What changed in this filing

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Item 1. Financial Statements

2021-09-09 compared with 2021-06-09 · 90 added, 69 removed, 265 unchanged (38% of the section changed)

5 unchanged sentences

Three Months Ended

Six Months Ended

Cost of goods sold

12 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

8 unchanged sentences

Cash and cash equivalents

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

Accounts receivable, net of allowance for doubtful accounts of $ 721 and $ 700 at July 31, 2021 and January 31, 2021, respectively

Prepaid VAT and other taxes

4 unchanged sentences

Deferred tax assets

Prepaid VAT and other taxes

LIABILITIES AND STOCKHOLDERS’ EQUITY

15 unchanged sentences

Issued 8,542,372 and 8,498,457 ;

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

outstanding 7,805,676 and 7,984,518 at July 31, 2021 and January 31, 2021, respectively

Treasury stock, at cost;

509,242 shares

736,696 and 509,242 shares at July 31, 2021 and January 31, 2021, respectively

Additional paid-in capital

14 unchanged sentences

Restricted Stock Plan

Return of shares in lieu of payroll withholding

Balance, July 31, 2020

Balance, April 30, 2020

Other comprehensive income

Stock-based compensation:

Restricted stock issued

Restricted stock plan

Return of shares in lieu of payroll withholding

Balance, July 31, 2020

Balance, January 31, 2021

4 unchanged sentences

Return of shares in lieu of payroll withholding

Treasury stock purchased

Balance, July 31, 2021

Balance, April 30, 2021

Other comprehensive income

Stock-based compensation:

Restricted stock issued

Restricted stock plan

Return of shares in lieu of payroll withholding

Treasury stock purchased

Balance, July 31, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

LAKELAND INDUSTRIES, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

Cash flows from operating activities:

4 unchanged sentences

Stock based and restricted stock compensation

Gain on disposal of property and equipment

Non-cash operating lease expense

Loss on disposal of property and equipment

(Increase) decrease in operating assets

1 unchanged sentence

Prepaid VAT and other taxes

Other current assets

Increase (decrease) in operating liabilities

5 unchanged sentences

Purchases of property and equipment

Net cash (used in) investing activities:

Cash flows from financing activities:

1 unchanged sentence

Loan borrowings, short-term

Purchase of treasury stock under stock repurchase program

Shares returned to pay employee taxes under restricted stock program

26 unchanged sentences

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.

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, 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.

thus, for example, Q2 FY22 refers to the second 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):

6 unchanged sentences

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 (i) $ 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 $ 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 $ 5.0 million (for a total commitment of up to $17.5 million).

2 unchanged sentences

The credit facility will mature on June 25, 2025 .

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.

On June 18, 2021, the Company entered into an Amendment No.

1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement.

The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $ 12.5 million to $ 25.0 million.

The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $ 7.5 million for any individual acquisition or $ 15.0 million on a cumulative basis for all such acquisitions.

Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect.

As of July 31, 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 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.

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

Amounts due the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.3 million and $ 2.0 million as of July 31, 2021, and January 31, 2021, respectively, are included in other current assets on the accompanying consolidated balance sheets.

Concentration of Risk

18 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 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.

There was approximately $ 15.7 million total included in U.S.

bank accounts and approximately $ 44.1 million total in foreign bank accounts as of July 31, 2021, of which $ 59.1 million was uninsured.

Major Customer

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

No customer accounted for more than 10 % of net sales during the three months and six months ended July 31, 2021 and 2020.

Major Supplier

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

No vendor accounted for more than 10 % of purchases during the three months and six months ended July 31, 2021 and 2020.

Stockholders’ Equity

4 unchanged sentences

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”).

On June 16, 2021, the stockholders of the Company approved Amendment No.

1 (the “Amendment”) to the 2017 Plan.

The Amendment increases the number of shares of common stock, par value $ 0.01 per share (the “Common Stock”), of the Company reserved for issuance under the Plan by 480,000 shares.

An aggregate of 840,000 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.

2 unchanged sentences

Three Months Ended

Restricted Stock Program

Stock Options

Total stock based compensation

Six Months Ended

Total restricted stock and stock option programs

Total income tax expense recognized for stock-based compensation arrangements

1 unchanged sentence

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

The following table summarizes the activity under the 2017 Plan for the six months ended July 31, 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, April 2020 and June 2021 grants.

Service-Based

1 unchanged sentence

Outstanding at January 31, 2021

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.

Outstanding at July 31, 2021

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

1 unchanged sentence

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.

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.

As of July 31, 2021, unrecognized stock-based compensation expense totaled $ 2.1 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 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

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

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

On July 6, 2021, the Company’s Board of Directors authorized a $5 million increase in the Company’s current stock repurchase program.

During the three months ended July 31, 2021, the Company repurchased 227,454 shares for $ 5.0 million leaving $ 5 million remaining under the stock purchase program at July 31, 2021.

The Company's effective tax rate for the second quarter of FY22 was 34.8 % which differs from the U.S.

federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and state income taxes.

In the second quarter of 2022, the Company recorded a discrete item related to the remeasurement of deferred taxes for $762 thousand of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor.

The Company's effective tax rate for the second quarter of FY21 was 4.3 %, which differs from the U.S.

statutory rate of 21 % primarily due to Global Intangible Low-taxed Income (“GILTI”) and an adjustment to reflect the recapture of U.S.

net operating losses ("NOL") as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20.

The Company's effective tax rate for the six months ended July 31, 2021 was 29.1 % which differs from the U.S.

federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions, state income taxes and the discrete item discussed above.

The Company's effective tax rate for the six months ended July 31, 2020 was 18.8 % which differs from the U.S.

statutory rate of 21 % primarily due to GILTI and an adjustment to reflect the recapture of U.S.

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

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 $ 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.

The states have a larger spread because some only carryforward for 10 years and some allow 20 years .

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

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, 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.

The valuation allowance was $ 2.3 million and $ 2.7 million at July 31, 2021 and January 31, 2021, respectively.

Net Income Per Share

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):

The following table sets forth the computation of basic and diluted net income per share at July 31, 2021 and 2020 as follows (in $000s except per share amounts):

Three Months Ended

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

Six Months Ended

Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 736,696 and 509,242 at July 31, 2021 and 2020, respectively

Effect of dilutive securities from restricted stock plan

3 unchanged sentences

Contingencies

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.

From time to time, the Company is a party to litigation, claims and other contingencies, including environmental, regulatory and employee matters and examinations and investigations by governmental agencies, which arise in the ordinary course of business.

The Company records a contingent liability when it is probable that a loss has been incurred and the amount of loss is reasonably estimable in accordance with ASC Topic 450, Contingencies, or other applicable accounting standards.

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

3 unchanged sentences

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.

On July 31, 2015, 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.

1 unchanged sentence

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.

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

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.

As disclosed in our periodic filings with the Securities and Exchange Commission (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, two significant claims remain;

12 unchanged sentences

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.

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.

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

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.

As of July 31, 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

4 unchanged sentences

We evaluate the performance of these entities based on operating profit, which is defined as gross profit less operating expenses.

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.

We have sales forces in the United States, 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 three month periods noted therein:

Three Months Ended

Six Months Ended

(in millions of dollars)

USA Operations (including Corporate)

13 unchanged sentences

Consolidated intersegment sales

Three Months Ended

Six Months Ended

(in millions of dollars)

Operating Profit (Loss):

2 unchanged sentences

Latin America

Less intersegment profit

Intersegment profit (loss)

Consolidated operating profit

July 31, 2021

January 31, 2021

(in millions of dollars)

7 unchanged sentences

(in millions of dollars)

Six 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