What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-09 compared with 2021-06-09 · 123 added, 65 removed, 111 unchanged (63% of the section changed)

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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.

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”, “plan,” “seek,” “will,” “may,” “might,” “would,” “could” 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.

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

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 three month period ended April 30, 2021, and for the fiscal year ended January 31, 2021, were positively affected by COVID 19 related demand;

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

sales and operating profits for the six month period ended July 31, 2021, and for the fiscal year ended January 31, 2021,were positively affected by COVID-19 related demand;

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

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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;

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

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

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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.

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, except as may be required by law.

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

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Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically.

More recently we have added manufacturing operations in Vietnam and India to offset increasing manufacturing costs in China and further diversify our manufacturing capabilities.

We added manufacturing operations in Vietnam and India in fiscal 2019, to offset increasing manufacturing costs in China and further diversify our manufacturing capabilities.

Our China operations will continue primarily manufacturing for the Chinese market and other markets where duty advantages exist.

Manufacturing expansion is not only necessary to control rising costs, it is also necessary for Lakeland to achieve its growth objectives.

Our net sales attributable to customers outside the United States were $18.4 million and $22.5 million for the three months ended April 30, 2021 and 2020, respectively.

Our net sales attributable to customers outside the United States were $17.3 million and $20.6 million for the three months ended July 31, 2021 and 2020, respectively and $35.7 million and $43.0 million for the six months ended July 31, 2021 and 2020, respectively.

Response to COVID-19 Outbreak

Our strategy for responding to the COVID-19 outbreak evolved from prior “black swan” events.

These events have been very disruptive for the users of our products and contributed little in terms of sustainable business improvement or growth for the suppliers.

Any gains attributable to these events were limited to short-term increases in sales volume and price increases associated with capacity expansion and expedited deliveries.

These events have been disruptive for the users of our products and contributed little in terms of sustainable business improvement or growth for the suppliers.

Any business gains attributable to these events were limited to short-term increases in sales volume and price increases associated with capacity expansion and expedited deliveries.

In responding to COVID-19 Lakeland sought a new approach.

We decided to focus on our existing business, adding new customers, and increasing market penetration by prioritizing service to our existing industrial end users and seeking new customers who were experiencing supply shortages.

We decided to service the COVID-19 market to the extent that Lakeland had excess capacity after servicing existing and new industrial customers.

We believe that focusing on the industrial market first and the pandemic market second, is a sound strategy for diminishing the impact of any post-event recession and loss of COVID-19 related sales while accelerating our growth by developing new, permanent business that will remain after the “black swan” event passes.

Throughout COVID-19 we focused our attention on our existing business, adding new customers, and increasing market penetration by prioritizing service to our existing industrial end users and seeking new customers who were experiencing supply shortages.

We sought to service the COVID-19 market to the extent that Lakeland had excess capacity after servicing existing and new industrial customers.

We believe that focusing on the industrial market first and the pandemic market second, is a sound strategy for increasing market penetration in a post COVID-19 environment.

Even though we were successful in selling to more than 500 new distributrors and end users, 75% of whom were outside of the U.S.

market, excess pipeline inventory and freight delays, primarily in the U.S.

market have proven a significant headwind to U.S.

sales which historically accounts for approximately 50% of sales revenue.

The impact of these challenges in the U.S.

market overshadowed international growth in Q2.

We anticipate that excess inventory will decline steadily in the U.S.

market as the current wave of COVID-19 continues in the U.S.

and that industrial growth will continue to improve internationally as we transition from an emergency COVID-19 response to a business environment where COVID-19 is a dimisnished, but persistent component of sales.

Our manufacturing flexibility allows us to rapidly shift capacity between product lines and alter our product offering so that we can maximize throughput of critical products.

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and ran a 7-day work week until market supply caught up with demand.

We rationalized our product offerings and eliminated SKUs that did not meet our profitability goals, did not create a competitive advantage or were detrimental to manufacturing efficiencies due to change over times.

Because we own our manufacturing facilities, Lakeland was able to make these changes within the first couple of months of the pandemic.

The last two weeks of FY20, all of FY21, and Q1 FY22 were impacted by our COVID-19 response strategy.

The last two weeks of FY20, all of FY21, and the first half of FY22 were impacted by our COVID-19 response strategy.

As the pandemic progressed in FY21, we saw reductions in industrial activity due to lockdowns and work restrictions that resulted in diminished sales into petrochemicals, the utility sector, and industrial segments like automotive and airlines.

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As this demand continues to decrease, we anticipate a continuation of an increase in our industrial core businesses that began in Q2 FY21 and continued through Q2 FY22 with our sales also benefitting from repeat orders by new industrial customers that began using Lakeland during the pandemic.

The negative impact of lock downs and stay at home orders peaked in Q2 FY21 with industrial business sales down by approximately 25%.

The negative impact of lockdowns and stay at home orders peaked in Q2 FY21 with industrial business sales down by approximately 25%.

Through the second half of Q2 FY21 and through Q2 FY22 our core business sales have been recovering steadily.

At present, we anticipate our core industrial sales will not only return, but as a result of our focus on increased market penetration and new product offerings we believe revenues will attain levels higher than pre-pandemic revenue levels.

We are not deviating from our growth strategy, rather we are looking to utilize the short-term, increased demand as a catalyst to accelerate attainment of growth objectives.

The success of this strategy is clearly exemplified by our Q1 FY22 new customer order rate of approximately 68% of the more than 500 new customers we have developed.

Over the course of FY21, raw materials supply appears to have caught up with demand.

Prices have declined, but remain above pre-COVID-19 pricing as we anticipated.

While we saw, and noted, an initial recovery in the industrial markets in the U.S., we now believe that the strength of the recovery was magnified by freight delays extending order leadtimes leading distributors and end users to place more orders as industrial activity surged.

As these delayed shipments arrived throughout Q1 & Q2 FY22, an excess of inventory was created in U.S.

distribution channels.

As stated earlier, we believe that the current wave of COVID-19 and the subsequent high rates of hospitalizations in U.S.

will draw down this inventory as freight delays continue.

While we believe that COVID-19 will continue at some persistent level of sales for at least the coming year, we do not believe that it will be a significant sales driver.

More significant will be U.S.

freight delays, both ocean and inland.

To mitigate the impact of freight delays on our business, we will be adjusting inventory levels for freight delays that we believe will last through calendar year 2022.

While we are well positioned to service outbreaks of COVID-19 in developing regions of the world, such as Southeast Asia, South America and North America, we believe that going forward, increased economic activity will drive sales revenue.

As noted above, as freight delayed orders have arrived through late Q1 and Q2 FY22, PPE manufacturing has caught up to current COVID-19 demand.

Raw materials and finished goods pricing have declined, but increased freight costs and lack of availability of some precursors threaten to limit if not reverse the downward trend.

We believe that raw materials prices will continue at inflated levels through FY22.

Our future sales would be affected should there be an industry-wide shortage of necessary raw materials in the event of another rise or surge in COVID-19 cases.

As previously noted, we did experience significant price increases for fabric during FY21 and managed our available manufacturing capacity to lower costs, and increased prices, to meet customer demand at these higher prices.

With the exception of our India export manufacturing operation, which did not qualify for “essential status” due to its export only restrictions, and where a recent surge has led to government imposed lockdowns, we have not experienced any manufacturing capacity issues due to inability to source raw materials, government quarantine, or shelter-in-place orders, or due to COVID-19 outbreaks in any of our factories, however there can be no assurance that this will continue to be the case.

While current economic indicators and industry data indicate a robust industrial market recovery, potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and consumer stockpiled inventories that may temper demand within our regular markets in the second half of FY22.

Offsetting these risks are changes to our sales environment, as a result of COVID-19, that we believe represent considerable upside to sales.

In Q2 FY22 we did not experience any manufacturing shutdowns or closures of any of our facilities due to COVID-19.

Employee absence due to potential exposure or quarantine of the neighborhood in which they live is a persistent problem, but has not resulted in the shutdown of any facilties.

We have not experienced any manufacturing capacity issues due to inability to source raw materials, government quarantine, or shelter-in-place orders, or due to COVID-19 outbreaks in any of our factories, however there can be no assurance that this will continue to be the case.

While current economic indicators and industry data indicate an robust industrial market recovery, potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and consumer stockpiled inventories that may temper demand within our regular markets in the second half of FY22.

While we have not experienced any raw materials shortages in our Asian manufacturing operations, we are experiencing some issues with U.S.

sourced raw materials due to labor and precursor shortages affecting our higher margin product lines.

In both Asia and the U.S., increasing labor and freight costs, as well as inflationary pressures threaten to drive raw material costs up and threaten may negatively impact our gross margins.

As is our policy Where we can, we will seek to recover increased costs with corresponding price increases.

Reference is made to “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 and to “Forward-Looking Statements” above in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Offsetting these risks are changes to our sales environment, as a result of COVID-19, that we believe represent considerable upside to sales.

We believe that once the pandemic subsides, there will be continued demand for establishing PPE stockpiles for the long-term.

This stockpiling will be filled in part by inventory that is in the distribution channels as the pandemic ends.

This stockpiling will be filled in part by inventory that is in the distribution channels as the pandemic subsides.

When specific governments will issue RFQs for additional product is unknown, but some RFQs are already pending release;

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This strategy combined with new product development, manufacturing expansion, and the addition of key senior personnel also serves to prepare us for any economic slowdown that may occur as COVID-19 business ends and our industry transitions to a more traditional product mix.

Having successfully implemented the above strategy, as evidenced by significantly increased market penetration in international markets, the addition of new customers, and realizing efficiency gains that we intend to make permanent, we are now focused on adding human and IT resources required to accelerate our growth rate in a post-COVID-19 environment.

We believe that we emerged from FY21 a full year ahead of our pre-COVID-19 growth plan, and we are committed to leveraging our position to accelerate growth in Critical Environment Markets such as pharmaceutical cleanrooms, isolation gowns, and Chemo-gowns;

the Electric Utility Market;

and to continue improving efficiencies by rationalizing our product offering in non-Covid product lines.

Having successfully realized significant efficiency gains, resulting in increased profitability, that we intend to make permanent, we are now focused on adding human and IT resources required to accelerate our growth rate in a post-COVID-19 environment.

We have emerged from FY21 and COVID-19 nearly twice as profitable as we were pre-COVID-19.

This is evident when comparing Q2 FY20 (pre-COVID) to Q2 FY22.

Sales revenues of $27.5 million in Q2 FY20, and Q2 FY22 were equivalent yet net income almost doubled from $1.4 million in Q2 FY20 to $2.6 million in Q2 FY22.

Going forward, we will continue improving efficiencies by rationalizing our product offering in non-COVID product lines.

To do this we will be acquiring additional senior and middle managers with specific skills in Sales and Marketing, Quality Control, Supply Chain Management, and Industrial Engineering.

These personnel will facilitate future manufacturing expansion by assuring that we have the skill sets necessary to meet our growth targets.

In addition, we may pursue growth through acquistions.

Significant Balance Sheet Fluctuation April 30, 2021 , Compared to January 31, 2021

Cash increased by $7.7 million, primarily as a result of continued profitability and improved accounts receivable collection efficiency.

In addition, we may pursue growth through acquisitions.

Significant Balance Sheet Fluctuation July 31, 2021 , Compared to January 31, 2021

Cash increased by $7.2 million, primarily as a result of continued profitability and improved accounts receivable collection offset by $5.0 million of share purchases under our treasury stock program and an increase in inventories.

Accounts receivable decreased due to improved collections and lower sales compared to the previous quarter.

Inventory increased less than $0.1 million.

Inventory increased $3.1 million due to reduced demand and lower direct container sales in the second quarter.

Accounts payable, accrued compensation, and other accrued expenses increased $1.4 million.

Capital expenditures for the three months ended April 30, 2021 were $0.1 million.

Three Months ended April 30, 2021, Compared to the Three Months Ended April 30, 2020

Capital expenditures for the three and six months ended July 31, 2021 were $0.4 million and $0.5 million, respectively.

Three Months ended July 31, 2021, Compared to the Three Months Ended July 31, 2020

Reference is made to “Overview;

Response to COVID-19 Outbreak” above which should be read in conjunction with this Section.

Net sales were $34.1 million for the three months ended April 30, 2021 a decrease of $11.5 million or 25.2% compared to $45.6 million for the three months ended April 30, 2020, Sales of our disposable and chemical product line were impacted in the first quarter due to reduction in direct container sales that were COVID-19 driven demand.

Net sales were $27.5 million for the three months ended July 31, 2021 a decrease of $7.5 million or 21.4% compared to $35.0 million for the three months ended July 31, 2020, Sales of our disposable and chemical product line were impacted in the second quarter due to a reduction in direct container sales driven by COVID-19 demand and continued softness in demand from our industrial markets.

As noted, it is anticipated that COVID-19 demand will continue to diminish.

Other product lines such as fire, high performance, and wovens, which are primarily used by industrial customers, increased during the period due to strengthening in those markets.

Other product lines such as fire, high performance, and wovens, increased during the period due to strengthening demand in those markets.

Sales were affected by customers over-ordering in prior periods, resulting in excess channel inventories, and shipping delays with ocean freight carriers.

Gross Profit.

Gross profit for the three months ended April 30, 2021 was $14.4 million, a decrease of $7.8 million, or 35.0%, compared to $22.1 million for the three months ended April 30, 2020.

Gross profit as a percentage of net sales decreased to 42.2% for the three month period ended April 30, 2021, from 48.6% for the three months ended April 30, 2020.

Major factors driving gross margins were:

Gross profit for the three months ended July 31, 2021 was $12.7 million, a decrease of $4.6 million, or 26.6%, compared to $17.3 million for the three months ended July 31, 2020.

Gross profit as a percentage of net sales decreased to 46.3% for the three month period ended July 31, 2021, from 49.5% for the three months ended July 31, 2020.

Gross profit performance in the fiscal 2021 period benefited from higher volumes including direct container shipments, related factory utilization and an improving product mix with pricing power.

Major factors driving the decline in gross margins were:

Lower level of direct container sales in the current period.

Return to competitive pricing pressures as we shift from COVID-19 driven demand to industrial driven demand.

Return to competitive pricing pressures as COVID-19 demand decreases.

Operating Expense .

Operating expenses decreased 17.3% from $9.8 million for the three months ended April 30, 2020 to $8.1 million for the three months ended April 30, 2021.

Operating expenses as a percentage of net sales was 23.9% for the three months ended April 30, 2021, up from 21.4% for the three months ended April 30, 2020.

Selling expenses were decreased, with decreases in sales compensation and commissions and freight out due to the decrease in sales.

General and administrative expenses in total were essentially the same for each period which included a gain in currency fluctuations of $0.5 million in Q1 FY22 as compared to currency losses of $0.2 million in Q1 FY21.

This currency gain was offset by compensation costs and licensing and depreciation associated with our ERP investment.

Operating expenses increased 15.8% from $7.6 million for the three months ended July 31, 2020 to $8.8 million for the three months ended July 31, 2021.

Operating expenses as a percentage of net sales was 32.0% for the three months ended July 31, 2021, up from 21.5% for the three months ended July 31, 2020.

Selling expenses were increased, with increases in freight and customs costs of $0.3 million as freight rates and fees have significantly increased, and increases in travel expenses of $0.2 million as restrictions have eased compared to the prior year.

General and administrative expenses increased due to professional fees of $0.3 million and increases in compensation costs of $0.3 million as we added staff to supplement our administrative functions.

Operating Profit .

Operating profit declined to $6.2 million for the three months ended April 30, 2021 from $12.4 million for the three months ended April 30, 2020, due to the impacts detailed above.

Operating margins were 18.3% for the three months ended April 30, 2021, as compared to 27.1% for the three months ended April 30, 2020.

Interest Expense .

Interest expense decreased slightly to less than $0.01 million for the three months ended April 30, 2021 from $0.02 million for the three months ended April 30, 2020 as a result of reduced borrowings.

Operating profit declined to $3.9 million for the three months ended July 31, 2021 from $9.8 million for the three months ended July 31, 2020, due to the impacts detailed above.

Operating margins were 14.3% for the three months ended July 31, 2021, as compared to 27.8% for the three months ended July 31, 2020.

Income Tax Expense .

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

Income tax expense was $1.6 million for the three months ended April 30, 2021, compared to $3.7 million for the three months ended April 30, 2020, due to the reduction in operating profit.

Net income decreased by $4.0 million to $4.6 million for the three months ended April 30, 2021 from income of $8.6 million for the three months ended April 30, 2020.

Income tax expense was $1.4 million for the three months ended July 31, 2021, compared to $0.4 million for the three months ended July 31, 2020.

The increase is related to the end of the tax holiday in Vietnam, certain modifications to the GILTI tax provisions, and the tax expense impact related to the remeasurement of deferred taxes primarily due to the statutory change in the State of Alabama apportionment factor.

Net income decreased by $6.7 million to $2.6 million for the three months ended July 31, 2021 from income of $9.3 million for the three months ended July 31, 2020.

Six Months ended July 31, 2021, Compared to the Six Months Ended July 31, 2020

Reference is made to “Overview;

Response to COVID-19 Outbreak” above which should be read in conjunction with this Section.

Net sales were $61.6 million for the six months ended July 31, 2021 as compared to $80.6 million for the six months ended July 31, 2020, a decrease of 23.6%.

Sales of our disposable and chemical product line declined by $21.3 million in the first half of the year due to reduction in direct container sales driven by COVID-19 demand and continued softness in demand for industrial applications.

As noted, it is anticipated that COVID-19 demand will continue to diminish.

Other product lines such as fire, high performance, and gloves, increased by $4.4 million in the aggregate during the period due to strengthening in those markets.

For the six months ended July 31, 2020 sales globally were driven by COVID-19 demand, as we realized significant increases in all markets for our disposable and chemical product lines.

Gross Profit .

Gross profit was $27.1 million for the six months ended July 31, 2021, a decrease of $12.4 million, or 31.4%, from $39.5 million for the six months ended July 31, 2020.

Gross profit as a percentage of net sales decreased to 44.0% for the six months ended July 31, 2021, from 49.0% for the six months ended July 31, 2020.

Major factors driving gross margins were:

Significant decreases in volumes driven by COVID-19 demand.

Decrease in direct container sales.

Return to competitive pricing pressures as COVID-19 demand decreases.

Operating Expense .

Operating expenses declined $0.5 million, or 2.9%, to $16.9 million for the six months ended July 31, 2021 from $17.4 million for the six months ended July 31, 2020.

Operating expenses as a percentage of net sales was 27.5% for the six months ended July 31, 2021, up from 21.6% for the six months ended July 31, 2020.

Selling expenses were lower due to decreases in total freight and customs fees of $0.4 million due to decreased sales volumes, and decreased sales compensation of $0.6 million.

General and administrative expenses were higher due to increased compensation of $0.6 million as we added staff to supplement our administrative functions, increased depreciation of $0.3 million, increased technology expenses of $0.3 million, offset by a decrease in currency translations of $0.9 million.

Operating Profit .

Operating profit decreased to $10.2 million for the six months ended July 31, 2021 from $22.1 million for the six months ended July 31, 2020, due to the impacts detailed above.

Operating margins were 16.5% for the six months ended July 31, 2021, as compared to 27.4% for the six months ended July 31, 2020.

Income Tax Expense .

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

Income tax expense was $2.9 million for the six months ended July 31, 2021, compared to $4.1 million for the six months ended July 31, 2020.

The decrease is mainly attributable to the decrease in operating profit.

Net income decreased by $10.8 million to $7.2 million for the six months ended July 31, 2021 from $18.0 million for the six months ended July 31, 2020.

Liquidity and Capital Resources

At April 30, 2021, cash and cash equivalents were approximately $60.3 million and working capital was approximately $112.7 million.

At July 31, 2021, cash and cash equivalents were approximately $59.8 million and working capital was approximately $111.5 million.

Cash and cash equivalents increased $7.2 million and working capital increased $3.2 million from January 31, 2021, due to continued profitability and a focus on working capital efficiencies.

Of the Company’s total cash and cash equivalents of $60.3 million as of April 30, 2021, cash held in Latin America of $2.7 million, cash held in Russia and Kazakhstan of $0.7 million, cash held in the UK of $1.7 million, cash held in India of $1.2 million and cash held in Canada of $4.7 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

In the event the Company repatriated cash from China, of the $26.6 million balance at April 30, 2021 there would be an additional 10% withholding tax incurred in that country.

The Company has strategically employed a dividend plan subject to declaration and certain approvals in which its Canadian subsidiary sends dividends to the US in the amount of 100% of the previous year’s earnings, the UK subsidiary sends dividends to the US in the amount of 50% of the previous year’s earnings.

Net cash provided by operating activities of $8.3 million for the three months ended April 30, 2021 was primarily due to net income of $4.6 million, non-cash expenses of $1.1 million for deferred taxes, depreciation and amortization and stock compensation, and decrease in accounts receivable of $2.3 million.

Net cash used in investing activities of $0.1 million for the quarter ended April 30, 2021 reflects equipment purchases.

Net cash used in financing activities was $0.5 million for the quarter ended April 30, 2021, was due to shares returned to pay income taxes on shares vested under our restricted stock program.

Of the Company’s total cash and cash equivalents of $59.8 million as of July 31, 2021, cash held in Latin America of $1.8 million, cash held in Russia and Kazakhstan of $0.6 million, cash held in the UK of $0.7 million, cash held in India of $1.0 million and cash held in Canada of $4.6 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

In the event the Company repatriated cash from China, of the $30.7 million balance at July 31, 2021 there would be an additional 10% withholding tax incurred in that country.

Net cash provided by operating activities of $13.1 million for the six months ended July 31, 2021 was primarily due to net income of $7.2 million, non-cash expenses of $2.4 million for deferred taxes, depreciation and amortization and stock compensation, and decrease in net current assets of $3.5 million.

Net cash used in investing activities of $0.5 million for the six months ended July 31, 2021 reflects office and manufacturing equipment purchases.

Net cash used in financing activities was $5.5 million for the six months ended July 31, 2021, was due to $5.0 million in shares repurchased under our treasury stock buyback program and shares returned to pay income taxes on shares vested under our restricted stock program.

We believe our current cash balance and cashflow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

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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.

On a one-time basis, and subject to there not existing an event of default, the Company may elect to 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.

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 with the Lender.

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.

The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0.

The Loan Agreement also contains customary covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, or merge, consolidate or sell or otherwise transfer assets.

The Company was in compliance with all of its debt covenants as of July 31, 2021.

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

Stock Repurchase Program .

On February 17, 2021, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $5,000,000 of its outstanding common stock.

The new program replaces the prior program which had approximately $800,000 remaining for repurchases.

There were no shares repurchased in Q1 FY22.

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

On July 6, 2021, the Board of Directors authorized an increase in the Company’s current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

Shares repurchased in Q2 FY22 totaled 227,454 shares at a cost of $5.0 million leaving $5 million remaining under the stock purchase program at July 31, 2021.

Capital Expenditures .

Our capital expenditures for first three months of FY22 of $0.1 million principally relate to capital purchases for our manufacturing facilities in Mexico, Vietnam and India, and the enhancement of our global IT infrastructure.

Our capital expenditures for the first six months of FY22 of $0.5 million principally relate to capital purchases for our manufacturing facilities in Mexico, Vietnam and India, and the enhancement of our global IT infrastructure.

We anticipate FY22 capital expenditures to be approximately $3.0 million as we continue to deploy our ERP solution globally, invest in strategic capacity expansion, and replace existing equipment in the normal course of operations.

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Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report.

There have been no significant changes in the application of our critical accounting policies during the Q1 FY2022.

There have been no significant changes in the application of our critical accounting policies during the first half of FY22.

Quantitative and Qualitative Disclosures About Market Risk

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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 2. Management’s Discussion and Analysis