What changed in this filing

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Item 1. Financial Statements

2021-06-09 compared with 2020-12-10 · 102 added, 477 removed, 232 unchanged (71% of the section changed)

Financial Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain certain forward-looking statements.

When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “project” and similar expressions, are intended to identify forward-looking statements.

They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us.

These statements are not statements of fact.

Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements.

Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

we are subject to risk as a result of our international manufacturing operations;

a terrorism attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID 19 Coronavirus outbreak, could negatively impact our domestic and/or international operations;

the COVID 19 pandemic poses a threat to manufacturing capacity and could temporarily disrupt operations at our facilities;

as a result of the COVID 19 pandemic, a recession may result which would negatively affect our results of operations;

sales and operating profits for the nine month period ended October 31, 2020 were positively affected by COVID 19 related demand;

upon diminishment of this pandemic, we will no longer experience this effect;

our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates;

we may be exposed to continuing and other liabilities arising from our former Brazilian operations;

the implementation of our “Enterprise Resource Planning (“ERP”) system had, and may in the future have, an adverse effect on operating results;

in fiscal 2020, we identified a material weakness in our internal controls over financial reporting;

if we continue to fail maintaining proper and effective internal controls or are unable to remediate a material weakness in our internal controls, our ability to produce accurate and timely financial statements could be impaired, and investors’ views of us could be harmed;

we have manufacturing and other operations in China which may be adversely affected by tariff wars and other trade maneuvers;

we may be adversely affected by the withdrawal of the United Kingdom from the European Union;

our results of operations may vary widely from quarter to quarter;

some of our sales are to foreign buyers, which exposes us to additional risks;

we deal in countries where corruption is an obstacle;

we are exposed to tax expense risks;

covenants in our credit facilities may restrict our financial and operating flexibility;

because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact our inventory levels and net sales;

we face competition from other companies, a number of which have substantially greater resources than we do;

our operations are substantially dependent upon key personnel;

technological change could negatively affect sales of our products and our performance;

cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and result of operations;

we may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims;

environmental laws and regulations may subject us to significant liabilities;

our directors and executive officers have the ability to exert significant influence on us and on matters subject to a vote of our stockholders;

provisions in our restated certificate of incorporation and by-laws and Delaware law could make a merger, tender offer or proxy contest difficult;

acquisitions could be unsuccessful;

we may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned;

rapid technological change could negatively affect sales of our products, inventory levels and our performance;

the other factors referenced in this Form 10-Q, including, without limitation, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the factors described under “Risk Factors” disclosed in our fiscal 2020 Form 10-K.

We believe these forward-looking statements are reasonable;

however, you should not place undue reliance on any forward-looking statements, which are based on current expectations.

Furthermore, forward-looking statements speak only as of the date they are made.

We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur.

We qualify any and all of our forward-looking statements entirely by these cautionary factors.

LAKELAND INDUSTRIES, INC.

3 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of goods sold

12 unchanged sentences

Three Months Ended

Nine Months Ended

Other comprehensive income (loss):

8 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 812 and $ 497 at October 31, 2020 and January 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 873 and $ 700 at April 30, 2021 and January 31, 2021, respectively

Prepaid VAT and other taxes

10 unchanged sentences

Other accrued expenses

Current maturity of long-term debt

Income tax payable

Current portion of operating lease liabilities

7 unchanged sentences

Common stock, $ 0.01 par;

authorized 20,000,000 shares Issued 8,491,260 and 8,481,665 ;

outstanding 7,982,018 and 7,972,423 at October 31, 2020 and January 31, 2020, respectively

authorized 20,000,000 shares

Issued 8,542,235 and 8,498,457 ;

outstanding 8,032,993 and 7,984,518 at April 30, 2021 and January 31, 2021, respectively

Treasury stock, at cost;

16 unchanged sentences

Restricted Stock Plan

Treasury stock purchased, inclusive of commissions

Balance, October 31, 2019

Balance, July 31, 2019

Other comprehensive (loss)

Stock-based compensation:

Restricted stock plan

Treasury stock purchased, inclusive of commissions

Balance, October 31, 2019

Balance, April 30, 2020

Balance, January 31, 2021

4 unchanged sentences

Return of shares in lieu of payroll withholding

Balance, October 31, 2020

Balance, July 31, 2020

Other comprehensive income

Stock-based compensation:

Restricted stock issued

Restricted stock plan

Return of shares in lieu of payroll withholding

Balance, October 31, 2020

Balance, April 30, 2021

LAKELAND INDUSTRIES, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Provision for doubtful accounts

2 unchanged sentences

Stock based and restricted stock compensation

Gain (loss) on disposal of property and equipment

Gain on disposal of property and equipment

Non-cash operating lease expense

7 unchanged sentences

Operating lease liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

3 unchanged sentences

Loan borrowings, short-term

UK borrowings under line of credit facility, net

Purchase of Treasury Stock under stock repurchase program

Shares returned to pay employee taxes under restricted stock program

Net cash (used in) provided by financing activities

Net cash (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

8 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

Lakeland Industries, Inc.

and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market.

Our products are sold globally by our inhouse sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors.

Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors.

Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry.

1 unchanged sentence

Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market.

In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were in Southeast Asia, the European Economic Community (“EEC”), and Latin America.

Sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia.

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present fairly the unaudited condensed consolidated financial information required herein.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations.

While we believe that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January 31, 2020.

The results of operations for the three and nine month periods ended October 31, 2020 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated financial statements of the Company are unaudited.

These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results.

Intercompany accounts and transactions have been eliminated.

The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2022, or for any future period.

The January 31, 2021, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S.

GAAP).The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2021 and 2020, and for each of the two years in the period ended January 31, 2021, included in our most recent annual report on Form 10-K filed on April 16, 2021.

In this Form 10-Q, (a) “FY” means fiscal year;

thus for example, FY22 refers to the fiscal year ending January 31, 2022, (b) “Q” refers to quarter;

thus, for example, Q3 FY21 refers to the third quarter of the fiscal year ending January 31, 2021, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Income” refers to the unaudited condensed consolidated statement of income.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All significant intercompany accounts and transactions have been eliminated.

Use of Estimates and Assumptions

The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

It is reasonably possible that events could occur during the upcoming year that could change such estimates.

Accounts Receivable, Net .

Trade accounts receivable are stated at the amount the Company expects to collect.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.

The Company recognizes losses when information available indicates that it is probable that a receivable has been impaired based on criteria noted below at the date of the unaudited condensed consolidated financial statements, and the amount of the loss can be reasonably estimated.

Management considers the following factors when determining the collectability of specific customer accounts:

Customer creditworthiness, past transaction history with the customers, current economic industry trends and changes in customer payment terms.

Past due balances over 90 days and other less creditworthy accounts are reviewed individually for collectability.

If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.

Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance.

Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Included in Accounts Receivable is the UK factoring account representing trade receivables collected on our behalf that have not yet been conveyed to the Company by HSBC Finance (UK) LTD ("HSBC").

The balance at October 31, 2020 was $ 1.2 million.

Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or net realized value.

Impairment of Long-Lived Assets

The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable.

The Company measures any potential impairment on a projected undiscounted cash flow method.

Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual results.

The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset is less than its carrying value.

In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.

Revenue Recognition

Substantially all the Company’s revenue is derived from product sales, which consist of sales of the Company’s personal protective wear products to distributors.

The Company considers purchase orders to be a contract with a customer.

Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year, and virtually all of the Company’s contracts are short-term.

The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.

The Company typically satisfies its performance obligations and when the customer has obtained the benefit of the goods, which can occur upon shipment or delivery depending on the nature of our agreements.

Generally, payment is due from customers within 30 to 90 days of the invoice date, and the contracts do not have significant financing components.

The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation and these costs are included in operating expenses Shipping and handling costs for the three months ended October 31, 2020 and 2019, were approximately $ 0.7 million and $ 0.9 million, respectively, and for the nine months ended October 31, 2020 and 2019 were approximately $ 2.9 million and $ 2.5 million, respectively.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue.

The transaction price includes estimates of variable consideration, related to rebates, and discounts (primarily driven by volumes) that are reductions in revenue.

All estimates are based on the Company’s historical experience, anticipated performance, and the Company’s best judgment at the time the estimate is made.

Estimates for variable consideration are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration.

All the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per unit adjusted for estimates of variable consideration.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

The Company has seven revenue generating reportable geographic segments under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of reflective clothing, high-end chemical protective suits, firefighting and heat protective apparel, reusable woven garments and gloves and arm guards.

The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the unaudited condensed consolidated financial statements.

This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes.

These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s unaudited condensed consolidated balance sheet.

A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income.

A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized.

In the event the Company determines that it may not be able to realize all or part of its deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination.

The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold.

If necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the unaudited condensed consolidated balance sheets.

The Company does not have any uncertain tax positions at October 31, 2020 or January 31, 2020.

Stock-Based Compensation

The Company records the cost of stock-based compensation plans based on the fair value of the award on the grant date.

For awards that contain a vesting provision, the cost is recognized over the requisite service period (generally the vesting period of the equity award) which approximates the performance period.

For awards based on services already rendered, the cost is recognized immediately.

Foreign Operations and Foreign Currency Translation

The Company maintains manufacturing operations in Mexico, India, Argentina, Vietnam and the People’s Republic of China and can access independent contractors in China, Vietnam, Argentina and Mexico.

It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan, Uruguay and Mexico.

The Company is vulnerable to currency risks in these countries.

The functional currency for the United Kingdom subsidiary is the Euro;

the trading company in China, the RMB;

the Russian operation, the Russian Ruble, and the Kazakhstan operation the Kazakhstan Tenge.

All other operations have the US dollar as its functional currency.

Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the periods.

Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’ equity.

Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the consolidated statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Foreign currency transaction (loss) gain included in net income (loss) for the three months ended October 31, 2020 and 2019, were approximately $ 0.5 million and $ 0.0 million and for the nine months ended October 31, 2020 and 2019, was approximately $ 0.9 million and $ 0.2 million, respectively.

Fair Value of Financial Instruments

US GAAP defines fair value, provides guidance for measuring fair value and requires certain disclosures utilizing a fair value hierarchy which is categorized into three levels based on the inputs to the valuation techniques used to measure fair value.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

The following is a brief description of those three levels:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Unobservable inputs that reflect management’s own assumptions.

The financial instruments of the Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, short-term borrowings, borrowings under revolving credit facility, accounts payable and accrued expenses, are recorded at carrying value, which approximates fair value based on the short-term nature of these instruments.

The Company believes that the fair values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current market rate available to the Company.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASUs”).

Management periodically reviews new accounting standards that are issued.

New Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions, intended to simplify the test for goodwill impairment.

The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company has adopted this guidance using prospective transition method, which had no material impact on its unaudited condensed consolidated financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.

The ASU removes certain exceptions for performing intra-period allocation and calculating income taxes in interim periods.

It also simplifies the accounting for income taxes by requiring recognition of franchise tax partially based on income as an income-based tax, requiring reflection of enacted changes in tax laws in the interim period and making improvements for income taxes related to employee stock ownership plans.

ASU 2019-12 is effective for fiscal years and interim periods within those years, beginning after December 15, 2020.

Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued.

The Company is currently evaluating the impact the standard will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (LIBOR).

This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates.

The ASU generally allows for a hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform.

Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020.

The relief provided in this ASU is only available for a limited time, generally through December 31, 2022.

Our debt agreement that utilizes LIBOR has not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us.

To the extent our debt arrangements change to another accepted rate, we will utilize the relief available in this ASU.

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

thus, for example, Q1 FY22 refers to the first quarter of the fiscal year ending January 31, 2022, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Income” refers to the unaudited condensed consolidated statement of income.

Inventories consist of the following (in $000s):

2 unchanged sentences

Finished goods

We lease real property, equipment and certain automobiles.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

we recognize lease expense for these leases on a straight-line basis over the lease term.

The Company determines if a contract contains a lease at inception.

US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes.

The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty.

All of the Company’s real estate leases are classified as operating leases.

Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years.

The exercise of lease renewal options is at the Company’s discretion.

The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities.

Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

Leases recorded on the consolidated balance sheet consist of the following (in $000’s):

Classification

Operating lease assets

Operating lease right-of-use assets

Current portion of operating lease liabilities

Long-term portion of operating lease liabilities

Total Lease Obligations

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

The components of lease expense are included on the unaudited condensed consolidated statement of income as follows (in 000’s):

Three Months Ended

October 31, 2020

Nine Months Ended

October 31, 2020

Operating lease cost

Short-term lease cost

Maturity of Lease Liabilities

Maturity of lease liabilities as of October 31, 2020 was as follows (in $000’s):

For the 12 months ended October 31,

Total lease payments

Present value of lease liability

Operating lease payments include $ 72 related to options to extend lease terms that are reasonably certain of being exercised.

Weighted-average lease terms and discount rates are as follows :

Weighted-average remaining lease term (years)

Operating leases

Weighted-average discount rate

Operating leases

Supplemental cash flow information related to leases for the three months and nine months ended October 31, 2020 were as follows (in 000’s):

Cash paid for amounts included in the measurement of lease liabilities:

October 31, 2020

Operating cash flows from operating leases

Leased assets obtained in exchange for new operating lease liabilities

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Other Current Assets

As of October 31, 2020, and January 31, 2020, the Company’s other current assets were comprised of the following (in $000s):

Prepaid maintenance contracts

Prepaid insurance

Prepaid material and supplies

Prepaid other

Other Accrued Expenses

As of October 31, 2020, and January 31, 2020, the Company’s other accrued expenses were comprised of the following (in $000s):

Other employee related costs, including employee benefits

Freight expenses and material purchases

Professional fees

Sales commissions

Other vendor accruals

Income tax accrual

The increase in income tax accrual is due to the increase in profitability and the resulting tax obligations.

Excess and obsolete adjustments

Long-Term Debt

1 unchanged sentence

On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”).

The Loan Agreement provides the Company with a secured $ 12.5 million revolving credit facility, which includes a $ 5.0 million letter of credit sub-facility.

The Loan Agreement provides the Company with a secured (i) $ 12.5 million revolving credit facility, which includes a $ 5.0 million letter of credit sub-facility.

The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0million (for a total commitment of up to $17.5 million).

2 unchanged sentences

The credit facility will mature on June 25, 2025 .

Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the LIBOR Daily Floating Rate (“LIBOR”), plus 125 basis points.

LIBOR is subject to a floor of 100 basis points.

All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity date.

On a one-time basis, and subject to there not existing an event of default, the Company may elect convert up to $5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility.

The Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the difference between the total credit line commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

The Company made certain representations and warranties to the Lender in the Loan Agreement that are customary for credit arrangements of this type.

The Company also agreed to maintain, as of the end of each fiscal quarter, a minimum “basic fixed charge coverage ratio” (as defined in the Loan Agreement) of at least 1.15 to 1.00 and a “funded debt to EBITDA ratio” (as defined in the Loan Agreement) not to exceed 3.00 to 1.00, in each case for the trailing 12-month period ending with the applicable quarterly reporting period.

The Company also agreed to certain negative covenants that are customary for credit arrangements of this type, including restrictions on the Company’s ability to enter into mergers, acquisitions or other business combination transactions, conduct its business, grant liens, make certain investments, make substantial change in the present executive or management personnel and incur additional indebtedness, which negative covenants are subject to certain exceptions.

The Loan Agreement contains customary events of default that include, among other things (subject to any applicable cure periods and materiality qualifier), non-payment of principal, interest or fees, defaults under related agreements with the Lender, cross-defaults under agreements for other indebtedness, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgements and material adverse change.

Upon the occurrence of an event of default, the Lender may terminate all loan commitments, declare all outstanding indebtedness owing under the Loan Agreement and related documents to be immediately due and payable, and may exercise its other rights and remedies provided for under the Loan Agreement.

In connection with the Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65 % of those subsidiaries that are considered “controlled foreign subsidiaries” as set forth in the Internal Revenue Code and regulations).

The Company’s obligations to the Lender under the Loan Agreement are also secured by a negative pledge evidenced by a Non-encumbrance Agreement covering the real property owned by the Company in Decatur, Alabama.

As of October 31, 2020, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.

As of April 30, 2021, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.

Prior to the execution of the Loan Agreement with Bank of America, the Company repaid a $ 1.2 million term loan that was outstanding under a similar agreement with SunTrust Bank.

1 unchanged sentence

Borrowings in UK

On December 31, 2014, the Company and Lakeland Industries Europe, Ltd, (“Lakeland UK”), a wholly owned subsidiary of the Company, amended the terms of its existing line of credit facility with HSBC Bank to provide for (i) a one-year extension of the maturity date of the existing financing facility to December 19, 2016 , (ii) an increase in the facility limit from £1,250,000 (approximately USD $ 1.9 million, based on exchange rates at time of closing) to £1,500,000 (approximately USD $ 2.3 million, based on exchange rates at time of closing), and (iii) a decrease in the annual interest rate margin from 3.46 % to 3.0 %.

In addition, pursuant to a letter agreement dated December 5, 2014, the Company agreed that £400,000 (approximately USD $ 0.6 million, based on exchange rates at time of closing) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of payment to the subsidiary’s obligations to HSBC under the financing facility.

On December 31, 2016, Lakeland UK entered into an extension of the maturity date of its existing facility with HSBC Invoice Finance (UK) Ltd.

to December 19, 2017.

Other than the extension of the maturity date and a reduction of the service charge from 0.9 % to 0.85 %, all other terms of the facility remained the same.

On December 4, 2017 the facility was extended to March 31, 2018 for the next review period.

On March 9, 2019 the facility was extended to March 31, 2020 and on March 6, 2020 further extended to March 31, 2021 with no additional changes to the terms.

There were no borrowings outstanding under this facility at either October 31, 2020 or January 31, 2020.

The amounts due from HSBC of USD $ 1.2 million as of October 31, 2020, is included in accounts receivable on the accompanying condensed consolidated balance sheets.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Borrowing in Argentina

On March 20, 2020 Lakeland Argentina and AP Partners entered into an agreement for Lakeland Argentina to obtain a loan in the amount of ARS $ 10 million (approximately USD $158k, based on exchange rates at time of closing);

such loan is for a term of one year at an interest rate of 30 % per annum.

There was no outstanding balance at October 31, 2020.

On March XX, 2021, Lakeland UK entered into an extension of the maturity date of its existing facility with HSBC Invoice Finance (UK) Ltd.

to March 31, 2022 with no additional changes to the terms.

There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at April 30, 2021 and January 31, 2021.

Amounts due, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.6 million and $ 2.0 million as of April 30, 2021, and January 31, 2021, respectively, are included in other current assets on the accompanying consolidated balance sheets.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables.

Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across geographic areas principally within the United States.

The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited.

8 unchanged sentences

HSBC in India, Argentina and UK;

Raymond James in Argentina;

Banco Nacion in Argentina;

TD Canada Trust;

Banco Itaú S.A., Banco Credito Inversione in Chile;

Banco Itaú S.A., Santander in Chile;

Banco Mercantil Del Norte SA in Mexico;

2 unchanged sentences

In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

There is approximately $ 10.3 million total included in the US bank accounts and approximately $ 29.9 million total in foreign bank accounts as of October 31, 2020, of which $ 39.5 million was uninsured.

There was approximately $ 19.4 million total included in the U.S.

bank accounts and approximately $ 40.9 million total in foreign bank accounts as of April 30, 2021, of which $ 59.6 million was uninsured.

Major Customer

One customer accounted for more than 10 % of net sales during the three month and nine-month periods ended October 31, 2020.

No customer accounted for more than 10% of net sales during the three month and nine-month periods ended October 31, 2019.

No customer accounted for more than 10 % of net sales during the three months ended April 30, 2021 and 2020.

Major Supplier

No supplier accounted for more than 10 % of purchases during the three month and nine month periods ended October 31, 2020 and 2019.

No vendor accounted for more than 10 % of purchases during the three months ended April 30, 2021 and 2020.

Stockholders’ Equity

The 2017 Stock Plan

On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc.

2017 Equity Incentive Plan (the “2017 Plan”) at the Annual Meeting of Stockholders.

2017 Equity Incentive Plan (the “2017 Plan”).

The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan.

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The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“SARS”).

The Committee has the authority to determine the type of award, as well as the amount, terms and conditions of each award, under the 2017 Plan, subject to the limitations and other provisions of the 2017 Plan.

An aggregate of 360,000 shares of the Company’s common stock are authorized for issuance under the 2017 Plan, subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events.

If any shares subject to an award are forfeited, expire, lapse or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, lapse or termination, again be available for issuance under the 2017 Plan.

The following tables summarize the unvested shares granted on June 7, 2018, December 4, 2019 and April 9, 2020 which have been made under the 2017 Plan.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Granted June 7, 2018

Number of shares awarded total

Non-Employee Directors

Value at grant date

Non-Employee Directors

Granted December 4, 2019 and April 9, 2020

Number of shares awarded total

Non-Employee Directors

Value at grant date

Non-Employee Directors

The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s):

Three Months Ended

Nine Months Ended

Restricted Stock Program

1 unchanged sentence

Total stock based compensation

Total income tax benefit (expense) recognized for stock-based compensation arrangement

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Restricted Stock Units

Under the 2017 Plan, as described above, the Company awarded performance-based and service based restricted stock units to eligible employees and directors.

The following table summarizes the activity under the 2017 Plan for the quarter ended October 31, 2020.

This table reflects the amount of awards granted at the maximum number of shares that would be issued if the Company were to achieve the maximum performance level under the June 2018, December 2019 and April 2020 grants.

The table includes the shares issued on October 30, 2020 described below.

Total income tax expense recognized for stock-based compensation arrangements

Restricted Stock

Under the 2017 Plan, as described above, the Company awarded performance-based shares and service-based shares of restricted stock to eligible employees and directors.

The following table summarizes the activity under the 2017 Plan for the three months ended April 30, 2021.

This table reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the maximum performance level under the December 2019 and April 2020 grants.

Performance-Based

Service-Based

Weighted Average Grant Date Fair Value

Outstanding at January 31, 2021

Outstanding at October 31, 2020

The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) with respect to the June 7, 2018 grant and revenue growth, EBITDA margin, and cash flow for the December 4, 2019 grant.

Outstanding at April 30, 2021

The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the December 2019 and April 2020 grants.

The performance targets have been set for each of the Minimum, Target, and Maximum levels.

The actual performance amount achieved is determined by the Board and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Board.

The Company recognizes expense related to performance-based restricted share awards over the requisite performance period using the straight-line attribution method based on the most probable outcome (Minimum, Target, Maximum, Cap or Zero) at the end of the performance period and the price of the Company’s common stock price at the date of grant.

During the period ended October 31, 2019, the Company revised its estimate of grants issued in 2017 and 2018 (described above) that will be earned for the designated performance period.

Based on actual EBITDA achieved by the Company at October 31, 2019, it was deemed improbable that such performance would meet even the Minimum level required for the 2017 and 2018 grants to vest, including SARS.

As a result, stock-based compensation expense for the 2017 and 2018 grants was adjusted to account for the change in estimate.

The total amount of previously recognized stock-based compensation attributable to the 2017 and 2018 grants that was reversed was approximately $0.8 million of which approximately $0.03 million related to the SARS.

Due to significantly increased profitability during the nine months ended October 31, 2020, the Company has determined that it is probable that the 2018 grants will now vest and has recorded approximately $ 0.7 million in stock based compensation expense in Q3 FY21 and will recognize an additional $ 0.1 million in Q4 FY21 related to the 2018 grants.

On October 30, 2020, the Company made a grant of restricted stock units of 21,000 shares of our common stock to two key employees under the 2017 Plan.

Non-cash stock-based compensation expense associated with the grant is approximately $ 0.5 million, which will be expensed over the requisite service period of one year.

The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Committee.

The compensation cost is based on the fair value at the grant date, is recognized over the requisite performance/service period using the straight-line method, and is periodically adjusted for the probable number of shares to be awarded.

The Company is recognizing expense related to the June 2018 grant at Maximum and the December 2019 and April 2020 grants at Target.

These expenses were approximately $ 0.9 million for the three months and $ 1.2 million for the nine months ended October 31, 2020.

As of October 31, 2020, unrecognized stock-based compensation expense totaled $ 1.8 million pursuant to the 2017 Plan based on outstanding awards under the Plan.

This expense is expected to be recognized over of the next 2.25 years.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Stock Options

During the year ended January 31, 2020 a stock option was granted pursuant to the Company’s 2017 Equity Incentive Plan in the amount of 24,900 shares at an exercise price of $ 11.17 per share.

Such shares vest at 8,300 shares on each of August 12, 2020, August 12, 2021 and August 12, 2022.

The following table represents stock options granted, exercised and forfeited during the period.

Stock Options

Exercise Price

Term (in years)

Outstanding at January 31, 2020

Outstanding at October 31, 2020

Exercisable at October 31, 2020

The Company recognized approximately $ 15,000 of stock-based compensation expense during the quarter ended October 31, 2020 associated with the grant of the stock option.

As of October 31, 2020 there is approximately $ 103,000 of unrecognized stock-based compensation expense.

Other Compensation Plans/Programs

Pursuant to the Company’s restricted stock program, all directors are eligible to elect to receive any director fees in shares of restricted stock in lieu of cash.

Such restricted shares are subject to a two-year vesting period.

The valuation is based on the stock price at the grant date and is amortized to expense over the two-year period, which approximates the performance period.

Since the director is giving up cash for unvested shares, and is subject to a vesting requirement, the amount of shares awarded is 133 % of the cash amount based on the grant date stock price.

As of October 31, 2020, unrecognized stock-based compensation expense related to these restricted stock awards totaled $ 5,749 for the 2017 Plan.

The cost of these non-vested awards is expected to be recognized over a two-year weighted-average period.

As of April 30, 2021, unrecognized stock-based compensation expense totaled $ 1.1 million pursuant to the 2017 Plan based on outstanding awards under the Plan.

This expense is expected to be recognized over approximately two years.

Stock Repurchase Program

On July 19, 2016, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $ 2,500,000 of its outstanding common stock.

During the nine months ended October 31, 2020, the Company did not repurchase any shares of its common stock.

The Company has repurchased 152,801 shares of stock under this program as of October 31, 2020 for $ 1,671,188 , inclusive of commissions.

During the three months ended April 30, 2021, the Company did not repurchase any shares.

The Company has repurchased 152,801 shares of stock under this program as of April 30, 2021 for $ 1,671,188 , inclusive, of commissions.

On February 17, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $ 5,000,000 of its outstanding common stock.

This new program replaced the prior program which had approximately $ 800,000 remaining for repurchases.

Deferred Taxes and Valuation Allowance

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized.

The valuation allowance was $ 1.5 million and $ 1.3 million at October 31, 2020 and January 31, 2020, respectively.

The federal net operating loss (“NOL”) carryforwards as of October 31, 2020 were approximately $ 2.0 million before tax effects.

If not utilized, then NOL generated from the January 31, 2015 tax year will expire after January 31, 2035, and the NOL generated after January 31, 2018 will be carried forward indefinitely.

The state net operating loss (“NOL”) carryforwards as of October 31, 2020 were approximately $ 20.5 million before tax effects.

The valuation allowance was $ 2.5 million and $ 2.7 million at April 30, 2021 and January 31, 2021, respectively.

The state net operating loss (“NOL”) carryforwards as of April 30, 2021 were approximately $ 0.8 million after tax effects.

The state NOLs with carry forward limitations will begin to expire after January 31, 2025 and will continue to expire at various periods up until January 31, 2039 when they will be fully expired.

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The Georgia NOLs generated after January 31, 2018 can be carried forward indefinitely.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law.

The 2017 Tax Cuts and Jobs Act (the Tax Act) reduced the federal corporate income tax rate to 21 % from 35 % effective January 1, 2018.

The Tax Act requires us to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our US deferred tax assets as well as reassessing the net realizability of our deferred tax assets.

The Company completed this re-measurement and reassessment in FY18.

While the Tax Act provides for a modified territorial tax system, beginning in 2018, it includes two new U.S.

tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require the Company to include in its U.S.

income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.

The assessment of the GILTI tax resulted in an increase to the annual effective tax rate of 8.3 %.

On July 23, 2020, the GILTI regulations were modified with respect to the treatment of income subject to a high foreign tax rate and provided guidance on the treatment of these available exclusions.

As a result of these modifications, the Company will be able to amend the FY19 tax returns and recapture NOL previously utilized.

The Company applied this modification to the GILTI tax reported in their FY20 tax return which allowed recapture of federal NOL previously utilized.

As a result of the recapture of these NOLs, the Company recorded a tax benefit of $ 1.7 million for the nine months ended October 31, 2020.

The Company intends to account for the GILTI tax impact in the period in which it is incurred.

Though this non-cash expense (due to use of existing NOLs) has a materially negative impact on earnings, the Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries.

We previously considered substantially all of the earnings in our non-U.S.

subsidiaries to be indefinitely reinvested outside the U.S.

and, accordingly, recorded no deferred income taxes on such earnings.

At this time, the applicable provisions of the Tax Act have been fully analyzed and our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S.

those earnings needed for working capital or additional foreign investment.

If all of these earnings were repatriated to the U.S.

or used for U.S.

operations, certain amounts could be subject to tax.

Due to the timing and circumstances of the repatriation of such earnings, if any, it is not practical to determine the amount of funds subject to unrecognized deferred tax liability.

Income Tax Expense

Income tax expenses consists of federal, state and foreign income taxes.

Items impacting the effective rate are state taxes, an adjustment for foreign tax rates lower than the US statutory tax rate, GILTI, and an adjustment to reflect the recapture of U.S.

Items impacting the effective rate are state taxes, an adjustment for foreign tax rates lower than the US statutory tax rate, Global Intangible Low-taxed Income (“GILTI”), and an adjustment to reflect the recapture of U.S.

NOLs as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share at October 31, 2020 and 2019 as follows (in $000s except per share amounts):

The following table sets forth the computation of basic and diluted net income per share at April 30, 2021 and 2020 as follows (in $000s except per share amounts):

Three Months Ended

Nine Months Ended

(in $000s except share and per share information)

Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 509,242 at October 31, 2020 and 471,289 for October 31, 2019

Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 509,242 at April 30, 2021 and 2020

Effect of dilutive securities from restricted stock plan

3 unchanged sentences

Contingencies

Labor and other contingencies in Brazil

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.

The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

The Company’s Exit from Brazil

On March 9, 2015, Lakeland Brazil, S.A.

changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao Individual LTDA (“Lakeland Brazil”).

Transfer of Shares Agreement

On July 31, 2015 (the “Closing Date”), Lakeland and Lakeland Brazil, completed a conditional closing of a Shares Transfer Agreement (the “Shares Transfer Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing Lakeland Brazil manager, entered into on June 19, 2015.

Pursuant to the Shares Transfer Agreement, the Transferee has acquired all of the shares of Lakeland Brazil owned by the Company.

Pursuant to the Shares Transfer Agreement, Transferee paid R$1.00 to the Company and assumed all liabilities and obligations of Lakeland Brazil, whether arising prior to, on or after the Closing Date.

In order to help enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least two years following the Closing Date, the Company provided funding to Lakeland Brazil in the aggregate amount of USD $ 1,130,000 in cash, in the form of a capital raise, on or prior to the Closing Date, and agreed to provide an additional R$582,000 (approximately USD $ 188,000 ) (the “Additional Amount”), in the form of a capital raise, to be utilized by Lakeland Brazil to pay off certain specified liabilities and other potential contingent liabilities.

Pursuant to the Shares Transfer Agreement, the Company paid R$992,000 (approximately USD $ 320,000 ) in cash, on July 1, 2015 and issued a non-interest bearing promissory note for the payment to be due for the Additional Amount (R$582,000) (approximately USD $ 188,000 ) on the Closing Date which was paid to Lakeland Brazil in two (2) installments of (i) R$288,300 (approximately USD $82,000) which was paid on August 1, 2015, and (ii) R$294,500 (approximately USD $84,000) on September 1, 2015 .

The closing of this agreement was subject to Brazilian government approval of the shares transfer, which was received in October 2015 (The “Final Closing Date”).

Although the Company formally completed the terms of the “Shares Transfer Agreement”, pursuant to which our entire equity interest in Lakeland Brazil was transferred, during the fiscal year ended January 31, 2016, we may continue to be exposed to certain liabilities arising in connection with the operations of Lakeland Brazil, which was shut down in late March 2019.

The Company understands that under the laws of Brazil, a parent company may be held liable for the liabilities of a former Brazilian subsidiary in the event of fraud, misconduct, or under various theories.

In this respect, as regards labor claims, a parent company could conceivably be held liable for the liabilities of a former Brazilian subsidiary.

Although the Company would have the right of adversary system, full defense and due process, in case of a potential litigation, there can be no assurance as to the findings of the courts in Brazil.

VAT Tax Issues in Brazil

Value Added Tax (“VAT”) in Brazil is charged at the state level.

We commenced operations in Brazil in May 2008 through the acquisition of Lakeland Brazil.

Having successfully settled that largest of the VAT claims against Lakeland Brazil, three claims remain open.

Our attorney informs us the three claims totaling R$1.3 million (USD $ 0.5 million) excluding interest, penalties and fees of R$2.7 million (USD $ 0.9 million) were likely to be successfully defended based on state auditor misunderstanding.

Furthermore, with regards to foreign tax claims, our US attorney informs us that the US courts will not hear foreign tax claims and therefore will not enforce them.

Labor Claims in Brazil

As disclosed in our periodic filings with the SEC, we agreed to make certain payments in connection with ongoing labor litigation involving our former Brazilian subsidiary.

While the vast majority of these labor suits have been resolved, there are labor cases that remain active and a civil case filed by a former officer of our former Brazilian subsidiary, in which Lakeland was named as a co-defendant.

The first case was initially filed in 2010 claiming USD $ 100,000 owed to plaintiff.

This case is on its final appeal to the Brazilian Supreme Court, having already been ruled upon in favor of Lakeland three times, most recently by the Labor Court Supreme Court.

The claimant having lost three times previously, management firmly believes that Lakeland will continue to prevail in this case.

A second case filed against Lakeland by a former officer of our former Brazilian subsidiary, was filed in Labor court in 2014 claiming Lakeland owed USD $ 300,000 .

The Labor court ruled that the claimant’s case was outside of the scope of the Labor court and the case was dismissed.

The claimant appealed the dismissal, and this appeal was also dismissed.

The claimant then failed to timely bring a further appeal, so this claim should effectively be time-barred.

A third case filed by a former manager of our former Brazilian subsidiary in 2014 was ruled upon in Labor court and awarded the claimant USD $ 100,000 .

Both the claimant and Lakeland have appealed this decision and the appeals court sent the case back to the trail court for a rehearing on only one (the calculation of the amount of $100,000) of the claimant’s multiple claims.

The claimant thereupon appealed again to a higher court.

In the last case a former officer of our former Brazilian subsidiary filed a claim in 2016 seeking approximately USD $ 700,000 that he alleges is due to him against an unpaid promissory note.

Lakeland was defectively served with process and no decision on the merits has been issued in this case yet.

Management firmly believes these claims to be without any merit and does not anticipate a negative outcome resulting in significant expense to us.

Our former Brazilian subsidiary may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019.

The Company has no obligation under the Shares Transfer Agreement (the agreement pursuant to which Lakeland disposed of all of its equity in its former Brazilian subsidiary) to make any additional payments in connection with these potential new labor lawsuits.

While the vast majority of these labor suits have been resolved, two significant claims remain;

one labor claim and one civil claim filed by separate former officers of our former Brazilian subsidiary.

While Lakeland was initially named as a co-defendant in the labor suit, Lakeland was dismissed from the case by the labor judge.

Lakeland is a named co-defendant in the civil matter.

In the labor case filed in 2014, the former Brazilian manager was initially awarded USD $ 100,000 and appealed the award amount.

Having recently completed that appeals process, the case has been returned to the initial hearing phase for witness testimony and collection of evidence before the same judge that previously dismissed Lakeland.

Currently, Lakeland is not a co-defendant in this case, but that could change should the judge change his prior ruling.

In the civil matter filed five years ago in 2016, a former Lakeland Brazil manager is seeking approximately USD $ 700,000 he alleges is due to him against an unpaid promissory note.

Lakeland has not been served with process and no decision on the merits has been issued in this case yet.

These two cases are the only two cases filed within the last 5 years against the parent company Lakeland Industries, Inc.

and represent the majority of the remaining exposure for Lakeland.

Lakeland Brazil may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019.

The Company has no obligation under the Shares Transfer Agreement to make any additional payments in connection with these potential new labor lawsuits.

The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories.

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Although the Company would have the right of adversary system, full defense and due process in case of a potential litigation, there can be no assurance as to the findings of the courts of Brazil.

There are additional cases in Labor and Civil courts against Lakeland Brazil in which Lakeland is not a party, and other outstanding monetary allegations of Lakeland Brazil.

The Company has provided for professional fees and litigation reserves associated with potential residual labor claims in Brazil.

The accrual on the balance sheet at October 31, 2020 is $ 0.03 million and at January 31, 2020 is $ 0.2 million.

General litigation contingencies

1 unchanged sentence

however, there can be no assurance as to the ultimate outcome of these matters.

As of April 30, 2021, to the best of the Company’s knowledge, there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above.

Segment Reporting

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We have sales forces in the USA, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan, Australia and China, which sell and distribute products shipped from the United States, Mexico, India, Vietnam or China.

The table below represents information about reported segments for the years noted therein:

The table below represents information about reported segments for the three month periods noted therein:

Three Months Ended

Nine Months Ended

(in millions of dollars)

USA Operations (including Corporate)

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Consolidated intersegment sales

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Three Months Ended

Nine Months Ended

(in millions of dollars)

Operating Profit (Loss):

4 unchanged sentences

Consolidated operating profit

Depreciation and Amortization Expense:

USA Operations (including Corporate)

Other foreign

Latin America

Less intersegment

Consolidated depreciation & amortization expense

Interest Expense:

USA Operations (including Corporate)

Latin America

Consolidated interest expense

Income Tax Expense:

USA Operations (including Corporate)

Latin America

Less intersegment

Consolidated income tax expense

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

(in millions of dollars)

3 unchanged sentences

Latin America

Less intersegment

Consolidated assets

Total Assets Less Intersegment:

USA Operations (including Corporate)

Other foreign

Latin America

Consolidated assets

Property and Equipment:

USA Operations (including Corporate)

Other foreign

Latin America

Consolidated property and equipment

Capital Expenditures:

USA Operations (including Corporate)

Other foreign

Latin America

Consolidated capital expenditure

USA Operations

Consolidated goodwill

* Negative assets reflect intersegment amounts eliminated in consolidation

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

The table below presents external sales by product line:

1 unchanged sentence

(in millions of dollars)

Nine Months Ended

(in millions of dollars)

External Sales by product lines:

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements