BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

12 weeks ended July 8, 2022, and July 7,January 20, 2023

(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 July 7,January 26, 2024 and January 20, 2023 and July 8, 2022 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 Condensed 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 and thirty-six weeks ended July 7, 2023. Disruptions from the pandemic 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. The long-term impacts of COVID-19 are unknown and dependent upon future developments including COVID-19 variants and resurgences as well as actions taken by federal, state and local government officials.

The federal Public Health Emergency for COVID-19, declared under Section 319 of the Public Health Service Act expired at the end of the day on May 11, 2023.

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 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 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 and comprehensive income during each of the twelve and thirty-six weeks ended July 7, 2023January 26, 2024 and July 8, 2022.January 20, 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 thirty-sixtwelve weeks ended July 7,January 26, 2024, and January 20, 2023, and July 8, 2022, respectively.

Schedule of Customer Concentration

The table below shows customers that accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twelve weeks ended July 7, 2023, and July 8, 2022, respectively.

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. Products are delivered to customers primarily through our own long-haul fleet, common carrier, or through a Company-owned direct-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 products 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 July 7,January 26, 2024, and January 20, 2023, and July 8, 2022, were $3,3964,179 and $3,287, respectively. Promotional allowances deducted from sales for the thirty-six weeks ended July 7, 2023, and July 8, 2022, were $11,781 and $10,6523,864, respectively.

Leases

Leases are recognized in accordance with ASC 842 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 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 Products 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.obligations.

Subsequent events

Management has evaluated events subsequent to July 7, 2023,January 26, 2024, through August 18, 2023, 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.

We are currently in discussion with Wells Fargo Bank, N.A. to amend our line of credit and decrease it to $7,500 from $15,000 with a change fee of $25 and an unused commitment fee of 0.25% of the available loan amount. We plan to sign the amended line of credit prior to its expiration on August 31, 2023.  The amended line of credit will expire on August 31, 2024. Under the terms of this line of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or secured overnight financing rate SOFR plus 2.0%.  The line of credit contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, and a fixed charge coverage ratio.  The Company was in compliance with all covenants as of July 7, 2023.

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 July 7, 2023,January 26, 2024, or July 8, 2022.January 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 $240111 as of July 7, 2023,January 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 leased 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 $311 during the thirty-sixtwelve weeks ended July 7, 2023.January 26, 2024. The Company leased one box truck for a market value of $27 on April 17, 2023, and that lease term is two years.years.

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

The Company’s five-year term lease with Racine Partners 4333 LLC, was effective June 1, 2022. An ROU asset of $3,5693,056 and corresponding liability for warehouse storage space of $3,6173,117 as of July 7, 2023,January 26, 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.

AAn ROU asset and corresponding liability for warehouse storage space was recorded for $372137 for Hogshed Ventures, LLC for 40th Street in Chicago, Illinois, as of July 7, 2023.January 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.. 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 ROU asset.

The lease with Hogshed Ventures, LLC does not provide an implicit rate and we estimated our incremental interest rate to be approximately 1.6% for the lease expiring June 30, 2023 and 5.49% for the extended lease expiring June 30, 2024.. 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 ROU assets:

Schedule of Future Minimum Lease Payments

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 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 July 7,January 26, 2024, and January 20, 2023, and July 8, 2022, respectively.

Schedule of Segment Reporting Information, by Segment

The following segment information is presented for the thirty-six weeks ended July 7, 2023, and July 8, 2022, respectively.

The following information further disaggregates our sales to customers by major distribution channel and customer type for the twelve weeks ended July 7,January 26, 2024, and January 20, 2023, and July 8, 2022, respectively.

Twelve weeks Ended January 26, 2024

Schedule of Disaggregates Our Sales to Customers

Twelve weeks Ended July 7, 2023

Twelve weeks Ended July 8, 2022January 20, 2023

The following information further disaggregates our sales to customers by major distribution channel and customer type for the thirty-six weeks ended July 7, 2023, and July 8, 2022, respectively.

Thirty-six weeks Ended July 7, 2023

Thirty-six weeks Ended July 8, 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 year 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% to 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 2020.

The Company’s effective tax rate was 31.729.2% and 29.029.9% for the thirdfirst quarter of fiscal years 20232024 and 2022,2023, respectively. The effective tax rate for the thirdfirst quarter of fiscal year 20232024 reflects the impact of $820510 of tax expense.

As of July 7, 2023,January 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.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.

We are currently in discussion with Wells Fargo Bank, N.A. to amend our line of credit and decrease it to $7,500 from $15,000 with a change fee of $25 and an unused commitment fee of 0.25% of the available loan amount. We plan to sign the amended line of credit prior to its expiration on August 31, 2023.  The amended line of credit will expire on August 31,30, 2024. Under the terms of this line of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or secured overnight financing rate SOFR plus 2.0%.  The line of credit contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, and a fixed charge coverage ratio.  The Company was in compliance with all covenants as of July 7, 2023.

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 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 came out of the lock out period and could 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 July 7,January 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 includeare listed below, and the following:capitalized terms are defined in the applicable agreements: