SGC 10-K & 10-Q changes, risk factors and insider trading

The majority of such raw materials are sourced in China, either directly by us or our suppliers. If we are unable to source our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Even if we or our suppliers are able to source raw materials from China, we or they may face increased import duties as a result of changes in U.S. trade policy. See “Risks Relating to Our Industries - Changes to trade regulation, quotas, duties, tariffs or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China, which may materially harm our revenue and results of operations, such as by increasing our costs and/or limiting the amount of products that we can import.”

We cannot assure that our owned or licensed intellectual property or the operation of our business does not infringe on or otherwise violate the intellectual property rights of others. It is possible that third parties will assert claims against us on such basis, and if they do we cannot assure that we will be able to successfully resolve such claims. In addition, although we seek international protection of our intellectual property, the laws of some foreign countries do not allow us to protect, defend or enforce our intellectual property rights to the same extent as the laws of the United States. We could also incur substantial costs to defend legal actions relating to the use of our intellectual property or prosecute legal actions against others using our intellectual property, either of which could have a material adverse effect on our business, results of operations or financial condition. There also is no guarantee that we will be able to negotiate and conclude extensions of existing license agreements on similar economic terms or at all.

Sales to many of our customers are on an order-by-order basis. If we cannot fill customers’ orders on time, orders may be cancelled and relationships with customers may suffer, which could have an adverse effect on us, especially if the relationship is with a major customer. Furthermore, if any of our customers experience a significant downturn in their business, or fail to remain committed to our programs or brands, thesuch customers may reduce or discontinue purchases from us, which has happened. The reduction in the amount of our products purchased by customers could have a material adverse effect on our business, results of operations or financial condition.

In addition, some of our customers have, from time to time, experienced significant changes and difficulties, including consolidationchanges ofin ownership, increased centralization of buying decisions, buyer turnover, restructurings, bankruptcies and liquidations. A significant adverse change in a customer relationship or in a customer’s financial position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s receivables or limit our ability to collect amounts related to previous purchases by that customer, all of which could have a material adverse effect on our business, results of operations or financial condition.

Further, lower than forecasted demand could result in excess manufacturing capacity orcapacity, reduced manufacturing efficiencies,efficiencies and/or excess inventories purchased from third parties, which could result in lower margins. Conversely, if we underestimate customer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements,requirements andor we may be subject to higher production or shipping costs in order to secure the necessary production capacity or we may incur increased shipping costs.production. An inability to meet customer demand andor delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition and results of operations.

We selectively pursue acquisitions from time-to-time as part of our growth strategy. We compete with othersother within our industriescompanies for suitable acquisition candidates.candidates, Thisand this competition may increase the price of acquisitions and reduce the number of acquisition candidates available to us. As a result, acquisition candidates may not be available to us in the future on favorable terms.

Even if we are able to acquire businesses on favorable terms, managing growth through acquisitions is a difficult process that includes: integration and training of personnel, combining facility and operating procedures, and taking additional actions related to the integration of acquired businesses within our existing organization.

In order to finance such acquisitions, we may need to obtain additional funds either through public or private financings, including bank and other secured and unsecured borrowings and/or the issuance of equity or debt securities. There can be no assurance that such financings will be available to us on reasonable terms. Any future issuances of equity securities or convertible debt securities with equity features may be dilutive to our shareholders.

We are subject to international, federal, national, regional, state, local and other laws and regulations affecting our business, including but not limited to those promulgated under the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Products Safety Commission, the Food, Drug, and Cosmetic Act, the rules and regulations of the Food and Drug Administration (FDA), various anti-corruption and anti-bribery laws, various securities laws and regulations including but not limited to the Securities Exchange Act of 1934,Act, the Securities Act of 1933, and the rules of the Nasdaq Stock Market LLC,on which our common stock is traded, various labor, workplace and related laws, and environmental laws and regulations. There also are multiple climate change-related laws and regulations in the United States and internationally that either have gone into effect or could go into effect. The cost to comply with such laws and regulations could be significant and have an adverse effect on our results of operations. Failure to comply with such laws and regulations may expose us to potential liability and have an adverse effect on our results of operations.

Principal raw materials used to manufacture the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal. The prices we pay for these fabrics and components are dependent on the market price for the raw materials used to produce them, including cotton and chemical components of synthetic fabrics including such raw materials such as chemicals and dyestuffs, in addition to any import duties imposed on those fabrics and components that are imported.

These finishedFinished goods and raw materials are subject to price volatility caused by weather, supply conditions, government regulations, economic and political climate, currency exchange rates, labor costs, and other unpredictable factors. Fluctuations in petroleum prices may also may influence the prices of related items such as chemicals, dyestuffs and polyester yarn.

World events, such as the Russian invasion of Ukraine and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures. In addition, the conflictjoint U.S.-Israeli strikes on Iran in February 2026, as well as other conflicts in the Middle EastEast, could affectlead to higher oil pricesprices, create supply imbalances in the global markets for oil and natural gas, and have other adverse effects on the global economy. Both of these crises have potentially far-reaching impacts on energy and food markets and global trade.

Conflicts in the Middle East, prolonged inflationary conditions, supply imbalances of oil and natural gas, high and/or increased interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis or the U.S.-Israeli - Iran crisis, or other situations, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices. At this time, the extent and duration of these economic and political events and their effects on the economy and the Company are impossible to predict, but the impact on the Company’s business could be material.

Our Healthcare Apparel segment relies on our manufacturing facilities and warehouses in Haiti for the manufacturing and storage of finished goods. Our manufacturing facilities and warehouses may be damaged or our ability to use or access them may be disrupted as a result of civil unrest or other occurrences in Haiti. Such events may interfere with our manufacturing processes, information systems, telecommunication services, and product delivery for sustained periods and may also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our manufacturing facilities could adversely affect our reputation, our relationships with our customers, our leadership team’s ability to administer and supervise our business, and/or cause us to incur substantial additional expenditures to repair or replace damaged equipment or facilities or commence production at alternate locations. While we currently have commercial liability insurance, our insurance coverage may not be sufficient. Prolonged disruption of our manufacturing processes in Haiti also may entitle some of our customers to amend or terminate their contracts with us. Worsening conditions in Haiti may also result in the displacement of native Haitians looking for refuge in neighboring Dominican Republic, which may result in the closure of roads and port access which may limit or restrict our normal and recurring business in Haiti. Any of the above factors may adversely affect our business, results of operations and financial condition.

Changes to trade regulation,agreements, quotas,regulations, tariffs, duties, tariffsquotas or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China, which may materially harm our revenue andbusiness, results of operations, financial position and/or cash flows. such as by increasing our costs and/or limiting the amount of products that we can import.

Our operations are subject to various international trade agreementsagreements, regulations and regulations,preferences, such as the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR), Caribbean Basin Trade Partnership Act (CBTPA), Haitian Hemispheric Opportunity through Partnership Encouragement Act, as amended (HOPE), the Food Conservation and Energy Act of 2008 (HOPE II), the Haiti Economic Lift Program of 2010 (HELP), the African Growth and Opportunity Act (AGOA), the Middle East Free Trade Area Initiative (MEFTA) and the activities and regulations of the World Trade Organization (WTO). Generally, these trade agreements, regulations and preferences benefit our business, but trade agreements and regulations can also impose requirements that have a material adverse effect on our business, revenue and results of operations, such as limiting the countries from which we can purchase raw materials, limiting the products that qualify as duty free, and setting quotas, duties and/or tariffs on products that may be imported into the United States from a particular country.

CertainIn inboundaddition, productsbeginning in ourthe Brandedsecond Productsquarter of 2025, significant new and Healthcareexpanded Appareltariffs, segmentsreciprocal totariffs and other trade restrictions were imposed by the United StatesStates, arewith subjectselective totariff exemptions, impacting global trade. We purchase or manufacture our products largely in Haiti, China, Madagascar, Vietnam, Pakistan and Bangladesh. The introduction, expansion or continuation of U.S. tariffs assessedon countries from which we source and/or manufacture products, such as China and Vietnam, could have a material adverse impact on theour manufactured costresults of goodsoperations, atfinancial the time of import. As a result, we have had to increase prices for certain productsposition and maycash be required to raise those prices further, or raise our prices on other products, which may result in the loss of customers and harm our operating performance.flows. In response, in part, to tariffs levied on products imported from China we have shifted some production out of Chinaproduction, and may seek to shift additional productionproduction, out of China, which may result in additional costs and disruption to our operations.

At December 31, 2024,2025, our executive officers and directors, and certain of their family members collectively owned approximately 27.6%29.6% of our outstanding common stock. As a result, our executive officers and directors, and certain of their family members, have significant influence over the election of our Board of Directors,Directors (the "Board" or "Board of Directors"), the approval or disapproval of any other matters requiring shareholder approval, and the affairs and policies of our company.

The trading price of our common stock, as reported on the Nasdaq Stock Market, could fluctuatefluctuates due to a number of factors such as those listed in “Risks Relating to Our Business” andwhich may include, but arenot notbe limited to, the following, some of which are beyond our control:

Payment of cash dividends on our common stock is subject to our compliance with applicable law and depends on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, business prospects and other factors that our board of directorsBoard may deem relevant. Our credit agreement contains, and the terms of any future indebtedness we incur may contain, limitations on our ability to pay dividends. Although we have paid cash dividends in the past, there can be no assurance that we will continue to pay any dividend in the future.

Furthermore, increased inflation could have an adverse impact on our operating and general and administrative expenses. Please see “Risks Related to Our Industries - Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity” above for a description of recent inflationary pressure. During inflationary periods, these costs could increase at a rate higher than our ability to offset them via customer-facing pricing adjustments, alternative supply sources or other measures. Inflation could also have an adverse effect on consumer spending, which could adversely impact demand for our products and services. If our operating and other expenses increase faster than anticipated due to inflation, our financial condition, results of operations and cash flow could be materially adversely affected.

Changes in tax laws or regulations in the jurisdictions in which we do business, including the United States, or changes in how the tax laws are interpreted, could impact our effective tax rate, restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows. For example, recent tax legislation and regulation, including provisions of the 2025 One Big Beautiful Bill Act (“OBBBA”) and potential increases in taxes, make significant changes to the U.S. tax regime and could materially impact how our earnings are taxed.

Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers.

In our Healthcare Apparel segment, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States. From a long-term perspective, we expect that demand for our signatureportfolio marketingof brands,brands includingWink® and Fashion Seal Healthcare®, our trade name CID Resources and Wink®,our license of Carhartt Medical, will continue to provide opportunities for growth and increased market share.

In our Contact Centers segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States,States and Jamaica until its closure on June 15, 2025, we provide outsourced, nearshore and onshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company’s other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market specifically has grown as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators are able tocan provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

Prolonged or recurring disruptions or instability in the United States and global economies,political and economic environment, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductionsdeclines toin our revenue and profitability, increased costs related to higher oil and natural gas prices and/or supply imbalances in the oil and natural gas markets, costs associated with complying with new or amended laws and regulations and mitigating the increased cost of the new tariffs and duties affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, negative impacts on the valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.assets and goodwill.

The Company generated net income of $7.0 million during the year ended December 31, 2025 and net income of $12.0 million during the year ended December 31, 2024 and net income of $8.8 million during the year ended December 31, 2023.2024. The increasedecrease in net income during the year ended December 31, 20242025 compared to the year ended December 31, 20232024 was primarily due to increasesdecreases in net sales and gross margins in all three of our reportable segments, andpartially offset by a decrease in interest expense, partially offset by an increase in selling and administrative expenses across all of our reportable segments.expense.

EBITDA was $34.1$25.7 million and $33.5$34.1 million during the years ended December 31, 20242025 and 2023,2024, respectively. EBITDA for the year ended December 31, 20242025 compared to the year ended December 31, 20232024 increaseddecreased primarily due to increased net sales andlower gross margins in all three of our reportable segments, partially offset by an increase in selling and administrative expenses across all of our reportable segments. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

Net sales for the Company increased 4.1%0.1% or $22.4$0.5 million, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The increase was primarily attributable to a net sales increasesincrease in allour threeBranded of ourProducts reportable segments.segment.

HealthcareBranded ApparelProducts net sales increased 4.7%,2.2%, or $5.3$7.8 million, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The increase was primarily due to higheran digitaladditional $11.0 million in net sales fromattributable bothto our3 wholesalePoint customersbranding andcompany ourwe direct-to-consumeracquired website,in December 2024. This increase was partially offset by lowera net volume fromdecrease ourwithin store-basedexisting wholesalelarge customers.enterprise accounts.

ContactHealthcare CentersApparel net sales increaseddecreased 6.0%2.8%, beforeor intersegment$3.3 eliminations and 7.4% after intersegment eliminationsmillion, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The increasedecrease in net sales was attributableprimarily due to salesvolume growthdecreases from both new andwithin existing customers.customer accounts.

Gross margin rate for the Company was 37.6% for the year ended December 31, 2025 down from 39.0% for the year ended December 31, 2024 up from 37.5% for the year ended December 31, 2023.2024. The rate increasedecrease was primarily due to an improvementdecreases in gross margin ratesmargins in all three of our Branded Products and Healthcare Apparel reportable segments.

Gross margin rate for our Branded Products segment was 34.3% for the year ended December 31, 2025 and 35.3% for the year ended December 31, 2024 and 33.5% for the year ended December 31, 2023.2024. The gross margin rate increaseddecreased as compared to the prior year period primarilydue drivento by sourcing mix resulting in lowerhigher product costs and pricing increases to existing customers.costs.

Gross margin rate for our Healthcare Apparel segment was 36.2% for the year ended December 31, 2025 and 38.4% for the year ended December 31, 20242024. The gross margin rate decreased as compared to 2024, primarily due to higher product costs in 2025 and 37.1%unfavorable forsales theproduct year ended December 31, 2023. The rate increase was primarily driven by lower supply chain costs.mix.

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 26.6% for the year ended December 31, 2025 and 26.7% for the year ended December 31, 2024 and 25.7% for the year ended December 31, 2023.2024. The rate increaseremained wasflat primarilyyear dueover toyear increasedas employeecost relatedincreases costskept andpace saleswith commissions, partially offset by a decreaseincreases in badnet debts expense for customer accounts.sales.

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 34.1% for the year ended December 31, 2025 and 34.5% for the year ended December 31, 2024 and 33.6% for the year ended December 31, 2023.2024. The rate increasedecrease as compared to the prior year period was primarily attributabledriven toby ana increasedecrease in expendituresdepreciation related to marketingexpense and advertising activities along withlower employee related costs which were partially offset by expense leverage on increased net sales.costs.

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 45.8% for the year ended December 31, 2025 and 44.4% for the year ended December 31, 2024 and 43.4% for the year ended December 31, 2023.2024. The rate increase as compared to the prior year period was primarily attributabledriven toby an increase in employeecredit relatedloss expenses,expense. includingOverall both headcountselling and selectadministrative payexpenses ratewere increasesdown toin supportline with the decrease in sales growth,and asthe wellexit as,of an increase in bad debts expense.Jamaica.

Selling and administrative expenses for our "Other" segment, which represents unallocated Corporatecorporate costs, increaseddecreased by $3.0$0.2 million, primarily driven by an increasedecreases in employee related costs, third party professional services and the fair value recognition of a written put option which expired in the second quarter of 2024.costs.

Interest expense decreased to $5.1 million for the year ended December 31, 2025 from $6.4 million for the year ended December 31, 2024 from $9.7 million for the year ended December 31, 2023.2024. This decrease was due to a $30.7 million decrease in our weighted average outstanding borrowings along with a decrease in thelower weighted average interest rate on those borrowings from 6.7% for the year ended December 31, 2023 to 5.5% for the year ended December 31, 2024.2024 to 5.1% for the year ended December 31, 2025.

Income tax expense increaseddecreased to $1.2 million for the year ended December 31, 2025 from $2.3 million for the year ended December 31, 20242024. fromThe $1.0effective milliontax rate was 15.1% and 16.0% for the year ended December 31, 2023. The effective tax rate was 16.0%2025 and 10.2% for the year ended December 31, 2024 and 2023,2024, respectively. Income tax expense and the effective tax rate for the year ended December 31, 20242025 and 20232024 waswere primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from year to year due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

For the next twelve months, our primary capital requirements are for capital to maintain our operations, meet contractual obligations, primarily consisting of our revolving credit facility,facility and term loan,loan (collectively, our "Credit Facilities") and operating leases and acquisition-related contingent liabilities,leases, and fund capital expenditures, dividends, stock repurchases, any potential merger and acquisition activity and other general corporate purposes. We currently anticipate that we will spend more in capital expenditures in 2025 than we spent in 2024. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facilityfacilities will be sufficient to satisfy the above requirements for the next twelve months.

Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long-term contractual obligations, stock repurchases, any potential merger and acquisition activity and the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company's material contractual obligations include outstanding debt, operating leases, long-term pension liabilityliability, operating leases and non-qualified deferred compensation plan liabilities in Other Long-Term Liabilities. For additional details related to the Company’s long-term contractual obligations for long-term debt see Note 5, for contractual obligations for leases see Note 14 and for contractual obligations for acquisition-related contingent liabilities see Note 7. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements. Please refer to Notes 5 and 15 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for our contractual obligations, including schedules of future minimum payments.

As of December 31, 2024,2025, we had $18.8$23.7 million of cash on our balance sheet, of which $15.7$16.2 million of cash was held at foreign subsidiaries. Excess cash of $9.0$8.4 million from foreign operations may generally be transferred to operations in the US.U.S.

The Company’s primary source of liquidity has been its net income and the use of creditits facilitiesCredit and term loans.Facilities. The Company has access to a Revolvingrevolving Creditcredit Facilityfacility with a maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions.

For the year ended December 31, 2025, the Company had $7.4 million of net debt borrowings, consisting of $82.0 million in payments on the revolving credit facility and $5.6 million of payments in the term loan. For the year ended December 31, 2024, the Company had $7.7 million ofin net debt payments, consisting of $50.0 million in payments on the revolving credit facility and $4.7 million of payments in the term loan. For the year ended December 31, 2023, the Company had $61.8 million in net debt payments, consisting of $64.0 million in payments on the revolving credit facility and $3.8 million in payments on the term loan. For the years ended December 31, 20242025 and 2023,2024, the Company had borrowings of $47.0$95.0 million and $6.0$47.0 million on the revolving credit facility, respectively. Both the debt payments and borrowings during 20242025 and 20232024 primarily related to the utilization of our revolving credit facility in the normal course of business.

In the future, the Company may continue to use creditits facilitiesCredit Facilities and other secured and unsecured borrowings as a source of liquidity. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principlesGAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments.

Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience. Contract termination terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

During the third quarterAs of 2024,August 31, 2025, the Company performed anits interimannual impairment test on certain offor its indefinite-lived trade name intangible assets within the Healthcare segment which resulteddid not result in an immaterial impairment of $0.3 million.impairment. We conducted a quantitative assessment using the relief-from-royalty method, which we believe to be an acceptable methodology due to its common use by valuation specialists in determining the fair value of intangible assets. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. The assumptions that have the most significant effect on the fair value calculations are the royalty rates, projected revenue growth rates, discount rates, and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates.

In determining the fair value of our trade name indefinite lived intangible assets as of SeptemberAugust 30,31, 2024,2025, we used the following key assumptions:

• ARoyalty weighted-average royalty raterates of 2.8%0.75% - 3.0%;

• An assumedAssumed discount raterates of 14.5% - 16.5%

Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. For the year ended December 31, 2024,2025, there was no significant change in total unrecognized tax benefits. As of December 31, 2024,2025, we had an accrued liability of $0.9 million for unrecognized tax benefits. We accruerecognize interest and penalties relatedassociated towith the unrecognized tax benefitsbenefit inas part of the income tax expense,provision and include accrued interest and penalties with the related liability is includedreserve in other long-term liabilities in our consolidated balance sheet.sheets.

In our Contact Centers segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Dominican Republic and,and the United StatesStates, and in Jamaica until its closure on June 15, 2025, we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company’s other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market has grown as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators can provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

During 2025, the U.S. government imposed higher tariffs and/or new tariffs which impacted certain sources of the Company’s materials and production. Additionally, the U.S.'s trade agreements and/or preferences with certain countries in Africa, through the African Growth and Opportunity Act (AGOA), and with Haiti, through the Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE) and the Haiti Economic Lift Program of 2010 (HELP), expired on September 30, 2025. In February 2026, these agreements were retroactively extended until December 2026.2026 and during the six months ended June 30, 2026, the Company recorded a consolidated duties receivable of $2.3 million within other current assets through a reduction of inventory and reversal of cost of goods sold of $0.4 million, primarily in its Healthcare Apparel segment of which the majority has been collected. If not renewed and/or extended beyond December 2026, the cost of continuing to do business in these countries likely will negatively impact our results of operations and financial position, or result in us moving sourcing and manufacturing from these countries to countries with more favorable cost structures. We will continue to monitor the status of the trade agreements and preferences involving the U.S. government and the countries in which we source and/or manufacture products. See Item 1, “NOTE 6 – Contingencies and Geographic Supply Concentrations.”

In February 2026, the United States Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, effectively invalidating the tariffs imposed via that method. These IEEPA tariffs stopped being collected on February 24, 2026. The Supreme Court’s ruling left open the questions of whether, how, and when payors of the tariffs might receive refunds; subsequently, the U.S. government created a system through which refunds of certain entries could be processed. AThe newCompany's 10%accounting policy is to recognize tariff refunds (as a reduction of cost of goods sold) when the refund is probable and recognize corresponding refunds to customers (as a reduction of net sales) where contractually required or an implicit obligation exists. As of June 30, 2026, the Company has recorded a $4.3 million tariff refund, of which $3.1 million has been received in cash and corresponding refunds to customers of $2.7 million. The U.S. government implemented a new 10.0% tariff under Section 122 of the Trade Act of 1974, effective as of February 24, 2026. AlthoughThis tariff terminated on July 24, 2026. The U.S. government implemented new tariffs generally ranging from 10.0% to 12.5% under Section 301 of the UnitedTrade StatesAct Supremeof Court1974, ruling invalidated the tariffs paid prior to February 24, 2026,effective as of MarchJuly 31,24, 2026, the Company has not recorded a tariff refund receivable due to the uncertainty of the amount and collection of a refund.2026.

It is uncertain how inflation and interest rates will be impacted during the remainder of this year and in 2026future years by the imposition of tariffs and other trade-related actions or inactions. World events, such as the Russia-Ukraine War, the joint U.S.-Israeli War with Iran in 2026 and other conflicts in the Middle East, continue to negatively affect the global economy. Additionally, civil unrest in countries where we manufacture products, like Haiti, may result in our facilities incurring damage or destruction and could interrupt our manufacturing processes and adversely affect our reputation and our relationships with our customers.

Prolonged or recurring disruptions or instability in the United States and global political and economic environments, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, declines in our revenue and profitability, increased costs related to higher oil and natural gas prices and/or supply imbalances in the oil and natural gas markets, costs associated with complying with new or amended laws and regulations and mitigating the increased cost of the new tariffs and duties affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, negative impacts on the valuation of our pension obligations, reduced credit-worthiness of our customers, and potentialadditional impairment of the carrying value of indefinite-lived intangible assets and potentially goodwill.

(1) Please refer to "Non-GAAP Financial Measure" below for a reconciliation of Adjusted EBITDA to net (loss) income.

The Company generated net income of $0.8$1.2 million and a net loss of ($0.8)$1.6 million during the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increasedecrease in net income for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 iswas inclusivedue ofto $1.0a millionsignificant of severance paymentsdecline in theour Healthcare Apparel reportablesegment segment,results, primarily driven by a trade name impairment charge and write-down of inventory, partially offset by net tariff refunds. This decline was primarilypartially dueoffset toby an increasegrowth in consolidated gross margins across our Branded Products and HealthcareContact ApparelCenters reportable segments, along with a decrease in consolidated interest expense, net.segments.

Adjusted EBITDA was $4.8$7.7 million and $3.5$6.1 million during the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Adjusted EBITDA increase was primarily due to increasedgrowth earningsin drivenour Branded Products and Contact Centers segments, partially offset by thea increasedecline in consolidatedour grossHealthcare margins.Apparel segment. For a reconciliation of Adjusted EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), please read “Non-GAAP Financial Measure” below.

Net sales for the Company increased 2.8%,2.6%, or $3.8 million, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was attributable to increases in net sales in our Branded Products and Healthcare Apparel reportable segments,segment, partially offset by a declinedeclines in our Healthcare Apparel and Contact Centers segment.segments.

Branded Products net sales increased 5.1%,6.2%, or $4.4$5.7 million, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was primarily due to volume increases inof branded$7.5 uniform apparelmillion within existing customer accounts.accounts, partially offset by tariff refunds.

Healthcare Apparel net sales increaseddecreased 4.9%,3.6%, or $1.3$1.0 million, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was2025 primarily due to volumetariff increases within existing customer accounts.refunds.

Contact Centers net sales decreased 8.1%3.7% or $2.0$0.9 million, before intersegment eliminations for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The 8.1%3.7% decrease versus the year-agoprior quarterperiod reflects prior year client attrition that exceeded growth from new customer acquisitions.

Gross margin rate for the Company was 37.1%38.0% for the three months ended MarchJune 31,30, 2026 and 36.8%38.4% for the three months ended MarchJune 31,30, 2025. The rate increasedecrease was primarily due to an improvement inlower gross margin rates in our BrandedHealthcare ProductsApparel segment.and Contact Centers segments.

Gross margin rate for our Branded Products segment was 34.1%36.5% for the three months ended MarchJune 31,30, 2026 and 32.0%35.6% for the three months ended MarchJune 31,30, 2025. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.

Gross margin rate for our Healthcare Apparel segment was 35.6%32.9% for the three months ended MarchJune 31,30, 2026 and 37.2%35.5% for the three months ended MarchJune 31,30, 2025. The rate decrease was primarily driven by higher costs compared to the priorimpact yearof perioda driven$2.6 million additional write-down of inventory, partially offset by increased$1.8 salesmillion withof lowernet margintariff existing customers.refunds.

Gross margin rate for our Contact Centers segment was 52.2%50.9% for the three months ended MarchJune 31,30, 2026 and 53.6%52.6% for the three months ended MarchJune 31,30, 2025. The decrease in the gross margin rate was primarily attributable to higher employee relatedemployee-related costs as compared to the prior year period.

Selling and administrative expenses weredecreased relatively$0.9 flatmillion for the three months ended MarchJune 31,30, 2026, compared to the three months ended MarchJune 31,30, 2025. As a percentage of net sales, total selling and administrative expenses was 35.8%34.7% for the three months ended MarchJune 31,30, 2026 and 36.5%36.3% for the three months ended MarchJune 31,30, 2025. The rate decrease was duedriven toby anexpense improvementleverage in sellingour Branded Products segment and administrativelower expenses as a percentage of net sales rates in our Contact Centers segment and a reduction in Other selling and administrative expenses.segments.

Branded Products selling and administrative expenseexpenses increased $1.3$0.6 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 primarily due to increased commission expense.2025. As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 27.2%26.4% for the three months ended MarchJune 31,30, 2026,up2026, down slightly from 27.1%27.5% for the three months ended MarchJune 31,30, 2025.2025 driven by expense leverage from the second quarter sales increase.

ContactHealthcare CentersApparel selling and administrative expenseexpenses decreased $1.4$0.1 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 20252025. due to cost reductions implemented in 2025 related to closure of its Jamaica officeSelling and elimination of various administrative supportexpenses costs. Asas a percentage of net sales,sales sellingincreased andto administrative expenses for our Contact Centers segment was 43.0%36.5% for the three months ended MarchJune 31,30, 2026 andfrom 45.1%35.7% for the three months ended MarchJune 31,30, 2025.

Interest expense, net decreased to $0.9$1.0 million for the three months ended MarchJune 31,30, 2026 from $1.2$1.3 million for the three months ended MarchJune 31,30, 2025. This decrease was due to a lower weighted average interest rate on those borrowingsborrowings, from 5.4%5.6% for the three months ended MarchJune 31,30, 2025 to 4.9%4.8% for the three months ended MarchJune 31,30, 2026.

IncomeAn income tax benefit of ($0.01) million was recognized for the three months ended June 30, 2026 compared to an income tax expense increasedof to $0.2$0.3 million for the three months ended MarchJune 31, 2026 from a benefit of $0.1 million for the three months ended March 31,30, 2025. The effective tax rate was 20.9%(0.8%) benefit and 16.3%15.5% expense for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Income tax expense and the effective tax rate for the three months ended MarchJune 31,30, 2026 and March 31, 2025 werewas primarily impacted by the discrete tax benefit relating to the $2.6 million trade name impairment charge recorded during the second fiscal quarter of 2026. The rate for both periods was further impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The rate was further impacted by discrete items related to the Company’s share-based compensation and long-term incentive plans during the current quarter. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

For the next twelve months, our primary capital requirements are for capital to maintain our operations, meet contractual obligations, primarily consisting of our revolving credit facility, term loan and operating leasesleases, and fund capital expenditures, dividends, stock repurchases, any potential merger and acquisition activityactivity, capital expenditures, dividends, stock repurchases and other general corporate purposes. Management believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.

Capital expenditures were $0.6$1.9 million and $1.1$2.7 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.

Net cash provided by operating activities primarily results from cash collected from customers for our promotional products, branded uniforms, healthcare apparel and accessories, offset by cash payments made for raw materials, finished goods, salaries and payroll related benefits, leases and other general corporate expenditures For the three months ended March 31, 2026, net cash provided by operating activities was $9.4 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors and employees primarily driven by the Company's collection of receivable balances.expenditures.