap agreement that was designed to effectively convert or hedge the variable interest rate on a portion of its future borrowings to achieve a net fixed rate beginning

March 1, 2018

with a notional amount of

$18.0

million. The previous swap agreement was terminated on

February 24, 2017. (

See Note

)

January 3, 2017,

the Company entered into a foreign exchange forward contract to lock in the exchange rate on the Brazilian real to limit the risk of changes in foreign currency on the expected payment of a customer receivable. The amount of the contract was

$1.8

million and settled on

June 29, 2017.

A loss of

$0.1

million on this contract was recognized in the

second

quarter of

2017,

which was included in selling and administrative expenses.

l) 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 from those estimates.

m) Comprehensive income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For the Company, the only other components of total comprehensive income are the change in pension costs, change in fair value of qualifying hedges, and foreign currency translation adjustments.

n) Operating segments

Accounting standards require disclosures of certain information about operating segments and about products and services, geographic areas in which the Company operates, and their major customers. The Company has evaluated its operations and has determined that it has

three

reportable segments - Uniforms and Related Products, Remote Staffing Solutions and Promotional Products. (See Note

)

o) 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

March 31, 2018,

the Company had

3,507,469

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

2013

Incentive Stock and Awards Plan.

The 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.

p) Recent Accounting Pronouncements

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 were effective for annual and interim periods beginning after

December 15, 2016.

Early adoption is 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 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 the quarters ended

March 31, 2017

2018.

March 2017,

the FASB issued ASU

2017

“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendment requires the service cost component be presented in the same line item as compensation costs for the pertinent employees during the period. The other components of net pension cost must be presented outside a subtotal of income from operations, if

one

is presented. The amendments are effective for annual periods beginning after

December 15, 2017

and must be applied retrospectively. The Company adopted ASU

2017

in the

first

quarter of

2018.

As a result, we have added an additional line item to our consolidated statements of comprehensive income and restated our

2017

results to reflect the change in accounting principle. Service costs are included in selling and administrative expenses and other components of net pension cost are included in other periodic pension cost.

May 2014,

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

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

) that superseded 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. ASC

606

was adopted by the Company on

January 1, 2018

using the modified retrospective method. The cumulative effect of applying the new standard was recorded as an adjustment to the opening balance of retained earnings, as further described below. The comparative information for prior periods has

not

been restated and continues to be reported under the accounting standards in effect for those periods. For our Uniforms and Related Products and Promotional Products segments, our revenue is primarily 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 have moved from a point in time model to an over time model in which our measure of progress is finished goods with

alternative use. We expect the new standard will have

cash impact and does

not

affect the economics of our underlying customer contracts.

We recorded a net increase in opening retained earnings of

$11.2

million as of

January 1, 2018

due to the cumulative impact of ASC

606.

The impact on revenues for the quarter ended

March 31, 2018

was an increase of

$3.7

million as a result of ASC

606.

The opening retained earnings adjustment is as follows (in thousands):

Net sales	$	42,880
Cost of goods sold		27,397
Selling and administrative expenses		706
Income before taxes on income		14,777
Income tax expense		3,542
Adjustment to opening retained earnings	$	11,235

Payment of the cumulative tax adjustment will be made over

four

years as a change in accounting method.

The following table disaggregates our net sales by major source (in thousands):

	As Reported		Balances Without Adoption of		Effect of Change
	3/31/2018		ASC 606		3/31/2018

Uniform and Related Products	$	48,125	$	45,125	$	3,000
Remote Staffing Solutions		6,286		6,286		-
Promotional Products		18,676		17,947		729
	$	73,087	$	69,358	$	3,729

Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the goods. Sales taxes, sales discounts and customer rebates are also excluded from revenue. In accordance with ASC

606

revenue is recorded for goods that the customer is obligated to purchase under the termination terms of the contract which have

alternative use. Contract termination terms

may

involve variable consideration clauses such as discounts and rebates and revenue has been adjusted accordingly in our ASC

606

adjustment. Revenue from our Remote Staffing segment is recognized as services are delivered and did

not

generate an ASC

606

adjustment in the quarter ended

March 31, 2018.

The Company does

not

have any remaining performance obligations related to revenue recorded for ASC

606

for the quarter ended

March 31, 2018.

The impact of adoption of ASC

606

on our consolidated balance sheet and statement of comprehensive income as of

March 31, 2018

is as follows (in thousands):

Balance Sheet

	As Reported		Balances Without Adoption of		Effect of Change
	3/31/2018		ASC 606		3/31/2018
Assets:
Contract assets	$	47,098	$	-	$	47,098
Inventory		36,380		63,722		(27,342	)
Prepaid and other current assets		10,005		10,890		(885	)
Deferred taxes		215		2,872		(2,657	)

Liabilities:
Accounts payable	$	19,263	$	16,492	$	2,771
Other current liabilites		9,375		8,112		1,263

In accordance with ASC

606,

the Company has recognized contract assets of

$47.1

million as of

March 31, 2018

for goods produced without an alternative use which the Company has an enforceable right to payment but has

not

yet been invoiced to the customer.

	As Reported		Balances Without Adoption of		Effect of Change
	3/31/2018		ASC 606		3/31/2018
Statement of comprehensive income:
Net sales	$	73,087	$	69,358	$	3,729
Cost of goods sold		48,212		45,496		2,716
Selling and administrative expenses		21,182		21,114		68

The cost of goods sold associated with our ASC

606

adjustment include the cost of the garments, alterations (if applicable) and shipping costs. Selling and administrative expenses consist of sales commissions.