LAKELAND INDUSTRIES INC 10-Q

Item 1. Financial Statements LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($000’s except for share and per share information) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Net sales $ 28,184 $ 27,466 $ 55,462 $ 61,558 Cost of goods sold 16,557 14,609 32,779 33,923 Gross profit 11,627 12,857 22,683 27,635 Operating expenses 9,832 8,791 19,440 16,939 Operating profit 1,795 4,066 3,243 10,696 Other income (expense), net ( 42 ) ( 1 ) ( 67 ) ( 13 ) Interest expense ( 13 ) ( 4 ) ( 22 ) ( 5 ) Income before taxes 1,740 4,061 3,154 10,678 Income tax expense 2,610 1,093 2,895 2,708 Net income (loss) $ ( 870 ) $ 2,968 $ 259 $ 7,970 Net income (loss) per common share: Basic $ ( 0.11 ) $ 0.37 $ 0.03 $ 1.00 Diluted $ ( 0.11 ) $ 0.36 $ 0.03 $ 0.98 Weighted average common shares outstanding: Basic 7,670,636 7,982,995 7,656,470 7,964,058 Diluted 7,670,636 8,141,107 7,841,281 8,120,409 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) ($000’s) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Net income (loss) $ ( 870 ) $ 2,968 $ 259 $ 7,970 Other comprehensive income (loss): Foreign currency translation adjustments ( 412 ) ( 9 ) ( 1,172 ) ( 64 ) Comprehensive income (loss) $ ( 1,282 ) 2,959 $ ( 913 ) $ 7,906 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (000’s except for share information) ASSETS July 31, January 31, 2022 2022 Current assets Cash and cash equivalents $ 41,211 $ 52,719 Accounts receivable, net of allowance for doubtful accounts of $ 728 and $ 666 at July 31, 2022 and January 31, 2022, respectively 15,891 14,771 Inventories 56,806 47,711 Prepaid VAT and other taxes 1,723 1,675 Other current assets 4,733 3,770 Total current assets 120,364 120,646 Property and equipment, net 8,388 8,714 Operating leases right-of-use assets 4,772 5,296 Deferred tax assets 2,075 2,072 Other assets 1,396 1,361 Investments 4,466 2,704 Total assets $ 141,461 $ 140,793 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 8,860 $ 5,855 Accrued compensation and benefits 2,891 3,225 Other accrued expenses 1,955 1,372 Income tax payable 515 321 Current portion of operating lease liabilities 1,013 1,242 Total current liabilities 15,234 12,015 Deferred income taxes 1,788 - Long-term portion of operating lease liabilities 3,392 3,678 Total liabilities 20,414 15,693 Commitments and contingencies Stockholders’ equity Preferred stock, $ 0.01 par; authorized 1,500,000 shares (none issued) - - Common stock, $ 0.01 par; authorized 20,000,000 shares Issued 8,650,580 and 8,555,672 ; outstanding 7,514,725 and 7,615,967 at July 31, 2022 and January 31, 2022, respectively 87 86 Treasury stock, at cost; 1,135,855 and 939,705 shares at July 31, 2022 and January 31, 2022, respectively ( 17,332 ) ( 14,206 ) Additional paid-in capital 77,811 77,826 Retained earnings 63,151 62,892 Accumulated other comprehensive loss ( 2,670 ) ( 1,498 ) Total stockholders' equity 121,047 125,100 Total liabilities and stockholders' equity $ 141,461 $ 140,793 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (000’s except for share information) Accumulated Additional Other Common Stock Treasury Stock Paid-in Retained Comprehensive Shares Amount Shares Amount Capital Earnings Loss Total ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) Balance, January 31, 2021 8,498,457 $ 85 ( 509,242 ) $ ( 5,023 ) $ 76,781 $ 51,520 $ ( 1,612 ) $ 121,751 Net income - - - - - 7,970 - 7,970 Other comprehensive loss - - - - - - ( 64 ) ( 64 ) Stock-based compensation: Restricted Stock Issued 43,915 1 - - - - - 1 Restricted Stock Plan - - - - 608 - - 608 Return of shares in lieu of payroll withholding - - - - ( 462 ) - - ( 462 ) Treasury stock purchased - - ( 227,454 ) ( 4,994 ) - - - ( 4,994 ) Balance, July 31, 2021 8,542,372 $ 86 ( 736,696 ) $ ( 10,017 ) $ 76,927 $ 59,490 $ ( 1,676 ) $ 124,810 Balance, April 30, 2021 8,542,235 $ 86 ( 509,242 ) $ ( 5,023 ) $ 76,656 $ 56,522 $ ( 1,667 ) $ 126,574 Net income - - - - - 2,968 - 2,968 Other comprehensive loss - - - - - - ( 9 ) ( 9 ) Stock-based compensation: Restricted stock issued 137 - - - - - - - Restricted stock plan - - - - 271 - - 271 Return of shares in lieu of payroll withholding - - - - - - - - Treasury stock purchased - - ( 227,454 ) ( 4,994 ) - - - ( 4,994 ) Balance, July 31, 2021 8,542,372 $ 86 ( 736,696 ) $ ( 10,017 ) $ 76,927 $ 59,490 $ ( 1,676 ) $ 124,810 Balance, January 31, 2022 8,555,672 $ 86 ( 939,705 ) $ ( 14,206 ) $ 77,826 $ 62,892 $ ( 1,498 ) $ 125,100 Net income - - - - - 259 - 259 Other comprehensive loss - - - - - - ( 1,172 ) ( 1,172 ) Stock-based compensation: Restricted stock issued 94,908 1 - - - - - 1 Restricted stock plan - - - - 790 - - 790 Return of shares in lieu of payroll withholding - - - - ( 805 ) - - ( 805 ) Treasury stock purchased - - ( 196,150 ) ( 3,126 ) - - - ( 3,126 ) Balance, July 31, 2022 8,650,580 $ 87 ( 1,135,855 ) $ ( 17,332 ) $ 77,811 $ 63,151 $ ( 2,670 ) $ 121,047 Balance, April 30, 2022 8,635,358 $ 86 ( 964,722 ) $ ( 14,612 ) $ 77,555 $ 64,021 $ ( 2,258 ) $ 124,792 Net loss - - - - - ( 870 ) - ( 870 ) Other comprehensive loss - - - - - - ( 412 ) ( 412 ) Stock-based compensation: Restricted stock issued 15,222 1 - - - - 1 Restricted stock plan - - - - 384 - - 384 Return of shares in lieu of payroll withholding - - - - ( 128 ) - - ( 128 ) Treasury stock purchased - - ( 171,133 ) ( 2,720 ) - - - ( 2,720 ) Balance, July 31, 2022 8,650,580 $ 87 ( 1,135,855 ) $ ( 17,332 ) $ 77,811 $ 63,151 $ ( 2,670 ) $ 121,047 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($000’s) Six Months Ended July 31, 2022 2021 Cash flows from operating activities: Net income $ 259 $ 7,970 Adjustments to reconcile net income to net cash (used in) provided by operating activities Provision for doubtful accounts 63 21 Deferred income taxes 1,783 537 Depreciation and amortization 779 1,040 Stock based and restricted stock compensation 790 608 (Gain) loss on disposal of property and equipment ( 4 ) 30 Equity in loss of equity investment 129 - (Increase) decrease in operating assets Accounts receivable ( 1,266 ) 6,500 Inventories ( 9,531 ) ( 3,420 ) Prepaid VAT and other taxes ( 48 ) ( 1,237 ) Other assets ( 1,062 ) 566 Increase (decrease) in operating liabilities Accounts payable 3,013 2,655 Accrued expenses and other liabilities 517 ( 2,059 ) Operating lease liabilities 4 ( 99 ) Net cash (used in) provided by operating activities ( 4,574 ) 13,112 Cash flows from investing activities: Purchases of property and equipment ( 449 ) ( 452 ) Investments ( 1,891 ) - Net cash (used in) investing activities: ( 2,340 ) ( 452 ) Cash flows from financing activities: Purchase of treasury stock under stock repurchase program ( 3,126 ) ( 4,994 ) Shares returned to pay employee taxes under restricted stock program ( 805 ) ( 462 ) Net cash (used in) financing activities ( 3,931 ) ( 5,456 ) Effect of exchange rate changes on cash and cash equivalents ( 663 ) 39 Net increase (decrease) in cash and cash equivalents ( 11,508 ) 7,243 Cash and cash equivalents at beginning of period 52,719 52,596 Cash and cash equivalents at end of period $ 41,211 $ 59,839 Supplemental disclosure of cash flow information: Cash paid for interest $ 22 $ 5 Cash paid for taxes $ 1,872 $ 2,803 Noncash investing and financing activities Leased assets obtained in exchange for operating lease liabilities - $ 256 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED) 1. Business Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. 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 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. 2. Basis of Presentation The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2023, or for any future period. The January 31, 2022, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2022 and 2021, and for each of the two years in the period ended January 31, 2022, included in our most recent annual report on Form 10-K filed on April 21, 2022. In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY23 refers to the fiscal year ending January 31, 2023, (b) “Q” refers to quarter; thus, for example, Q2 FY23 refers to the second quarter of the fiscal year ending January 31, 2023, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet, and (d) “Statement of Operations” refers to the unaudited condensed consolidated statement of operations. 3. Investments 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. The Series A Shares issued to the Company at the closing represented approximately 11.43 % of Bodytrak’s total share capital. 8 Table of Contents 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 total 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. 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 three and six months ended July 31, 2022, the Company recognized a loss of $ 102,000 and $ 129,000 , respectively as the Company’s share of Bodytrak’s net loss. The loss is reflected in other income (expense), net in the consolidated statements of operations. 4. Inventories Inventories consist of the following (in $000s): July 31, 2022 January 31, 2022 Raw materials $ 24,912 $ 20,231 Work-in-process 996 626 Finished goods 34,409 29,910 Excess and obsolete adjustments ( 3,511 ) ( 3,056 ) $ 56,806 $ 47,711 9 Table of Contents 5. Long-Term Debt Revolving Credit Facility On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured $ 12.5 million revolving credit facility, which includes a $ 5 .0 million letter of credit sub-facility. The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00. The credit facility will mature on June 25, 2025 . On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $ 12.5 million to $ 25 .0 million. The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $ 7.5 million for any individual acquisition or $ 15 .0 million on a cumulative basis for all such acquisitions. Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect. As of July 31, 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 July 31, 2022 and January 31, 2022. Amounts due to the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 0.8 million and $ 1.2 million as of July 31, 2022, and January 31, 2022, respectively, are included in other current assets on the accompanying consolidated balance sheets. 6. Concentration of Risk Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral. The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Raymond James in Argentina; TD Canada Trust; Banco Itaú S.A., Banco Credito Inversione in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. 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 $ 4.2 million total included in the U.S. bank accounts and approximately $ 37.0 million total in foreign bank accounts as of July 31, 2022, of which $ 40.5 million was uninsured. 10 Table of Contents Major Customer No customer accounted for more than 10 % of net sales during the three and six month periods ended July 31, 2022 and 2021. Major Supplier No vendor accounted for more than 10 % of purchases during the three and six month periods ended July 31, 2022 and 2021. 7. Stockholders’ Equity On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), except that with respect to all non-employee directors, the Committee shall be deemed to include the full Board. The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“SARs”). On June 16, 2021, the stockholders of the Company approved Amendment No. 1 (the “Amendment”) to the 2017 Plan. The Amendment increases the number of shares of common stock, par value $ 0.01 per share, 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, as amended subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. If any shares subject to an award are forfeited, expire, lapse or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, lapse or termination, again be available for issuance under the 2017 Plan. The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in $000’s): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2021 2021 2017 Plan: Total restricted stock and stock option programs $ 384 $ 271 $ 790 $ 608 Total income tax expense recognized for stock-based compensation arrangements $ 81 $ 70 $ 166 $ 158 11 Table of Contents 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 six months ended July 31, 2022 and 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, June 2021 April 2022 and June 2022 grants. Performance- Based Service-Based Total Weighted Average Grant Date Fair Value Outstanding at January 31, 2022 232,838 14,970 247,808 $ 20.89 Awarded 33,492 53,082 86,574 $ 18.17 Vested ( 119,164 ) ( 22,669 ) ( 141,833 ) Forfeited - - - Outstanding at July 31, 2022 147,166 45,383 192,549 $ 19.66 Performance- Based Service-Based Total Weighted Average Grant Date Fair Value Outstanding at January 31, 2021 245,210 30,930 276,140 $ 13.24 Awarded 23,101 38,071 61,172 $ 21.71 Vested ( 58,574 ) - ( 58,574 ) Forfeited - - - Outstanding at July 31, 2021 209,737 69,001 278,738 $ 14.75 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 April 2020 and June 2021 grants and revenue growth and EBITDA margin for the April 2022 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Committee. The compensation cost is based on the fair value at the grant date, recognized over the requisite performance/service period using the straight-line method, and periodically adjusted for the probable number of shares to be awarded. As of July 31, 2022, unrecognized stock-based compensation expense totaled $ 2.1 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 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”). 12 Table of Contents 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”), effective upon the completion of the Existing Share Repurchase Program. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time. Shares repurchased in Q2 FY23 totaled 171,133 shares at a cost of $ 2.7 million leaving approximately $ 2.7 million remaining under the stock repurchase programs at July 31, 2022. 8. Income Taxes The Company’s provision for income taxes for the three and six months ended July 31, 2022 and 2021 is based on the estimated annual effective tax rate, in addition to discrete items. The Company changed its permanent reinvestment assertions for its Chinese operations during the second quarter due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies. The Company recorded $ 2 million in withholding taxes for a planned repatriation. Going forward, any adjustments to this provision will be reflected through current tax expense. The Company's effective tax rate for the second quarter of FY23 was 149.9 %. As noted above the Company recorded $ 2 million in withholding taxes due to a change in its’ permanent reinvestment assertion related to China. Excluding this discrete expense, the effective rate was 35.0 % 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 second quarter of FY22 was 26.9 % 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 six months ended July 31, 2022 was 91.8 %. In addition to the $ 2 million discrete item above, in Q1 FY23, 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 these discrete items, the effective rate was 34.1 % which differs from the U.S. federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and GILTI. The Company's effective tax rate for the six months ended July 31, 2021 was 25.4 % which differs from the U.S. federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions, state income taxes and the discrete item discussed above. The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $ 3.7 million and $ 3.2 million at July 31, 2022 and January 31, 2022, respectively. 13 Table of Contents 9. Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted net income (loss) per share as follows (in $000s except per share amounts): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Numerator: Net income (loss) $ ( 870 ) $ 2,968 $ 259 $ 7,970 Denominator: Denominator for basic net income (loss) per share (weighted-average shares which exclude shares in the treasury, 1,135,855 and 736,696 at July 31, 2022 and 2021, respectively 7,670,636 7,982,995 7,656,470 7,964,058 Effect of dilutive securities from restricted stock plan - 158,112 184,811 156,351 Denominator for diluted net income (loss) per share (adjusted weighted average shares) 7,670,636 8,141,107 7,841,281 8,120,409 Basic net income (loss) per share $ ( 0.11 ) $ 0.37 $ 0.03 $ 1.00 Diluted net income (loss) per share $ ( 0.11 ) $ 0.36 $ 0.03 $ 0.98 10. Contingencies 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. General litigation contingencies The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of July 31, 2022, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation. 14 Table of Contents 11. Segment Reporting We manage our operations by evaluating each of our geographic locations. 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, woven, 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 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 and six month periods noted therein: Three Months Ended July 31, Six Months Ended July 31, (in millions of dollars) (in millions of dollars) 2022 2021 2022 2021 Net Sales: USA Operations (including Corporate) $ 13.43 $ 11.30 $ 25.68 $ 27.71 Other foreign 2.43 2.55 4.62 5.01 Europe (UK) 1.88 2.69 3.85 7.09 Mexico 1.50 1.06 2.74 2.87 Asia 19.32 19.27 33.98 37.46 Canada 2.26 2.08 4.53 3.86 Latin America 2.55 3.23 4.45 6.79 Less intersegment sales ( 15.19 ) ( 14.71 ) ( 24.39 ) ( 29.23 ) Consolidated sales $ 28.18 $ 27.47 $ 55.46 $ 61.56 External Sales: USA Operations (including Corporate) $ 11.90 $ 10.16 $ 23.13 $ 25.85 Other foreign 1.83 1.75 3.64 3.33 Europe (UK) 1.88 2.69 3.85 7.09 Mexico 1.06 0.75 1.91 2.30 Asia 6.74 6.93 13.98 12.57 Canada 2.26 2.08 4.53 3.86 Latin America 2.51 3.11 4.42 6.56 Consolidated external sales $ 28.18 $ 27.47 $ 55.46 $ 61.56 15 Table of Contents Intersegment Sales: USA Operations (including Corporate) $ 1.53 $ 1.15 $ 2.55 $ 1.88 Other foreign 0.60 0.80 0.98 1.68 Mexico 0.44 0.30 0.83 0.56 Asia 12.58 12.34 20.00 24.89 Latin America 0.04 0.12 0.03 0.22 Consolidated intersegment sales $ 15.19 $ 14.71 $ 24.39 $ 29.23 Three Months Ended July 31, Six Months Ended July 31, (in millions of dollars) (in millions of dollars) 2022 2021 2022 2021 Operating Profit (Loss): USA Operations (including Corporate) $ ( 1.24 ) $ ( 1.10 ) $ ( 3.30 ) $ ( 0.83 ) Other foreign ( 0.07 ) 0.43 0.14 1.00 Europe (UK) ( 0.36 ) 0.15 ( 0.62 ) 1.75 Mexico ( 0.07 ) ( 0.38 ) ( 0.61 ) ( 0.33 ) Asia 3.40 3.17 5.95 6.64 Canada 0.32 0.29 0.95 0.76 Latin America 0.54 0.77 0.84 1.67 Intersegment profit (loss) ( 0.72 ) 0.74 ( 0.11 ) 0.04 Consolidated operating profit $ 1.80 $ 4.07 $ 3.24 $ 10.70 July 31, 2022 January 31, 2022 (in millions of dollars) Total Assets: USA Operations (including Corporate) $ 50.57 $ 53.36 Other foreign 8.55 8.92 Europe (UK) 7.80 8.79 Mexico 5.02 5.06 Asia 54.65 52.26 Canada 6.64 4.99 Latin America 8.23 7.41 Consolidated assets $ 141.46 $ 140.79 16 Table of Contents The table below presents external sales by product line: Three Months Ended July 31, (in millions of dollars) Six Months Ended July 31, (in millions of dollars) 2022 2021 2022 2021 External Sales by product lines: Disposables $ 12.72 $ 15.19 $ 27.22 $ 34.89 Chemical 7.16 5.60 12.27 13.86 Fire 2.98 2.52 5.67 4.42 Gloves 0.55 1.70 1.09 3.32 High Visibility 1.34 0.59 2.94 1.04 High Performance Wear 1.11 1.01 2.48 1.87 Wovens 2.32 0.86 3.79 2.16 Consolidated external sales $ 28.18 $ 27.47 $ 55.46 $ 61.56 17 Table of Contents