What changed in this filing

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Item 1. Financial Statements

2022-06-09 compared with 2021-12-09 · 73 added, 118 removed, 242 unchanged (44% of the section changed)

5 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of goods sold

12 unchanged sentences

Three Months Ended

Nine Months Ended

Other comprehensive income (loss):

8 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 613 and $ 700 at October 31, 2021 and January 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 635 and $ 666 at April 30, 2022 and January 31, 2022, respectively

Prepaid VAT and other taxes

19 unchanged sentences

Common stock, $ 0.01 par;

authorized 20,000,000 shares Issued 8,555,672 and 8,498,457 ;

outstanding 7,775,406 and 7,984,518 at October 31, 2021 and January 31, 2021, respectively

authorized 20,000,000 shares Issued 8,635,358 and 8,555,672 shares;

outstanding 7,670,636 and 7,615,967 shares at April 30, 2022 and January 31, 2022, respectively

Treasury stock, at cost;

780,266 and 509,242 shares at October 31, 2021 and January 31, 2021, respectively

964,722 and 939,705 shares at April 30, 2022 and January 31, 2022, respectively

Additional paid-in capital

16 unchanged sentences

Return of shares in lieu of payroll withholding

Balance, October 31, 2020

Balance, July 31, 2020

Other comprehensive income

Stock-based compensation:

Restricted stock issued

Restricted stock plan

Return of shares in lieu of payroll withholding

Balance, October 31, 2020

Balance, April 30, 2021

Balance, January 31, 2022

5 unchanged sentences

Treasury stock purchased

Balance, October 31, 2021

Balance, July 31, 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, October 31, 2021

Balance, April 30, 2022

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

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

Provision for doubtful accounts

Provision for (recovery of) doubtful accounts

Deferred income taxes

3 unchanged sentences

Non-cash operating lease expense

Equity in loss of equity investment

(Increase) decrease in operating assets

10 unchanged sentences

Cash flows from financing activities:

Loan repayments, short-term

Loan borrowings, short-term

Purchase of treasury stock under stock repurchase program

2 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

13 unchanged sentences

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

In addition, through distributors, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.

In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.

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

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

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

Basis of Presentation

7 unchanged sentences

thus for example, FY23 refers to the fiscal year ending January 31, 2023, (b) “Q” refers to quarter;

thus, for example, Q3 FY22 refers to the third 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, Q1 FY23 refers to the first quarter of the fiscal year ending January 31, 2023, (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.

On October 18, 2021, the Company entered into an Investment Agreement (the “Investment Agreement”) with Inova Design Solutions Ltd, a private limited company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak ® (“Bodytrak”), and the other parties thereto, pursuant to which Bodytrak agreed to issue and sell to the Company 508,905 cumulative convertible series A shares of Bodytrak (“Series A Shares”) in exchange for a payment by the Company of £2,000,000 ($ 2.8 million).

The closing of this minority investment transaction occurred on October 18, 2021.

Bodytrak 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.

The Series A Shares issued to the Company at the closing represent approximately 11.43 % of Bodytrak’s total share capital.

Under the terms of the Investment Agreement, the Company may also elect, within 30 months of the date of the initial investment, to acquire up to an additional 381,679 Series A Shares of Bodytrak for £1,500,000 (approximately $ 2.0 million at current exchange rates) assuming all 381,679 Series A Shares are acquired by the Company), which would result in the Company owning an aggregate of 18.42 % of Bodytrak’s share capital, assuming no other shares are issued by Bodytrak.

The investment in Bodytrak will be accounted for under the equity method given our board representation and the resulting ability to exercise significant influene.

The Series A Shares issued to the Company at the closing represented approximately 11.43 % of Bodytrak’s total share capital.

On April 28, 2022, the Company, under the terms of the Investment Agreement, acquired an additional 381,679 Series A Shares of Bodytrak for £1,500,000 ($ 1.9 million).

After completion of the additional investment, the Company owns 18.42 % of Bodytrak’s share capital.

The investment in Bodytrak is accounted for under the equity method given our board representation and the resulting ability to exercise significant influence.

A substantial portion of our investment represents differences in our investment and our share of the underlying recognized net assets of Bodytrak.

These differences are predominately attributable to non-amortizing intangible assets, including internally developed intellectual property, of Bodytrak.

Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method.

Bodytrak 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.

For the quarter ended April 30, 2022, the Company recognized a loss of $ 27,000 as the Company’s share of Bodytrak’s net loss.

The loss is reflected in other income (expense), net in the consolidated statements of income.

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

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

April 30, 2022

January 31, 2022

Raw materials

15 unchanged sentences

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

As of October 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.

The Company has terminated the borrowing agreement with SunTrust Bank.

As of April 30, 2022, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.

Borrowings in UK

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

Amounts due the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.1 million and $ 2.0 million as of October 31, 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 April 30, 2022 and January 31, 2022.

Amounts due the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.5 million and $ 1.2 million as of April 30, 2022, and January 31, 2022, respectively, are included in other current assets on the accompanying consolidated balance sheets.

Concentration of Risk

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

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

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

8 unchanged sentences

HSBC in India, Argentina and UK;

Banco Nacion in Argentina;

Raymond James in Argentina;

TD Canada Trust;

Banco Itaú S.A., Santander in Chile;

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

Banco Mercantil Del Norte SA in Mexico;

2 unchanged sentences

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

There was approximately $ 13.9 million total included in U.S.

bank accounts and approximately $ 41.6 million total in foreign bank accounts as of October 31, 2021, of which $ 54.8 million was uninsured.

There was approximately $ 9.0 million total included in the U.S.

bank accounts and approximately $ 41.8 million total in foreign bank accounts as of April 30, 2022, of which $ 50.2 million was uninsured.

Major Customer

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

No customer accounted for more than 10 % of net sales during the three months ended April 30, 2022 and 2021.

Major Supplier

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

No vendor accounted for more than 10 % of purchases during the three months ended April 30, 2022 and 2021.

Stockholders’ Equity

6 unchanged sentences

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.

The Amendment increases the number of shares of common stock, par value $ 0.01 per share, 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

Nine Months Ended

Total restricted stock and stock option programs

Total income tax expense recognized for stock-based compensation arrangements

Restricted Stock

Total equity programs

Total income tax expense recognized for equity programs

Restricted Stock and Restricted Stock Units

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

The following table summarizes the activity under the 2017 Plan for the nine months ended October 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

Weighted Average Grant Date Fair Value

The following table summarizes the activity under the 2017 Plan for the three months ended April 30, 2022 and April 30, 2021.

Outstanding at January 31, 2022

Outstanding at October 31, 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, April 2020 and June 2021 grants.

Outstanding at April 30, 2022

Outstanding at January 31, 2021

Outstanding at April 30, 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 October 31, 2021, unrecognized stock-based compensation expense totaled $ 1.7 million pursuant to the 2017 Plan based on outstanding awards under the Plan.

As of April 30, 2022, unrecognized stock-based compensation expense totaled $ 2.0 million pursuant to the 2017 Plan based on outstanding awards under the 2017 Plan.

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

Stock Repurchase Program

On February 17, 2021, the Company’s Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $5.0 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 $ 5.0 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 $ 5.0 million remaining under the stock repurchase program at July 31, 2021.

During the three months ended October 31, 2021, the Company repurchased 43,570 shares for $ 0.9 million leaving $ 4.1 million remaining under the stock repurchase program at October 31, 2021.

The Company's effective tax rate for the third quarter of FY22 was 31.7 % which differs from the U.S.

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

The Company's effective tax rate for the third quarter of FY21 was 25.9 %, which differs from the U.S.

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

The Company's effective tax rate for the nine months ended October 31, 2021 was 29.8 % which differs from the U.S.

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

The Company recorded a discrete item related to the remeasurement of deferred taxes for $ 0.8 million 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 nine months ended October 31, 2020 was 21.3 % 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.

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

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 (the “Existing Share Repurchase Program”).

On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $ 5 million of its outstanding common stock (the “New Share Repurchase Program”).

The New Share Repurchase Program will become effective upon the completion of the Existing Share Repurchase Program, which has approximately $ 400,000 remaining for repurchases as of April 30, 2022.

The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time.

Shares repurchased in Q1 FY23 totaled 25,017 shares at a cost of $ 0.4 million leaving approximately $ 5.4 million remaining under the stock repurchase programs at April 30, 2022.

The Company’s effective tax rate for the first quarter of FY23 was 20.2 %.

The Company recorded deferred tax benefits of $ 0.2 million related to accruals for China social taxes based on our evaluation of the deductibility of these items.

Excluding this discrete benefit the effective rate was 32.9 % which differs from the U.S.

federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and Global Intangible Low-Taxed Income (“GILTI”).

The Company’s effective tax rate for the first quarter of FY22 was 24.4 %, which differs from the U.S.

statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and GILTI.

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 $ 3.0 million and $ 2.7 million at October 31, 2021 and January 31, 2021, respectively.

The valuation allowance was $ 3.4 million and $ 3.2 million at April 30, 2022 and January 31, 2022, respectively.

Net Income Per Share

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

Three Months Ended

Nine Months Ended

Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 780,266 and 509,242 at October 31, 2021 and 2020, respectively

Effect of dilutive securities from restricted stock plan

Numerator - Net income

Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 964,722 and 509,242 at April 30, 2022 and 2021, respectively

Effect of dilutive securities from equity plan

Denominator for diluted net income per share (adjusted weighted average shares)

2 unchanged sentences

Contingencies

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.

Certain conditions may exist as of the date the condensed 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 condensed consolidated financial statements.

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

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

The Company’s Exit from Brazil

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

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

Transfer of Shares Agreement

On July 31, 2015, 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 acquired all of the shares of Lakeland Brazil owned by the Company.

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

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

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

Although the Company would have the right of adversary system, full defense and due process, in case of 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 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, one significant claim remains;

a civil claim filed by separate former officers of our former Brazilian subsidiary.

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

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

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

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

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

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

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 October 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.

As of April 30, 2022, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation.

Segment Reporting

We manage our operations by evaluating each of our geographic locations.

Our US operations include a facility in Alabama (primarily distribution to customers of the bulk of our products and light manufacturing of our chemical, wovens, reflective, and fire products).

Our US operations include a facility in Alabama (primarily the distribution to customers of the bulk of our products and the light manufacturing of our chemical, wovens, reflective, and fire products).

The Company also maintains one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in Mexico (primarily disposable, reflective, fire and chemical suit production), a manufacturing facility in Vietnam (primarily disposable production) and a small manufacturing facility in India.

Our China facility produces the majority of the Company’s products and China generates a significant portion of the Company’s international revenues.

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 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 and nine month periods noted therein:

Our China facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s international revenues.

We evaluate the performance of these entities based on operating profit, which is defined as income before income taxes, interest expense and other income and expenses.

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

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

Three Months Ended

Nine Months Ended

(in millions of dollars)

USA Operations (including Corporate)

14 unchanged sentences

Three Months Ended

Nine Months Ended

(in millions of dollars)

Operating Profit (Loss):

4 unchanged sentences

Consolidated operating profit

October 31, 2021

January 31, 2021

(in millions of dollars)

7 unchanged sentences

(in millions of dollars)

Nine Months Ended

(in millions of dollars)

External Sales by product lines:

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements