NOTE

– Summary of Significant Accounting Policies:

a) Business description

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

, HPI™, and WonderWink

manufactures (through

third

parties or its own facilities) 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.

Superior services its Remote Staffing Solutions segment through multiple The Office Gurus entities, including its 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 Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; 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”, “Superior”, “we”, “our”, or “us”. Effective

May 3,

2108,

Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc. 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.

d) Revenue recognition and allowance for doubtful accounts

The Company recognizes revenue in accordance with ASC

606

effective

January 1, 2018.

Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the earnings process is complete, for goods that have

alternative use, and the customer is obligated to purchase the goods under contract termination provisions. Contract termination terms

may

involve variable consideration clauses such as discounts and rebates. Revenue has been adjusted accordingly for these provisions. Revenue for goods that do have an alternative use for which the customer is

not

obligated to purchase under the terms of a contract is generally recognized 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. Revenue from our Remote Staffing segment is recognized as services are delivered. 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.

e) 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.

f) Advertising expenses

The Company expenses advertising costs as incurred. Advertising costs for of the years ended

December 31, 2018,

2017

and

2016,

respectively, were

$0.7

million,

$0.1

million, and

$0.1

million.

g) 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

$14.0

million,

$10.9

million and

$10.6

million for the years ended

December 31, 2018,

2017

and

2016,

respectively.

h) Inventories

Inventories are stated at the lower of cost (

first

-in,

first

-out method or average cost) or net realizable 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.

i) 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.

j) 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 personnel, 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

$22.1

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 testing of goodwill as of

December 31, 2018

and determined that that the fair value of the reporting units was more than its carrying value.

k) Other intangible assets

Other intangible assets consist of customer relationships, non-compete agreements 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, 2018

and

2017

were as follows (In thousands):

	Customer Relationships			Weighted Average Life (years)		Non-Compete Agreement			Weighted Average Life (years)		Customer Backlog			Weighted Average Life (years)
December 31, 2018
Cost	$	41,530			10.8	$	1,411			4.1	$	-			-
Accumulated amortization		(7,762	)				(326	)				-
Net	$	33,768				$	1,085				$	-

December 31, 2017
Cost	$	15,530			8.8	$	5,551			5.1	$	122			0.5
Accumulated amortization		(4,782	)				(4,619	)				(10	)
Net	$	10,748				$	932				$	112

Amortization expense for other intangible assets was

$3.8

million,

$2.4

million and

$2.3

million for the years ended

December 31, 2018,

2017

and

2016,

respectively. Amortization expense for other intangible assets is expected to be

$3.8

million in each of the years ending

December 31, 2019

through

2022;

$3.0

million in

2023;

$2.2

million in

2024;

and

$1.7

million in each of the years

2025

through

2034.

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.

As part of the acquisition of CID Resources in

2018,

the Company recorded

$14.2

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

not

being amortized.

l) 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.

m) 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.

n) 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.

o) 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

p) Impairment of long-lived assets

Long-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, 2018,

2017,

and

2016.

q) Share-based compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. The company grants options, stock-settled stock appreciation rights, restricted stock, and performance shares. At

December 31, 2018,

the Company had

3,498,367

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.

r) 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, restricted stock, and performance shares.

s) 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).

t) 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.

u) 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, 2018

and

2017,

the Company had

customers with an accounts receivable balance greater than

7.4%

of the total accounts receivable. At

December 31, 2018

and

2017,

the top

five

accounts receivable customer balances totaled

$12.8

million and

$14.2

million, respectively, or approximately

20.0%

and

28.0%

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

December 31, 2018,

2017,

and

2016

had net sales of approximately

$20.1

million,

$20.6

million and

$19.3

million, respectively, or approximately

5.8%,

7.7%

and

7.6%

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

five

largest customers for the years ended

December 31, 2018,

2017

and

2016

had net sales of approximately

$47.1

million,

$50.7

million and

$57.6

million, respectively, or approximately

13.6%,

19.0%

and

22.8%

of the respective total net sales for the Company.

Included in accounts receivable-other on the Company’s consolidated balance sheets at

December 31, 2018

and

2017

are receivable balances from a supplier in Haiti totaling

$1.6

million and

$1.5

million, respectively.

2018,

2017

and

2016,

approximately

24%,

34%

and

31%,

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

2018,

2017

and

2016,

approximately

25%,

34%

and

32%,

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

2018,

2017

and

2016,

approximately

28%,

67%

and

59%,

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

v) Fair value of financial instruments

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value as of

December 31, 2018

and

2017,

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) 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.

) Recent Accounting Pronouncements

February 2016,

the Financial Accounting Standards Board (“FASB”) established Topic

842,

Leases, by issuing Accounting Standards Update (“ASU”)

No.

2016

02,

which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic

842

was subsequently amended by ASU

No.

2018

01,

Land Easement Practical Expedient for Transition to Topic

842;

ASU

No.

2018

10,

Codification Improvements to Topic

842,

Leases; and ASU

No.

2018

11,

Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than

months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The amendments are required to be adopted by the Company on

January 1, 2019.

A modified retrospective transition approach is required, applying the standard to all leases existing at the date of initial application. The Company elects to use its effective date as its date of initial application. Consequently, financial information will

not

be updated, and the disclosures required under the new standard will

not

be provided for dates and periods before

January 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company

not

to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does

not

expect to elect the use-of hindsight or the practical expedient pertaining to land easement; the latter

not

being applicable to the Company. The Company expects that this standard will

not

have a material effect on its financial statements. The Company continues to assess all of the effects of adoption, with the most significant effect relating to the recognition of new ROU assets and lease liabilities on our balance sheet for real estate operating leases. The Company expects to recognize additional operating liabilities ranging from

$2.0

million to

$4.0

million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operation leases.

August 2016,

the FASB issued ASU

2016

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments”. The amendment provides guidance on the classification of contingent consideration payments made after a business combination and other cash receipts and payments. The amendments are effective for annual periods beginning after

December 15, 2017

and must be applied retrospectively. The Company adopted ASU

2017

2018.

As a result, we have reclassified cash payments in excess of the acquisition date fair values from financing activities to operating activities for all periods presented.

March 2017,

the FASB issued ASU

2017

07,

“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 costs.

May 2014,

FASB issued ASU

2014

09,

Revenue from Contracts with Customers (Topic

606

) “ASC

606”

that superseded previous 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 an 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. The new standard has

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

twelve

months ended

December 31, 2018

was an increase of

$3.5

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		3,532
Adjustment to opening retained earnings	$	11,245

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 for		Balances
	Twelve Months		Without
	Ended		Adoption of		Effect of Change
	12/31/2018		ASC 606		12/31/2018

Uniform and Related Products	$	238,166	$	237,095	$	1,071
Remote Staffing Solutions		27,272		27,272		-
Promotional Products		80,912		78,514		2,398
	$	346,350	$	342,881	$	3,469

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. Revenues from contracts containing termination provisions are recorded at terminal value if applicable and therefore do

not

represent the selling margins if the sale transaction occurred in the normal course of business. Therefore, revenues recognized under this provision

may

not

reflect the gross margins to be realized for transactions

not

affected by a contract termination. Revenue from our Remote Staffing segment is recognized as services are delivered and did

not

generate an ASC

606

adjustment in the

twelve

month period ended

December 31, 2018.

The Company does

not

have any remaining performance obligations as defined under ASC

606

related to revenue recorded for the year ended

December 31, 2018.

The impact of adoption of ASC

606

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

December 31, 2018

is as follows (in thousands):

			Balances
			Without		Effect of
	As Reported		Adoption of		Change
	12/31/2018		ASC 606		12/31/2018
Balance Sheet:
Assets:
Contract assets	$	49,236	$	-	$	49,236
Inventory		67,301		95,984		(28,683	)

Liabilities:
Accounts payable	$	24,685	$	21,981	$	2,704
Other current liabilities		14,767		12,798		1,969
Deferred taxes		8,475		5,589		2,886

In accordance with ASC

606,

the Company has recognized contract assets of

$49.2

million as of

December 31, 2018

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

not

yet been shipped or invoiced to the customer.

	As Reported for		Balances
	Twelve Months		Without		Effect of
	Ended		Adoption of		Change
	12/31/2018		ASC 606		12/31/2018
Statement of comprehensive income:
Net sales	$	346,350	$	342,881	$	3,469
Cost of goods sold		224,653		221,920		2,733
Selling and administrative expenses		96,710		96,758		(48	)

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.