BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

12 weeks ended January 20, 2023

(unaudited)

(in thousands)

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

12 weeks ended January 21, 2022

(unaudited)

(in thousands)

See accompanying notes to Condensed Consolidated Financial Statements.

Item 1. d.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

See accompanying notes to Condensed Consolidated Financial Statements.

Item 1. e.

BRIDGFORD FOODS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands)

Note 1 – Summary of Significant Accounting Policies:

The unaudited Condensed Consolidated Financial Statements of Bridgford Foods Corporation (the “Company”, “we”, “our”, “us”) for the twelve weeks ended January 20, 202326, 2024 and January 21, 202220, 2023 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X, and include all adjustments considered necessary by management for a fair presentation of the interim periods. This Report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2022November 3, 2023 (the “Annual Report”). Due to seasonality and other factors, interim results are not necessarily indicative of the results for the full year. Recent accounting pronouncements, if any, and their effect on the Company are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Report.

We have considered the impact of federal, state, and local government actions related to the COVID-19 pandemic on our Consolidated Financial Statements. The business disruptions associated with the pandemic had a minimal impact on our Consolidated Financial Statements for the fiscal year ended October 28, 2022 and during the twelve weeks ended January 20, 2023. We expect these events to have future business impacts, the extent of which is uncertain and largely subject to whether the pandemic severity worsens. These impacts could include but may not be limited to risks and uncertainty related to shifts in demand between sales channels, market volatility, constraints in our supply chain, our ability to operate production facilities and worker availability. These unknowns may subject the Company to future risks related to long-lived asset impairments, increased reserves for uncollectible accounts, price and availability of ingredients and raw materials used in our products and adjustments to reflect the market value of our inventory.

The October 28, 2022,November 3, 2023, balance sheet amounts within these interim Condensed Consolidated Financial Statements were derived from the audited fiscal year 20222023 consolidated financial statements included in the Company’s Annual Report.

The preparation of Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting periods. Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property, plant and equipment, and the valuation allowance for the Company’s deferred tax assets. Management determines the amounts to record based on historical experience and various other assumptions that we view as reasonable under the circumstances and consider all relevant available information. Actual results could materially differ from these estimates. Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates. Market conditions and the volatility in stock markets may cause significant changes in the measurement of our pension fund liabilities and the performance of our life insurance policies in future periods.

Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued payroll, and notes payable. The carrying amount of these instruments approximate fair market value due to their short-term maturity or market interest rates. The Company has accounts with nationally recognized financial institutions in excess of the Federal Deposit Insurance Corporation insurance coverage limit. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk with regard to its cash and cash equivalents. The Company grants payment terms to a significant number of customers that are diversified over a wide geographic area. The Company monitors the payment histories of its customers and maintains an allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis. The Company does not require collateral from its customers.

Comprehensive income or loss

Comprehensive income or loss consists of net income and additional minimum pension liability adjustments. There were no differences between net income (loss) and comprehensive income (loss) during each of the twelve weeks ended January 26, 2024 and January 20, 2023, or January 21, 2022.2023.

Customer Concentration > 20% of AR or >10% of Sales

The table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated sales for the twelve weeks ended January 20, 2023,26, 2024, and January 21, 2022,20, 2023, respectively.

Schedule of Customer Concentration

Revenue recognition

Revenues are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers upon passage of title to the customer, typically upon product pick-up, shipment, or delivery to customers.customer. Products are delivered to customers primarily through our own long-haul fleet, common carrier, or through a Company-owned direct store deliverydirect-store-delivery system.

The Company recognizes revenue for the sale of the product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon product shipment, pickup or delivery to a customer based on terms of the sale. Contracts with customers are typically short-term in nature with completion of a single performance obligation. Product is sold to foodservice, retail, institutional and other distribution channels. Shipping and handling that occurs after the customer has obtained control of the product is recorded as a fulfillment cost rather than an additional performance obligation. Costs paid to third party brokers to obtain contracts are recognized as part of selling expenses. Other sundry items in context of the contract are also recognized as selling expense. Any taxes collected on behalf of the government are excluded from net revenue.

We record revenue at the transaction price which is measured as the amount of consideration we anticipate receiving in exchange for providing productproducts to our customers. Revenue is recognized as the net amount estimated to be received after deducting estimated or known amounts including variable consideration for discounts, trade allowances, consumer incentives, coupons, volume-based incentives, cooperative advertising, product returns and other such programs. Promotional allowances, including customer incentive and trade promotion activities, are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and redemption rates. Estimates are reviewed regularly until incentives or product returns are realized and the result of any such adjustments are known. Promotional allowances deducted from sales for the twelve weeks ended January 26, 2024, and January 20, 2023, and January 21, 2022, were $3,8644,179 and $3,5033,864, respectively.

Leases

Leases are recognized in accordance with ASC 842 and Accounting Standards Update (“ASU”) 2016-02 Leases (“ASC 842”) which requires a lessee to recognize assets and liabilities with lease terms of more than twelve months. We lease or rent property for operations such operations as storing inventory and equipment. We analyze our agreements to evaluate whether or not a lease exists by determining what assets exist for which we control usage for a period of time in exchange for consideration. In the event a lease exists, we classify it as a finance or operating lease and record a right-of-use (“ROU”) asset and the corresponding lease liability at the inception of the lease. The classification as a finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are considered operating or financing. In the case of month-to-month lease or rental agreements with terms of twelve months or less, we made an accounting policy election to not recognize lease assets and liabilities and record them on a straight-line basis over the lease term. The storage units rented on a month-to-month basis for use by our Snack Food ProductProducts segment direct store delivery route system are not costly to relocate and contain no significant leasehold improvements or degree of integration over leased assets. Orders can be fulfilled by another route storage unit interchangeably. No specialized assets exist in the rental storage units. Market price is paid for storage units. No guarantee of debt is made.

ROU lease assets are recorded within property, plant and equipment, net of accumulated depreciation and amortization. The Company leases warehouse space from time to time that is recorded as ROU lease assets and corresponding lease liabilities. The Company’s leases of long-haul trucks used in its Frozen Food Products segment qualify as finance leases. Finance lease liabilities are recorded under other liabilities, theliabilities. The condensed consolidated balance sheets reflectingreflect both the current and long-term obligation. The classification as a finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are considered operating or financing.obligations.

Subsequent events

Management has evaluated events subsequent to January 20, 2023,26, 2024, through the date that the accompanying Condensed Consolidated Financial Statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustments of and/or disclosure in such financial statements.

On February 27, 2023, the Company modified the lease with Hogshed Ventures, LLC by extending the lease a year after the lease expires on June 30, 2023. The effective date of the lease modification occurred when both the lessee and the lessor approved such modification. The lease modification terms are still being worked out.

Based on Management’s review, no otherNo material events were identified that require adjustment to the financial statements or additional disclosure.

Basic earnings per share

Basic earnings per share are calculated based on the weighted average number of shares outstanding for all periods presented. No stock options, warrants, or other potentially dilutive convertible securities were outstanding as of January 20, 2023,26, 2024, or January 21, 2022.20, 2023.

Recently issued accounting pronouncements and regulations

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (ASC 326), which provides guidance on measurement of credit losses on financial instruments. This ASU adds a current expected credit loss impairment model to GAAP that is based on expected losses rather than incurred losses whereby a broader range of reasonable and supportable information is required to be utilized in order to derive credit loss estimates. The effective date of the new guidance as amended by ASU No. 2019-10 is fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company analyzed the impact of adopting this standard and does not expect the adoption to have a material impact on its Consolidated Financial Statements as it has been our policy to estimate and record credit losses on trade accounts receivable.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures. The amendments enhance disclosures of significant segment expenses by requiring to disclose significant segment expenses regularly provided to the chief operating decision maker (CODM), extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported under certain conditions. The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statements have not been issued. The Company is currently evaluating the guidance and its impact to the financial statements.

Note 2 – Inventories, net::

Inventories are comprised of the following at the respective period ends:

Schedule of Inventories

Inventories are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Inventories include the cost of raw materials, labor, and manufacturing overhead. We regularly review inventory quantities on hand and write down any estimated excess, obsolete inventories, or impaired balances to net realizable value. An inventory reserve is created when potentially slow-moving or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot be sold or must be sold at reduced prices and could result in additional reserve provisions. We maintain a net realizable reserve of $137111 as of January 20, 2023,26, 2024, and $131513 as of October 28, 2022,November 3, 2023, on products in inventory after determining that the market value on some meat products could not cover the costs associated with completion and sale of the product.

Note 3 – Contingencies and Commitments:

The Company generally leases warehouse and/or office facilitieswarehouses throughout the United States through month-to-month rental agreements. In the case of month-to-month lease or rental agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and liabilities and record them on a straight-line basis over the lease term. For further information regarding our lease accounting policy, please refer to Note 1 – Summary of Significant Accounting Policies — Leases.

The Company leasesleased three long-haul trucks received during fiscal year 2019. The six-year leases for these trucks expire in fiscal year 2025. We returned one long-haul truck on June 22, 2023, for a loss of $12 in an effort to reduce overall cost of delivering products. Amortization of equipment as a finance lease was $2011 during the twelve weeks ended January 20, 2023.26, 2024. The Company leased one long-haulbox truck for a market value of $4027 received during fiscal year 2021,on April 17, 2023, and that lease term is two years.years.

The Company performed a detailed analysis and determined that the only indicationindications of a long-term lease in addition to transportation leases for long-haul trucks waswere the warehouse leaseleases with Hogshed Ventures, LLC and Racine Partners 4333 LLC.

The Company’s five-yearfive-year term lease with Racine Partners 4333 LLC, was effective June 1, 2022. A right-of-useAn ROU asset of $3,9963,056 and corresponding liability for warehouse storage space of $4,0263,117 as of January 20, 202326, 2024, was recorded for Racine Partners 4333 LLC for 43^rd Street in Chicago, Illinois. This lease does not provide an implicit rate and we estimated our incremental interest rate to be approximately 3.68%. We used our estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments.

A right-of-useAn ROU asset and corresponding liability for warehouse storage space was recorded for $187137 for Hogshed Ventures, LLC for 40th Street in Chicago, Illinois, as of January 20, 2023.26, 2024. We lease this space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further, this lease does not contain contingent rent provisions. This lease was set towill terminate on June 30, 20232024, but was extended one year on March 1, 2023 and as a result will terminate on June 30, 2024. Please refer to Note 1 - Summary of Significant Accounting Policies - Subsequent events.. This lease includes both lease (e.g., fixed rent) and non-lease components (e.g., real estate taxes, insurance, common-area, and other maintenance costs). The non-lease components are deemed to be executory costs and are included in the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-useROU asset.

The lease with Hogshed Ventures, LLC does not provide an implicit rate and we estimated our incremental interest rate to be approximately 1.65.49%. We used our estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments.

The following is a schedule by years of future minimum lease payments for transportation leases and right-of-useROU assets:

Schedule of Future Minimum Lease Payments

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

We purchase large quantities of pork, beef, and flour. These ingredients are generally available from a number of different suppliers although the availability of these ingredients is subject to seasonal variation. We build ingredient inventories to take advantage of downward trends in seasonal prices or anticipated supply limitations.

We purchase bulk flour under short-term fixed price contracts at current market prices. The contracts are usually effective for and settle within three months or less.less at a fixed price and quantity. We monitor and manage our ingredient costs to help negate volatile daily swings in market prices when possible. We do not participate in the commodity futures market or hedging to limit commodity exposure.

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

Note 4 – Segment Information:

The Company has two reportable operating segments: Frozen Food Products (the processing and distribution of frozen food products) and Snack Food Products (the processing and distribution of meat and other convenience foods).

We evaluate each segment’s performance based on revenues and operating income. Selling, general and administrative (“SG&A”) expenses include corporate accounting, information systems, human resource management and marketing, which are managed at the corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage. Assets managed at the corporate level are not attributable to each operating segment and thus have been included as “other” in the accompanying segment information.

The following segment information is presented for the twelve weeks ended January 20, 2023,26, 2024, and January 21, 2022,20, 2023, respectively.

Schedule of Segment Reporting Information, by Segment

The following information further disaggregates our sales to customers by major distribution channel and customer type for the twelve weeks ended January 20, 2023,26, 2024, and January 21, 2022,20, 2023, respectively.

Twelve weeks Ended January 26, 2024

Schedule of Disaggregates Our Sales to Customers

Twelve weeks Ended January 20, 2023

Twelve weeks Ended January 21, 2022

Note 5 – Income Taxes:

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES(the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”)NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before January 1, 2021. In addition, the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017, and before January 1, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has filed a federal income tax return for tax year 2018 and 2019 (fiscal year 20192019) and 2020) andhas carried back a taxable loss of $34,4059,919 to tax years 2013 (fiscal 2014), 2014 (fiscal year 2015), and 2015 (fiscal year 2016),. Furthermore, the Company also carried back $21,687 of net operating loss from 2019 (fiscal year 2020) against any remaining taxable income of tax year 2015 (fiscal year 2016) and taxable income of tax years 2016 (fiscal year 2017) and 20182017 (fiscal year 2019)2018). The carryback of net operating losses will also release $358 of research and development credits, which will become available for utilization in future years.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law.. Among other significant changes, the Tax Act reduced the corporate federal income tax rate from 35%35% to 21%21%. The carryback of NOLs from tax years 2018 and 2019 under the CARES Act to pre-Tax Act years has generated an income tax benefit of $3,091due to the differentialdifference in income tax rates which wasrates. The release of research and development credits has generated an income tax benefit of $358. These income tax benefits have been recorded in the income tax provision for fiscal year 20202020..

The Company’s effective tax rate was 29.929.2% and 17.729.9% for the first quarter of fiscal 2023years 2024 and 2022,2023, respectively. The effective tax rate for the first quarter of fiscal 2023year 2024 reflects the impact of $398510 of tax expense.

As of January 20, 2023,26, 2024, the Company did not have any valuation allowance against its federal net deferred tax assets. Management reevaluated the need for a valuation allowance at the end of 2022 and determined that some of its California NOL may not be utilized. Therefore, a valuation allowance of $99has a federal NOL carry forwardbeen retained for such portion of the California NOL. As of January 26, 2024, the Company had net operating loss carryforwards of approximately $0 for federal and $5,000 for state NOL carry forwards of approximately $4,600 million.purposes. The state loss carryforwards will expire at various dates through 2040.

Our federal income tax returns are open to audit under the statute of limitations for the fiscal years 20192020 through 2021.2022. We are subject to income tax in Texas and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years 20182019 through 2021.2022.

Note 6 – Equipment Notes Payable and Financial Arrangements:

Revolving Credit Facility

We maintainOn November 30, 2023, we entered into a fifth amendment to the credit agreement with Wells Fargo Bank, N.A. dated March 1, 2018, as amended, and also executed a revolving line of credit with Wells Fargo Bank, N.A.note pursuant to the amendment. The revolving line of credit note replaces the existing note that extends to August 31, 2023. As of year-end October 28, 2022, underexpired by its terms on November 30, 2023. Under the terms of this amendment and the revolving line of credit note, we couldmay borrow up to $15,0007,500 from time to time up to November 30, 2024, at an interest rate equal to (a) the bank’s prime rate ordaily simple secured overnight financing rate (“SOFR”) plus 2.0%.2.0%, or if unavailable, (b) the prime rate, in each case as determined by the bank. The line of credit has an unused commitment fee of 0.25%0.35% of the available loan amount. The line of credit is presented under non-current liabilities at October 28, 2022, inamount, payable on a quarterly basis. Amounts may be repaid and reborrowed during the accompanying condensed consolidated balance sheets. On December 1, 2021, Wells Fargo Bank, N.A. expanded our line of credit to $25,000 through June 15, 2022, upon which time the credit limit returned to $15,000 for the balanceterm of the term. We borrowed $2,000 under this linenote. Accrued interest is payable on the first day of credit on December 2, 2020, $2,000 on April 27, 2021, $2,000 on July 1, 2021, $3,000 on July 19, 2021, $3,000 on October 15, 2021, $2,000each month and the outstanding principal balance and remaining interest are due and payable on November 1, 2021, $2,000 on December 16, 2021, and $2,000 on January 24, 2022, for a combined total of $18,000. The outstanding balance under the revolving line of credit was paid off on June 7, 2022, using $18,000 in proceeds from the gain on the sale of a land parcel in Chicago.30, 2024.

Equipment NotesNote Payable

On December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Original Wells Fargo Loan Agreement”) for up to $15,000 in equipment financing which was amended and expanded as detailed below. We subsequently entered into additional master collateral loan and security agreements with Wells Fargo Bank, N.A. on each of;of April 18, 2019, December 19, 2019, March 5, 2020, and April 17, 2020 (the Original Wells Fargo Loan Agreement and the subsequent agreements collectively referred to as the “Wells Fargo Loan Agreements”). Pursuant to the Wells Fargo Loan Agreements, we owe the amounts as stated in the table below on the following page.below.

Bridge Loan

On August 30, 2021, we entered into a loan commitment note for a bridge loan of up to $25,000 to obtain capital to pay off the existing equipment loans as they comecame out of the lock out period and maycould be prepaid. The outstanding principal balances of the bridge loan became due and payable in full one Federal Reserve business day after the closing of the real estate transactions contemplated under the Purchase and Sale Agreement dated March 16, 2020, as amended, between Bridgford Food Processing Corporation and CRG Acquisition, LLC (the “CRG Purchase Agreement”). We prepaid $18,653 in equipment loans utilizing proceeds from the new bridge loan. The Company evaluated the exchange under ASC 470 and determined that the exchange should be treated as a debt modification prospectively. The Company accounted for this transaction as a debt modification and did not incur any gain or loss relating to the modification. The debt modification did not meet the greater than ten percent test and was deemed not substantial. We prepaid and terminated the bridge loan and related loan commitment note on June 2, 2022, using $18,653 in proceeds from the gain on the sale of a land parcel in Chicago pursuant to the CRG Purchase Agreement.

The following table reflects major components of our revolving line of credit facility and borrowing agreements as of January 20,26, 2024, and November 3, 2023, and October 28, 2022, respectively.

Schedule of Line of Credit and Borrowing Agreements

Loan Covenants

The Wells Fargo Loan Agreements collectivelyand the credit agreement contain various affirmative and negative covenants that limit the use of funds and define other provisions of the loan.loans. Material financial covenants are listed below:below, and the capitalized terms are defined in the applicable agreements:

As of January 20,26, 2024 and November 3, 2023, and October 28, 2022, the Company was in compliance with all covenants under the Wells Fargo Loan Agreements.Agreements and the credit agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollars in thousands)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included within in this Report, and the information and documents incorporated by reference with this Report, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report or incorporated by reference into this Report are forward-looking statements. These statements include, among other things, any predictions of earnings, revenues, expenses or other financial items; plans or expectations with respect to our business strategy; statements concerning industry trends; statements regarding anticipated demand for our products, or the products of our competitors; statements relating to manufacturing forecasts; statements relating to forecasts of our liquidity position or available cash resources; statements regarding the anticipated impact of the global novel coronavirus (“COVID-19”) pandemic; statements regarding operational challenges, including as a result of global supply chain disruptions and labor shortages; statements regarding inflationary pressures and the resulting impact on our results of operations; statements regarding new regulations related to federal income tax and the impact on our financial statements and cash flow; statements regarding the impact of the adoption of recent accounting pronouncements on our business; and statements relating to the assumptions underlying any of the foregoing. Throughout this Report, we have attempted to identify forward-looking statements by using words such as “may,” “believe,” “will,” “could,” “project,” “anticipate,” “expect,” “estimate,” “should,” “continue,” “potential,” “plan,” “forecasts,” “goal,” “seek,” “intend,” other forms of these words or similar words or expressions or the negative thereof (although not all forward-looking statements contain these words).

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the impact of the COVID-19 pandemic on our production facilities, supply chain, consumer demand, and cost of products sold, the impact of competitive products and pricing; macroeconomic conditions, including global financial pressures, inflation, market volatility, and recessionary concerns; success of operating initiatives; development and operating costs; trends impacting the purchasing behavior of our customers and consumers; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes in business strategy or development plans; availability, terms and deployment of capital; availability of qualified personnel; commodity, labor, and employee benefit costs; changes in, or failure to comply with, government regulations; weather conditions;conditions, including the effects of climate change and changes in the regulatory environment and consumer demand to mitigate these effects; construction schedules; the impact of the COVID-19 pandemic on our production facilities, supply chain, consumer demand, and cost of products sold; the impact of competitive products and pricing, and other factors referenced in this Report as well as in our other filings with the Securities and Exchange Commission (the “SEC”). Commodity costs have and may continue to fluctuate due to political and economic conditions, including the ongoing conflict between Ukraine and Russia. In addition, actual results may differ as a result of additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business.

We have based our forward-looking statements on our current expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our business, financial position, results of operations and cash flows. The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our Annual Report on Form 10-K for the fiscal year ended October 28, 2022November 3, 2023 (the “Annual Report”) as well as our other filings with the SEC with the understanding that our future results may be materially different from what we currently expect. The forward-looking statements we make speak only as of the date on which they are made. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations. If we do update or correct any forward-looking statements, readers should not conclude that we will make additional updates or corrections.

COVID-19

We are continuing to monitor and respond to the evolving nature of state and local government actions related to the COVID-19 pandemic and its impact on each of our production plant locations and our customer base. We coordinate with our local managers for the primary purpose of maintaining the health and safety of our team members, ensuring our ability to operate our processing facilities, and maintaining the liquidity of our business.

We continue to experience minor challenges related to the pandemic. These challenges may continue to increase our operating costs and negatively impact our sales volumes. The health and safety of our team members is our top priority. To protect our team members, as needed, we have implemented safety measures recommended by the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration in our facilities and have implemented social distancing, temperature checks of team members, increased efforts to deep clean and sanitize facilities, the use of protective face coverings in certain environments, and making protective face coverings and other protective equipment available to team members. The long-term impacts of COVID-19 are unknown and dependent upon future developments including the duration and spread of the pandemic, COVID-19 variants and resurgences as well as actions taken by federal, state and local government officials.

Critical Accounting Policies and Management Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States of America requires management to make certain 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 revenues and expenses during the respective reporting periods. Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates. We determine the amounts to record based on historical experience and various other assumptions that we view as reasonable under the circumstances and consider all relevant available information. The results of this analysis form the basis for our conclusion as to the value of assets and liabilities that are not readily available from other independent sources. Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates.

Current accounting principles require that our pension benefit obligation be measured using an internal rate of return (“IRR”) analysis to be included in the discount rate selection process. The IRR calculation for the Retirement Plan for Employees of Bridgford Foods Corporation is measured annually and based on the Citigroup Pension Discount Rate. The Citigroup Pension Discount Rate as of January 31, 2023,2024, was 4.69%5.01% as compared to 5.51%5.96% as of October 28, 2022.November 3, 2023. The discount rate applied can significantly affect the value of the projected benefit obligation as well as the net periodic benefit cost.

Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The provision for doubtful accounts receivable is based on historical trends and current collection risk. We have significant receivables with a couple of large, well-known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. We monitor these customers closely to minimize the risk of loss.

Customer Concentration > 20% of AR or >10% of Sales

The table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated sales for the twelve weeks ended January 20, 2023, and January 21, 2022, respectively.

Revenues are recognized in accordance with ASC 606 – Revenue from Contracts with Customers upon passage of title to the customer, typically upon product pick-up, shipment, or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet or through a Company owned direct store delivery system.

We record the cash surrender or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period.

We provide tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes, and timing, and is a subjective estimate. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities, if any, resulting from these reviews. Actual outcomes may differ materially from these estimates.

We assess the recoverability of our long-lived assets on a quarterly basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, we recognize an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.

We participate in “multiemployer” pension plans administered by labor unions on behalf of their employees. We pay monthly contributions to union trust funds, a portion of which is used to fund pension benefit obligations to plan participants. The contribution amount may change depending upon the ability of participating companies to fund these pension liabilities as well as the actual and expected returns on pension plan assets. Should we withdraw from the union and cease participation in a union plan, federal law could impose a penalty for additional contributions to the plan. The penalty would be recorded as an expense in the consolidated statement of operations. The ultimate amount of the withdrawal liability is dependent upon several factors including the funded status of the plan and contributions made by other participating companies.

We are subject to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”). Requirements of the law include the removal of the lifetime limits on active and retiree medical coverage, expanding dependent coverage to age 26 and the elimination of pre-existing conditions that may impact other postretirement benefits costs. The PPACA law also includes a potential excise tax on the value of benefits that exceed a pre-defined limit. Fortunately, this potential tax has been indefinitely deferred and we do not see significant financial exposure. Finally, the PPACA includes provisions that require employers to offer health benefits to all full-time employees (defined as 30 hours per week). The health coverage must meet minimum standards for the actuarial value of the benefits offered and employee affordability. We believe that the current administration seems more likely to enhance the scope and coverage associated with PPACA than to repeal or significantly change this law. The recent legislative packages related to pandemic relief included some minor provisions that will impact health benefits in the future. These changes most prominently focus on the impact of surprise balance bills from out-of-network providers. Our heathhealth care plans as they exist in 20232024 are complaintcompliant with all applicable regulations that exist currently.currently exist. As we look to the future, we anticipate that future legislative action will impact the plans offered to active and retired participants. As we have done in the past, our executive team will continue to assess the accounting implications of the PPACA and potential future legislation to determine the impact on our financial position and results of operations. The potential future effects and cost of complying with the legislative changes isare not determinable currently.currently determinable.

Customer Concentration > 20% of AR or >10% of Sales

The table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated sales for the twelve weeks ended January 26, 2024, and January 20, 2023, respectively.

Revenues are recognized in accordance with ASC 606 – Revenue from Contracts with Customers upon passage of title to the customer, typically upon product pick-up, shipment, or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet, common carrier, or through a Company owned direct store delivery system.

Overview of Reporting Segments

We operate in two business segments – the processing and distribution of frozen food products (the Frozen Food Products segment), and the processing and distribution of snack food products (the Snack Food Products segment). For information regarding the separate financial performance of the business segments refer to Note 4 — Segment Information of the Notes to the Condensed Consolidated Financial Statements included in this Report. We manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items, dry sausage products and beef jerky.

Frozen Food Products Segment

Our Frozen Food Products segment primarily manufactures and distributes biscuits, bread dough items, roll dough items and shelf stable sandwiches. All items within this segment are considered similar products and have been aggregated at this level. Our frozen food business covers the United States. Products produced by the Frozen Food Products segment are generally supplied to food service and retail distributors who take title to the product upon shipment receipt through Company-leased long-haul vehicles.vehicles or 3^rd party logistic providers/carriers. We leverage relationships with regional sales managers, and we maintain a network of independent food service and retail brokers covering most of the United States. Brokers are compensated on a commission basis. We believe that our broker relationships,brokers, in close cooperation with our regional sales managers, are a valuable asset providing significant new product and customer opportunities. Regional sales managers perform several significant functions for us, including identifying and developing new business opportunities and providing customer service and support to our distributors and end purchasers throughoften with the effective useassistance of our broker network.partners.

Snack Food Products Segment

Our Snack Food Products segment primarily distributes products manufactured by us. All items within this segment are considered similar products and have been aggregated at this level. The dry sausage division includes products such as jerky, meat snacks, sausage, and pepperoni products. Our Snack Food Products segment sells approximately 170160 different items through a direct store deliverydirect-store-delivery network and customer-owned distribution centers serving approximately 19,00020,000 supermarkets, mass merchandise and convenience retail stores located in 4950 states. These customers are comprised of large retail chains and smaller “independent” operators.

Products produced or distributed by the Snack Food Products segment are supplied to customers through either direct-store-delivery or direct delivery to customer warehouses. Product delivered using the Company-owned fleet direct to the store is considered a direct-store-delivery.direct-store-delivery sale. In this case, we provide the service of setting up and maintaining the display and stocking our products. Products delivered to customer warehouses are distributed to the retail store and stocked by the customer where it is then resoldsold to the end consumer.

Results of Operations for the Twelve Weeks Ended January 20, 2023,26, 2024, and January 21, 202220, 2023

Net Sales-Consolidated

Net sales decreased by $2,464 (3.8%$6,780 (11.0%) to $61,622$54,842 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 2022.2023. The changes in net sales were comprised as follows:

Net Sales-Frozen Food Products Segment

Net sales in the Frozen Food Products segment increased by $2,033 (16.4%) toremained unchanged at $14,399 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 2022.2023. The changes in net sales were comprised as follows:

The increase inAlthough net sales for the twelve-week period ended January 20, 2023, primarily relates26, 2024 remained unchanged compared to higherthe same period in the prior year, lower unit sales volume in pounds and to a lesser extentwas offset by higher selling prices per pound implemented during July 2021 and May 2022.the third quarter of fiscal 2023. Other institutional Frozen Food Products dollar sales, including sheet dough and rolls, increased 20%16% and retail dollar sales volume increaseddecreased by 10%16%. We believe demand decreased due to the impact of an inflationary environment on consumer spending habits. Returns activity increaseddecreased compared to the same twelve-week period in the 20222023 fiscal year. Promotional activity was higher as a percentage of sales.

Net Sales-Snack Food Products Segment

Net sales in the Snack Food Products segment decreased by $4,497 (8.7%$6,780 (14.4%) to $47,223$40,443 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 2022.2023. The changes in net sales were comprised as follows:

Net sales of Snack Food Products decreased due to lower unit sales volume in pounds through our direct store deliverydirect-store-delivery distribution channel and was partially offset by higherlower selling prices per pound during the first quarter of fiscal year 2023.2024. We believe demand decreased primarily due to inflationary pressures on consumer spending habits.habits as consumers have pulled back on meat product purchases. The weighted average selling price per pound increaseddecreased compared to the same twelve-week period in the prior fiscal year due to changes in product mix. ReturnsReturn activity increased as a percentage of sales and decreased in absolute dollars. Promotional activity was higher compared tothan the same twelve-week period in the 2022 fiscal year. Promotional offers remained the same as a percentage of sales.year 2023.

Cost of Products Sold and Gross Margin-Consolidated

Cost of products sold decreased by $3,137 (6.6%$5,752 (12.9%) to $44,556$38,804 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 2022.2023. The gross margin increased from 25.6%slightly to 28.0% during29.2% in the first twelve-weeks of fiscal year 2024 compared to 27.7% in the same twelve-week period in fiscal year 2023.

Cost of Products Sold-Frozen Food Products Segment

Cost of products sold in the Frozen Food Products segment increaseddecreased by $1,893 (21.4%$458 (4.3%) to $10,744$10,286 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 2022.2023. The cost of purchased flour increaseddecreased approximately $139 in the first twelve-week period of fiscal year 20232024 compared to the same twelve-week period in fiscal year 2022. Increased unit sales volume in pounds and gross2023. Gross overhead including hourly wages and benefits has increased as a result of continued upward pressures on wages as a resultinput costs impacted by inflation. Lower unit sales volume in retail contributed to the decrease in cost of inflation. In our Frozen Food Products segment, the volume increases in foodservice were not enough to mitigate an increase in overhead per case of product.goods sold.

Cost of Products Sold-Snack Food Products Segment

Cost of products sold in the Snack Food Products segment decreased by $5,030 (12.9%$5,294 (15.7%) to $33,812$28,518 in the first twelve-week period of the 20232024 fiscal year compared to the same twelve-week period in fiscal year 20222023 due to lower cost for production materials and lower sales volume in our direct store delivery distribution channel. The cost of significant meat commodities decreasedincreased approximately $4,306$2,222 in the first twelve-week period of fiscal year 20232024 compared to the same period in fiscal year 2022.2023. We increaseddecreased our net realizable value reserve of $5by $267 during the twelve weeks ended January 20, 2023,26, 2024, to recognize inventory sold through on products already reserved in inventory as of year-end October 28, 2022.November 3, 2023 and in consideration of higher selling prices on historically lower margin items. We maintain a net realizable reserve of $137$111 on products as of January 20, 2023,26, 2024, after determining that the market value on some meat products could not cover the costs associated with completion and sale of the product.

Selling, General and Administrative Expenses-Consolidated

Selling, general and administrative expenses (“SG&A”) increaseddecreased by $1,063 (7.2%$767 (4.9%) to $15,794$15,027 in the first twelve-week period of fiscal year 20232024 compared to the same twelve-week period in the prior fiscal year. The table below summarizes the significant expense increases (decreases) included in this category:

The increase in the provision for bad debt expense was mainly the result of estimated losses on older balances. Outside storage increased primarily as a result of the need for additional warehouse capacity to store product. HigherLower sales commissions due to lower sales volume in pounds resulted in higherlower wages and bonus expenses in the first twelve weeks of the 20232024 fiscal year compared to the same period in the prior year. The decrease in pension expensethe provision for bad debt was mainly the result of recoveries of losses on older balances. Costs for product advertising decreased mainly as a result of anlower payments under brand licensing agreements in the Snack Food Products segment during the twelve weeks ended January 26, 2024. The increase in pension plan assets causedinsurance expenses was driven by performance of the underlying markets that support them as well as higher pension discount rates resulting in lower liabilities.premiums on property insurance and increased reserves on aged claims. None of the changes individually or as a group of expenses in “Other SG&A” were significant enough to merit separate disclosure. The major components comprising the increase of “Other SG&A” expenses were higher product advertising,healthcare costs, legal fees, consulting fees and vehicle repairs partially offset by lower workers’ compensation cost, healthcare expense and insurance expense.costs.

Selling, General and Administrative Expenses-Frozen Food Products Segment

SG&A expenses in the Frozen Food Products segment increaseddecreased by $558 (18.1%$203 (5.6%) to $3,644$3,441 in the first twelve-week period of fiscal year 20232024 compared to the same twelve-week period in the prior fiscal year. The overall increasedecrease in SG&A expenses was due to higher wageslower product advertising and bonuses, provisionlower provisions for bad debt and product advertising.debt.

Selling, General and Administrative Expenses-Snack Food Products Segment

SG&A expenses in the Snack Food Products segment increaseddecreased by $505 (4.3%$564 (4.6%) to $12,150$11,586 in the first twelve-week period of fiscal year 20232024 compared to the same twelve-week period in the prior fiscal year. Most of the increasedecrease was due to higherlower wages and bonuses, provision for bad debt, workers’ compensation and product advertising, partially offset by decreased fees paid under brand licensing agreements.agreements, lower postage expenses and lower workers’ compensation costs partially offset by higher property insurance expenses and higher outside storage fees.

Income Taxes-Consolidated

Income tax for the twelve weeks ended January 20, 2023,26, 2024, and January 21, 2022,20, 2023, respectively, was as follows:

We recorded a provision for income taxes of $510 and $398 for the twelve-week period ended January 26, 2024 and January 20, 2023, respectively, related to federal and state taxes, based on the Company’s expected annual effective tax rate. The effective income tax rate differed from the applicable mixed statutory rate of approximately 26.4% due to non-deductible meals and entertainment, non-taxable gains and losses on life insurance policies, and state income taxes.