What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-09 compared with 2021-09-09 · 87 added, 80 removed, 154 unchanged (52% of the section changed)

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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 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;

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

sales and operating profits for the nine month period ended October 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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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 results of operations;

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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;

acquisitions and investments could be unsuccessful;

we may not achieve the expected benefits from strategic acquisitions, investments, joint ventures, capital investments and other corporate transactions that we have pursued or may pursue;

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;

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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 $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.

Our net sales attributable to customers outside the United States were $19.4 million and $24.4 million for the three months ended October 31, 2021 and 2020, respectively and $55.1 million and $67.5 million for the nine months ended October 31, 2021 and 2020, respectively.

Response to COVID-19 Outbreak

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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.

market, excess pipeline inventory and freight delays have proven a significant headwind.

We anticipate that excess inventory will decline steadily as intermittent surges in COVID-19 cases continue 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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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 the first half of FY22 were impacted by our COVID-19 response strategy.

The last two weeks of FY20, all of FY21, and the nine months ended October 31, 2021, 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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COVID-19 related demand was estimated to be approximately 30% to 35% of FY21 revenue and accounted for an estimated 20% of Q3 FY22 sales.

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 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.

The increase in COVID-19 driven sales in Q3 FY22, (approximately 20%) compared to Q2 FY22 (approximately 13%) is a significant departure from our previous expectations for continuous quarter over quarter declines in COVID-19 demand as the pandemic winds down.

We attribute this change primarily to regional differences in COVID-19 responses and preparation.

Q3 FY22 saw a wave of COVID-19 outbreaks in Southeast Asia while Q2 FY22 was the height of the delta variant outbreak in the U.S.

We believe that the quarter over quarter increase in COVID sales as a percent of revenue reflects how regional pandemic responses, specifically the percentage of the the population vaccinated and the quantities of PPE stockpiled, may lead to fluctuations in COVID-19 sales going forward.

COVID-19 outbreaks in developing regions of the world are likely to result in greater demand than outbreaks in developed countries where vaccination levels and stockpiles are greater.

Q2 FY22 saw the bulk of the delta variant outbreak in the U.S.

but generated less demand than the Q3 FY22 outbreak of the same variant in Southeast Asia.

We believe this trend is likely to repeat itself, with diminishing demand differences, as the pandemic runs its course to some persistent level with an indeterminant demand level similar to the seasonal flu.

Our strategy in response to this development is unchanged as we are well positioned to address demand fluctuations around the world and have adequate inventory of finished good to respond, without delay, to these events as they unfold.

Likewise, this development does not alter our internal growth projections as the net result of this trend is demand for our products exceeding our previous expectations.

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.

As these delayed shipments arrived throughout the nine months ended October 31, 2021, 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.

As stated earlier, we believe that intermittent surges in COVID-19 cases and the subsequent high rates of hospitalizations in the 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.

We believe that industrial activity in developed regions of the world is likely to continue to increase as vaccination levels increase and therapeutics improve, lessening reliance on shutdowns or lockdowns to control virus spread.

As stated previously, we believe that developing regions of the world that are less prepared and have less robust medical care, will be slower in industrial recovery.

We do not anticipate a slower industrial recovery in developing regions to negatively impact our growth potential primarily because the regional dispersion of our sales favors the developed regions of the world by a significant margin.

As noted above, as freight delayed orders have arrived through late Q1, and all of Q2 and Q3 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.

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, including any surges due to COVID-19 variants such as the delta or omicron variants.

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.

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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.

In addition, we cannot predict any potential incremental cost that may be associated with any federal, state or local vaccine mandates or related testing protocol.

While current economic indicators and industry data indicate an 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 fourth quarter 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.

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 may negatively impact our gross margins.

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.

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This is evident when comparing Q3 FY20 (pre-COVID) to Q3 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.

Sales revenues of $30.0 million in Q3 FY22 exceeded Q3 FY20 sales of $27.5 million and net income more than doubled from $1.1 million in Q3 FY20 to $2.8 million in Q3 FY22.

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

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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 $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 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

On October 18, 2021, the Company made a strategic investment of $2.8 million in Inova Design Solutions Ltd.

(doing business as Bodytrak®) as a groundbreaking step toward entering the Connected Worker Market for “Smart PPE.” Bodytrak’s unique ear-based sensor platform uses precise physiological measurements and cloud-based analytics to automate health, safety and performance monitoring, making it an ideal complement to Lakeland’s portfolio of industrial protective solutions.

Bodytrak (London, UK) provides wearable monitoring solutions for customers in industrial health, safety, defense and first responder markets wanting to achieve better employee health and performance.

Bodytrak’s solution is provided as a platform as a service (PaaS), delivering real-time data and cloud-based analytics, and hardware that includes a patented earpiece, for physiological monitoring and audio communications.

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

Cash increased by $2.9 million, primarily as continued profitability and improved accounts receivable collection generated $12.6 million of cash flow from operations offset by our investment of $2.8 million in Bodytrak, $5.9 million of share purchases under our treasury stock program.

Accounts receivable decreased due to improved collections and lower sales levels compared to prior year.

Inventory increased $3.2 million due to planned increases to offset freight delays, and reduced demand as compared to prior year.

Accounts payable, accrued compensation, and other accrued expenses decreased $2.0 million.

Capital expenditures for the three and nine months ended October 31, 2021 were $0.1 million and $0.6 million, respectively.

Three Months ended October 31, 2021, Compared to the Three Months Ended October 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 $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, increased during the period due to strengthening demand in those markets.

Net sales were $30.0 million for the three months ended October 31, 2021 a decrease of $11.5 million or 27.7% compared to $41.5 million for the three months ended October 31, 2020.

Sales of our disposable and chemical product line were impacted in the third quarter due to a reduction in direct container sales driven by COVID-19 demand and continued softness in demand from our industrial markets.

Other product lines such as fire, high performance, and wovens, increased by $0.4 million 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 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 for the three months ended October 31, 2021 was $12.6 million, a decrease of $9.1 million, or 41.9%, compared to $21.7 million for the three months ended October 31, 2020.

Gross profit as a percentage of net sales decreased to 42.1% for the three month period ended October 31, 2021, from 52.3% for the three months ended October 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:

Major factors driving the decline in gross margins in the three months ended October 31, 2021, were:

Lower level of direct container sales in the current period.

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

Increases in transportation costs.

Operating Expense .

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 expenses decreased 7.6% from $9.2 million for the three months ended October 31, 2020 to $8.5 million for the three months ended October 31, 2021.

This decrease is attributable to decreases in sales compensation, equity compensation, bad debt, and currency fluctuations offset by increases in travel and administrative expenses.

Operating expenses as a percentage of net sales was 28.4% for the three months ended October 31, 2021, up from 22.2% for the three months ended October 31, 2020 primarily due to the lower volume of sales.

Operating Profit .

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.

Operating profit declined to $4.1 million for the three months ended October 31, 2021 from $12.5 million for the three months ended October 31, 2020, due to the impacts detailed above.

Operating margins were 13.6% for the three months ended October 31, 2021, as compared to 30.1% for the three months ended October 31, 2020.

Income Tax Expense .

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

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

Income tax expense was $1.3 million for the three months ended October 31, 2021, compared to $3.2 million for the three months ended October 31, 2020.

The decrease is due to the reduction in pre-tax income.

The effective rate for the three months ended October 31, 2021 was 31.7%.

The effective rate for the three months ended October 31, 2020 was 25.9%.

Net income decreased by $6.5 million to $2.8 million for the three months ended October 31, 2021 from income of $9.3 million for the three months ended October 31, 2020.

Nine Months ended October 31, 2021, Compared to the Nine Months Ended October 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.

Net sales were $91.6 million for the nine months ended October 31, 2021 as compared to $122.1 million for the nine months ended October 31, 2020, a decrease of 25.0%.

Sales of our disposable and chemical product line declined by $33.5 million 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.

Other product lines such as fire, high performance and wovens, increased by $3.1 million in the aggregate during the period due to strengthening in those markets.

For the nine months ended October 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.

Gross profit was $39.7 million for the nine months ended October 31, 2021, a decrease of $21.5 million, or 35.1%, from $61.2 million for the nine months ended October 31, 2020.

Gross profit as a percentage of net sales decreased to 43.4% for the nine months ended October 31, 2021, from 50.1% for the nine months ended October 31, 2020.

Major factors driving gross margins were:

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

Increases in transportation costs.

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 expenses declined $1.1 million, or 4.1%, to $25.5 million for the nine months ended October 31, 2021 from $26.6 million for the nine months ended October 31, 2020.

This decrease was due to decreases in sales compensation, customer incentives, equity compensation, and currency fluctuations offset by increases in administrative expenses, technology licenses, and depreciation.

Operating expenses as a percentage of net sales was 27.8% for the nine months ended October 31, 2021, up from 21.8% for the nine months ended October 31, 2020 primarily due to the lower volume of sales.

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.

Operating profit decreased to $14.3 million for the nine months ended October 31, 2021 from $34.6 million for the nine months ended October 31, 2020, due to the impacts detailed above.

Operating margins were 15.6% for the nine months ended October 31, 2021, as compared to 28.3% for the nine months ended October 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.

Income tax expense was $4.2 million for the nine months ended October 31, 2021, compared to $7.4 million for the nine months ended October 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.

The Company recorded a discrete item related to the remeasurement of deferred taxes for $0.8million of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor.

The effective rate for the nine months ended October 31, 2021 was 29.8%.

The effective rate for the nine months ended October 31, 2020 was 21.3%.

Net income decreased by $17.2 million to $10.0 million for the nine months ended October 31, 2021 from $27.2 million for the nine months ended October 31, 2020.

Liquidity and Capital Resources

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 $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.

At October 31, 2021, cash and cash equivalents were approximately $55.5 million and working capital was approximately $111.0 million.

Cash and cash equivalents increased $2.9 million and working capital increased $2.8 million from January 31, 2021, due to continued profitability and a focus on working capital efficiencies, partially offset by treasury stock purchases of $5.9 million and investment in Bodytrak of $2.8 million.

Of the Company’s total cash and cash equivalents of $55.5 million as of October 31, 2021, cash held in Latin America of $2.6 million, cash held in Russia and Kazakhstan of $0.7 million, cash held in the UK of $0.6 million, cash held in India of $0.9 million, cash held in Hong Kong of $7.0 million and cash held in Vietnam of $2.0 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 $26.3 million balance at October 31, 2021 there would be an additional 10% withholding tax incurred in that country.

Net cash provided by operating activities of $12.6 million for the nine months ended October 31, 2021 was primarily due to net income of $10.0 million, non-cash expenses of $3.5 million, and decrease in net current assets of $1.6 million offset by a reduction in current liabilities of $2.5 million.

Net cash used in investing activities of $3.4 million for the nine months ended October 31, 2021 reflects office and manufacturing equipment purchases and the investment in Bodytrak of $2.8 million.

Net cash used in financing activities was $6.5 million for the nine months ended October 31, 2021, due to $5.9 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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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.

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

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

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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.

Shares repurchased in the nine months ended October 31, 2021 totaled 271,024 shares at a cost of $5.9 million leaving $4.1 million remaining under the stock repurchase program at October 31, 2021.

Capital Expenditures.

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.

Our capital expenditures for the first nine months of FY22 of $0.6 million principally relate to capital purchases for our manufacturing facilities in Mexico, Vietnam and India, enhancement of our global IT infrastructure and furnishing our new corporate headquarter office.

We anticipate FY22 capital expenditures to be approximately $1.0 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 first half of FY22.

There have been no significant changes in the application of our critical accounting policies during the nine months ended October 31, 2021.

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