LAKELAND INDUSTRIES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page No. Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 49 ) F-1 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F-6 Consolidated Statements of Operations for the Years Ended January 31, 2025 and 2024 F-7 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2025 and 2024 F-8 Consolidated Balance Sheets as of January 31, 2025 and 2024 F-9 Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2025 and 2024 F-10 Consolidated Statements of Cash Flows for the Years Ended January 31, 2025 and 2024 F-11 Notes to Consolidated Financial Statements F-12-F-38 37 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Lakeland Industries, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Lakeland Industries, Inc. and its subsidiaries (the Company) as of January 31, 2025, the related consolidated statements of operations, comprehensive (loss), stockholders' equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2025, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated April 16, 2025 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Acquisitions of Pacific Helmets NZ Limited, Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L.,– Valuation of Intangible Assets As described in Note 6 to the consolidated financial statements, the Company completed the acquisitions of Pacific Helmets NZ Limited (Pacific) for $6.3 million on November 30, 2023, and Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, Jolly) for $9.0 million on February 5, 2024. The Company accounted for these transactions under the acquisition method of accounting for business combinations. The Pacific purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identifiable intangible assets of $2.2 million, which consisted of customer relationships, tradename, technological know-how and resulting goodwill of $3.0 million. The Jolly purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identifiable intangible assets of $1.3 million, which consisted of customer relationships, tradename, technological know-how and resulting goodwill of $1.4 million. F-1 Table of Contents Acquired intangible assets were valued using certain methods including the excess earnings approach and relief from royalty methods specific to the type of intangible asset acquired. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasts of revenue growth rates, operating margins, attrition rates, discount rates and royalty rates. Given the fair value determination of the intangible assets for Pacific and Jolly requires management to leverage complex valuation methodologies and make significant estimates and assumptions related to the forecasts of revenue growth rates, operating margins and resulting future cash flows and the selection of royalty and discount rates, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. Our audit procedures related to the Company’s valuation of acquired intangible assets as part of the Pacific and Jolly acquisition included the following, among others: · We obtained an understanding of the relevant controls related to the valuation of acquired intangible assets and tested such controls for design and operating effectiveness, including management controls related to significant assumptions. · We evaluated the reasonableness of management’s revenue growth rate and operating margin forecasts, and attrition rates by comparing the projections to historical results as well as industry benchmarks and tested the underlying data for accuracy and completeness. · With the assistance of our fair value specialists, we evaluated the reasonableness of the Company’s valuation methodology and significant assumptions by: o Assessing the appropriateness of management’s valuation methodology based on the nature of the fair value estimate o Testing the source information underlying the determination of the discount rates and verifying the mathematical accuracy of the calculation. o Developing an analysis of the discount rates and compared that analysis to the discount rates selected by management. Goodwill Impairment Assessment – Pacific Helmets NZ Limited and Eagle Technical Products Limited As described in Note 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $16.2 million as of January 31, 2025, after a goodwill impairment charge of $10.5 million relating to the Pacific Helmets NZ Limited (Pacific) and Eagle Technical Products Limited (Eagle) reporting units. Goodwill, at the reporting unit level, is tested by the Company for impairment at least annually. The fair values of the reporting units for the goodwill impairment assessment are determined using an income approach, through a discounted cash flow model and the guideline public company approach, through selected multiples. The determination of the fair values of each reporting unit requires management to make significant estimates and assumptions related to the specific circumstances of each reporting unit such as revenue projections, projected operating cash flow margins, discount rates and the selection of guideline public company multiples. F-2 Table of Contents We identified the Pacific and Eagle goodwill impairment assessment as a critical audit matter because of the significant assumptions management used in the impairment assessments. Auditing management’s judgments used in the impairment assessments regarding revenue projections, projected operating cash flow margins, discount rates and guideline public company multiples involved a high degree of auditor judgment and increased audit effort. Our audit procedures related to the Company’s goodwill impairment assessments for the Pacific and Eagle reporting units included the following, among others: · We obtained an understanding of the relevant controls related to the Company’s goodwill impairment assessments and tested such controls for design and operating effectiveness, including management controls related to significant assumptions. · We evaluated the reasonableness of management’s revenue and operating cash flow projections by comparing them to actual results and historical trends and tested the underlying data for accuracy and completeness. · With the assistance of our fair value specialists with specialized knowledge and experience with impairment of goodwill we evaluated management’s assessment and significant assumptions by: o Evaluating the appropriateness of the valuation methodologies used by management and testing the accuracy of the calculations o Testing the source information underlying the determination of the discount rates and verifying the mathematical accuracy of the calculation. o Developing an analysis of the discount rates and compared that analysis to the discount rates selected by management. o Testing the selection of guideline public company multiples. /s/ RSM US LLP We have served as the Company's auditor since 2024. Fort Lauderdale, Florida April 16, 2025 F-3 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Lakeland Industries, Inc. Opinion on the Internal Control Over Financial Reporting We have audited Lakeland Industries, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 31, 2025, of the Company and our report dated April 16, 2025 expressed an unqualified opinion. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly"), LHD Group Deutschland GmbH, LHD Group Australia Pty Ltd and LHD Group Hong Kong Ltd., (collectively, the “LHD Group”), and Veridian, Ltd., from its assessment of internal control over financial reporting as of January 31, 2025, because they were acquired by the Company through business combinations on February 5, 2024, July 1, 2024, December 16, 2024, respectively. We have also excluded Jolly, LHD Group and Veridian, Ltd. from our audit of internal control over financial reporting. Jolly, LHD Group and Veridian, Ltd. are a wholly owned subsidiaries whose total assets and net loss represent approximately 37% and 5%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 31, 2025. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. For those locations where the financially relevant systems were not in-scope and not subject to the Company’s testing of information technology general controls, the financial reporting controls, as designed, do not adequately address the completeness and accuracy of the foreign reporting packages. The foreign reporting packages form the basis of multiple controls including a key management review control designed to detect a material misstatement in the Company’s consolidated financial statements as well as other controls. Additionally, the Company did not update the control activities documentation for numerous locations and, in some cases, did not change control processes to reflect changes in operating structure. This contributed to the material weakness described herein in the Company’s internal controls. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2025 financial statements, and this report does not affect our report dated April 16, 2025 on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. F-4 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Fort Lauderdale, Florida April 16, 2025 F-5 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Lakeland Industries, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Lakeland Industries, Inc. and subsidiaries (the "Company") as of January 31, 2024, the related statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for the period ended January 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2024, and the results of its operations and its cash flows for the period ended January 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Memphis, Tennessee April 10, 2024, except for Note 14, as to which the date is April 16, 2025 We began serving as the Company’s auditor in 2020. In 2024, we became the predecessor auditor. F-6 Table of Contents Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended January 31, 2025 and 2024 ($000’s) except share information 2025 2024 Net sales $ 167,211 $ 124,688 Cost of goods sold 98,537 73,496 Gross profit 68,674 51,192 Operating expenses 67,401 45,200 Goodwill impairment 10,538 - Operating (loss) income ( 9,265 ) 5,993 Impairment of equity method investment ( 7,639 ) - Other income, net 198 3,415 Interest expense ( 1,650 ) ( 52 ) (Loss) income before taxes ( 18,356 ) 9,356 Income tax (benefit) expense ( 281 ) 3,930 Net (loss) income $ ( 18,075 ) $ 5,425 Net (loss) income per common share: Basic $ ( 2.43 ) $ 0.74 Diluted $ ( 2.43 ) $ 0.72 Weighted average common shares outstanding: Basic 7,426,401 7,352,356 Diluted 7,426,401 7,539,705 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME For the Years Ended January 31, 2025 and 2024 ($000)’s 2025 2024 Net (loss) income $ ( 18,075 ) $ 5,425 Other comprehensive loss: Foreign currency translation adjustments ( 1,600 ) ( 1,669 ) Comprehensive (loss) income $ ( 19,675 ) $ 3,756 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS January 31, 2025 and 2024 ($000’s, except share information) ASSETS Current assets 2025 2024 Cash and cash equivalents $ 17,476 $ 25,222 Accounts receivable, net of allowance for doubtful accounts of $ 1,237 and $ 857 at January 31, 2025 and 2024, respectively 27,607 19,169 Inventories 82,739 51,250 Prepaid VAT and other taxes 2,598 2,753 Income tax receivable and other current assets 6,111 3,111 Total current assets 136,531 101,505 Property and equipment, net 13,948 10,685 Operating leases right-of-use assets 13,917 10,969 Deferred tax assets 6,270 3,097 Other assets 122 110 Goodwill 16,240 13,669 Intangible assets, net 25,503 6,830 Equity method investments - 4,719 Convertible debt investments - 2,161 Total assets $ 212,531 $ 153,745 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 15,742 $ 7,378 Accrued compensation and benefits 4,501 3,922 Other accrued expenses 8,130 2,487 Income tax payable 1,993 1,454 Short-term borrowings 939 298 Accrued earnout agreement - 643 Current portion of operating lease liabilities 3,602 2,164 Total current liabilities 34,907 18,346 Deferred income taxes 3,891 2,097 Loans payable – long term 16,426 731 Long-term portion of operating lease liabilities 10,681 9,121 Total liabilities 65,905 30,294 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 10,856,812 and 8,722,965 ; outstanding 9,498,604 and 7,364,757 at January 31, 2025 and 2024, respectively 109 87 Treasury stock, at cost; 1,358,208 shares at January 31, 2025 and 2024 ( 19,979 ) ( 19,979 ) Additional paid-in capital 123,136 79,420 Retained earnings 50,320 69,282 Accumulated other comprehensive loss ( 6,960 ) ( 5,360 ) Total stockholders' equity 146,626 123,450 Total liabilities and stockholders’ equity $ 212,531 $ 153,745 The accompanying notes are an integral part of these consolidated financial statements. F-9 Table of Contents Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Years Ended January 31, 2025 and 2024 ($000’s, except share information) Accumulated Additional Other Common Stock Treasury Stock Paid-in Retained Comprehensive Shares Amount Shares Amount Capital Earnings Loss Total Balance, January 31, 2023 8,655,699 $ 87 ( 1,330,694 ) $ ( 19,646 ) $ 78,475 $ 64,765 $ ( 3,691 ) $ 119,990 Net Income - - - - - 5,425 - 5,425 Dividends paid - - - - - ( 908 ) - ( 908 ) Other comprehensive loss - - - - - - ( 1,669 ) ( 1,669 ) Stock-based compensation: Restricted stock issued 67,266 - - - - - - - Restricted stock plan - - - - 1,365 - - 1,365 Return of shares in lieu of payroll tax withholding - - - - ( 420 ) - - ( 420 ) Treasury stock purchased - - ( 27,514 ) ( 333 ) - - - ( 333 ) Balance, January 31, 2024 8,722,965 $ 87 ( 1,358,208 ) $ ( 19,979 ) $ 79,420 $ 69,282 $ ( 5,360 ) $ 123,450 Net loss - - - - - ( 18,075 ) - ( 18,075 ) Dividends paid - - - - - ( 887 ) - ( 887 ) Other comprehensive loss - - - - - - ( 1,600 ) ( 1,600 ) Underwritten stock offering, net of expenses 2,093,000 21 - - 42,605 - - 42,626 Stock-based compensation: Restricted stock issued 67,266 1 - - - - - 1 Restricted stock plan - - - - 1,557 - - 1,557 Return of shares in lieu of payroll tax withholding - - - - ( 446 ) - - ( 446 ) Balance, January 31, 2025 10,856,812 $ 109 ( 1,358,208 ) $ ( 19,979 ) $ 123,136 $ 50,320 $ ( 6,960 ) $ 146,626 F-10 Table of Contents Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended January 31, 2025 and 2024 ($000’s) 2025 2024 Cash flows from operating activities: Net (loss) income $ ( 18,075 ) $ 5,425 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities Provision for doubtful accounts 184 57 Deferred income taxes ( 4,086 ) ( 818 ) Depreciation and amortization 3,316 2,111 Amortization of step-up in inventory basis 1,036 - Stock based compensation 1,558 1,365 Loss (gain) on disposal of property and equipment 61 ( 3,764 ) Equity in loss of equity method investment 384 629 Change in fair value of earnout consideration ( 711 ) ( 2,538 ) Impairment of equity method investment 7,639 - Impairment of goodwill 10,538 - (Increase) decrease in operating assets, net of effects of business acquisitions: Accounts receivable ( 2,828 ) ( 843 ) Inventories ( 14,242 ) 7,738 Prepaid VAT and other taxes 244 ( 789 ) Other current assets ( 1,477 ) ( 15 ) Increase (decrease) in operating liabilities: Accounts payable 5,979 417 Accrued expenses and other liabilities ( 3,500 ) 982 Operating lease liabilities ( 1,901 ) 955 Net cash (used in) provided by operating activities ( 15,881 ) 10,912 Cash flows from investing activities: Purchases of property and equipment ( 1,540 ) ( 2,069 ) Proceeds from sale of fixed assets - 4,559 Acquisition, net of cash acquired ( 45,084 ) ( 5,452 ) Investments ( 1,118 ) ( 2,154 ) Net cash used in investing activities ( 47,742 ) ( 5,116 ) Cash flows from financing activities Secondary stock offering proceeds 42,626 - Term loan borrowings 2,688 - Term loan repayments ( 635 ) ( 1,386 ) Credit line borrowings 59,400 5,664 Credit line borrowings – repayments ( 46,158 ) ( 5,664 ) UK borrowings (repayments) under line of credit facility - ( 405 ) Dividends paid ( 887 ) ( 908 ) Repurchase of common stock - ( 333 ) Shares returned to pay employee taxes under restricted stock program ( 446 ) ( 420 ) Net cash provided by (used in) financing activities 56,588 ( 3,452 ) Effect of exchange rate changes on cash and cash equivalents ( 711 ) ( 1,761 ) Net (decrease) increase in cash and cash equivalents ( 7,746 ) 583 Cash and cash equivalents at beginning of year 25,222 24,639 Cash and cash equivalents at end of year $ 17,476 $ 25,222 Cash paid for interest $ 1,650 $ 63 Cash paid for taxes $ 3,219 $ 2,169 The accompanying notes are an integral part of these consolidated financial statements. F-11 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Lakeland Industries, Inc. and Subsidiaries, doing business as “Lakeland Fire + Safety” (“Lakeland,” the “Company,” “we,” “our” or “us”), manufacture and sell a comprehensive line of fire services and industrial protective clothing and accessories for the industrial and first responder markets. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a strategic global network of selective fire safety and industrial distributors and wholesale partners. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, transportation, 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. In addition to the United States, sales are made into 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, Uruguay, Middle East, Southeast Asia, Australia, Hong Kong and New Zealand. As referred to herein, FY refers to a fiscal year ended January 31; for example, FY25 refers to the fiscal year ended January 31, 2025. Basis of Presentation The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). We have reclassified certain prior year amounts to conform to current year presentation. The following is a description of the Company’s significant accounting policies. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates and Assumptions The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is reasonably possible that events could occur during the upcoming year that could change such estimates. Cash and Cash Equivalents The Company considers highly liquid temporary cash investments with original maturities of three months or less to be cash equivalents. Cash equivalents consist of money market funds. Accounts Receivable, Net . Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates credit losses by considering historical credit losses, the current economic environment, customer credit ratings or bankruptcies. Inventories 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. Allowances are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and supply on hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. F-12 Table of Contents Property and Equipment Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Leasehold improvements and leasehold costs are amortized over the term of the lease or service lives of the improvements, whichever is shorter. The costs of additions and improvements that substantially extend the useful life of a particular asset are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the account, and the gain or loss on disposition is reflected in operating income. Assets held for sale are measured at the lower of carrying value or fair value less cost to sell. Gains or losses are recognized for any subsequent changes to fair value less cost to sell. However, gains are limited to cumulative losses previously recognized. Assets classified as held for sale are not depreciated. Equity Method Investments Investments in which the Company can exercise significant influence but do not control, are accounted for using the equity method. The Company’s share of the net earnings or losses of the investee is presented within the consolidated statements of operations as other income (expense). The Company evaluates its equity method investments for impairment whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company's carrying value; the severity of the decline; and the financial condition, operating performance and near-term prospects of the investee. If the decline in fair value is deemed to be other than temporary, the cost basis of the security is written down to fair value. In situations where the fair value of an investment is not evident due to a lack of a public market price or other factors, the Company estimates fair value based on a discounted cash flow model and a market-based approach using inputs that include expected cash flows and a discount rate representative of the risks within the underlying business and forecasts to arrive at the estimated fair value of such investment. Business combinations In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of acquisition requires knowledge of current market values and the values of assets in use and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management for material acquisitions, we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, discount rates, attrition rates and working capital changes. If the contingent consideration is deemed significant or absent an agreed-upon payout amount, the initial measurement of contingent consideration and the corresponding liability is evaluated using the Monte Carlo Method. For this valuation method, management develops projections during the contingent consideration period utilizing various potential pay-out scenarios. Probabilities are applied to each potential scenario, and the resulting values are discounted using a rate that considers the weighted average cost of capital as well as a specific risk premium associated with the riskiness of the contingent consideration itself, the related projections, and the overall business. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration could cause a material impact and volatility in our operating results. F-13 Table of Contents Goodwill and Other Intangible Assets Intangible assets with a finite useful life are amortized on a straight-line basis over their useful lives. Indefinite lived intangible assets are assessed for possible impairment annually on November 1st or whenever circumstances change such that the carrying value of the asset may not be recoverable. All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. Goodwill is not amortized but evaluated for impairment at least annually (on November 1) or whenever events or changes in circumstance indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may perform either a qualitative assessment of potential impairment or proceed directly to a quantitative assessment of potential impairment. If the Company chooses not to perform a qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to conclude that no impairment has occurred qualitatively, then the Company will perform a quantitative assessment. A quantitative test for goodwill impairment is performed by determining the fair value of the related reporting units. The Company estimates the fair value of the reporting unit with which the goodwill is associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. Fair value is measured using the discounted cash flow method and relative market-based approaches. Revenue Recognition Substantially all of the Company’s revenue is derived from product sales, which consist of sales of the Company’s personal protective wear products to distributors. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year, and virtually all of the Company’s contracts are short-term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Approximately 3% of the Company’s revenue is derived from maintenance, repair and laundry services for protective wear products. Revenue from these service s represents a single-performance obligation. The Company recognizes revenue at a point in time when the performance obligation under the terms of the contract with a customer is satisfied . The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers within 30 to 90 days of the invoice date, and the contracts do not have significant financing components. The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Shipping and handling costs associated with outbound freight are included in operating expenses, and for FY25 and FY24 aggregated approximately $ 4.1 million and $ 3.4 million, respectively. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. The transaction price includes estimates of variable consideration related to rebates, allowances, and discounts that are reductions in revenue. All estimates are based on the Company's historical experience, anticipated performance, and the Company's best judgment at the time the estimate is made. Estimates for variable consideration are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. All the Company’s contracts have a single performance obligation satisfied at a point in time, and the transaction price is stated in the contract, usually as quantity times price per unit. The Company receives advances under certain of its contracts for products sold by Eagle. Those advances are considered contract liabilities with revenues recorded upon delivery of promised goods to customers. These advances are included in Other Accrued Expenses on the Company’s consolidated balance sheet. F-14 Table of Contents The Company has seven revenue generating reportable geographic segments under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its limited use/disposable protective clothing and firefighting and heat protective apparel and secondarily from its sales of reflective clothing, high-end chemical protective suits, reusable woven garments and gloves and arm guards. The Company believes disaggregation of revenue by geographic region and product line best depicts the nature, amount, timing, and uncertainty of its revenue and cash flows (see table below). Net sales by geographic region and by product line are included below: Year Ended January 31, (in millions of dollars) 2025 2024 External Sales by Product Lines: Disposables $ 52.2 $ 49.6 Chemical 21.5 20.3 Fire 63.0 26.5 Gloves 1.7 2.2 High Visibility 5.4 6.6 High Performance Wear 6.6 6.9 Wovens 16.8 12.6 Consolidated external sales $ 167.2 $ 124.7 Year Ended January 31, (in millions of dollars) 2025 2024 External Sales by Region: USA Operations (including Corporate) $ 60.4 $ 55.3 Europe 42.1 16.3 Mexico 5.0 4.0 Asia 13.9 13.8 Canada 10.3 9.3 Latin America 21.2 16.1 Other foreign 14.3 9.9 Consolidated external sales $ 167.2 $ 124.7 F-15 Table of Contents Advertising Costs Advertising costs are expensed as incurred and included in operating expenses on the consolidated statement of operations. Advertising and co-op costs amounted to $ 0.9 million and $ 0.6 million in FY25 and FY24. Stock-Based Compensation The Company records the cost of stock-based compensation plans based on the fair value of the award on the grant date. For awards that contain a vesting provision, the cost is recognized over the requisite service period (generally the vesting period of the equity award), which approximates the performance period. For awards based on services already rendered, the cost is recognized immediately. Income Taxes The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it may not be able to realize all or part of its deferred tax asset in the future or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination. The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold. If necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. Foreign Operations and Foreign Currency Translation The Company maintains manufacturing operations in Mexico, India, Argentina, New Zealand, Romania, Vietnam and the People’s Republic of China and can access independent contractors in China, Vietnam, Argentina and Mexico. It also maintains sales and distribution entities in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan, Uruguay, Australia, New Zealand, Italy, Germany and Mexico. The Company is vulnerable to currency risks in these countries. The functional currency for the U. K., the Pound; the trading company in China, the RMB; in Russia, the Ruble; in New Zealand the New Zealand Dollar, in Germany and Italy the Euro, in Romania the Leu, in Australia the Australian Dollar, in Hong Kong the Hong Kong Dollar and in Kazakhstan the Kazakhstan Tenge. All other operations have the U.S. dollar as their functional currency. Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies other than the U.S. dollar are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the periods. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’ equity. Cash flows are also translated at average translation rates for the periods; therefore, amounts reported on the consolidated statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Fair Value of Financial Instruments The Company measures certain assets and liabilities at fair value. US GAAP defines fair value, provides guidance for measuring fair value and requires certain disclosures utilizing a fair value hierarchy which is categorized into three levels based on the inputs to the valuation techniques used to measure fair value. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect management’s own assumptions. F-16 Table of Contents There were no foreign currency forward or hedge contracts at January 31, 2025 or January 31, 2024. The financial instruments of the Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, borrowings under the revolving credit facility, accounts payable and accrued expenses, are recorded at carrying value, which approximates fair value based on the short-term nature of these instruments. Borrowings under the company’s loan agreement approximate fair value as such borrowings bear interest at variable rates. Certain assets, in specific circumstances, are measured at fair value on a non-recurring basis utilizing Level 3 inputs such as goodwill, intangibles and the equity method investment. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if one or more of these assets were determined to be impaired. Net Income Per Share Net income per share is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted net income per share is based on the weighted average number of common shares and common stock equivalents. The diluted net income per share calculation takes into account unvested restricted shares and the shares that may be issued upon the exercise of stock options, reduced by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year. Recently Adopted and Issued Accounting Standards and Disclosure Rules The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Segment Reporting The Company adopted ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures for the year ended January 31, 2025 and applied it retrospectively for the prior period presented. See “Note 14. Segment Reporting.” Income Taxes In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires a public entity to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and this guidance should be applied prospectively but there is the option to apply it retrospectively. The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for our fiscal year ending January 31, 2026. Disaggregation of Income Statement Expenses In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses (“DISE”) . ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. As revised by ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. With the exception of expanding disclosures to include more granular income statement expense categories, we do not expect the adoption of ASU 2024-03 to have a material effect on our consolidated financial statements taken as a whole. F-17 Table of Contents 2. INVENTORIES, NET Inventories consist of the following (in $000s): January 31, 2025 2024 Raw materials $ 39,344 $ 27,417 Work-in-process 2,692 668 Finished goods 44,158 29,719 Excess and obsolete adjustments ( 3,455 ) ( 6,554 ) $ 82,739 $ 51,250 3. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following (in $000s): Useful Life in January 31, Years 2025 2024 Machinery and equipment 3 - 10 $ 14,180 $ 10,773 Furniture and fixtures 3 - 10 1,176 988 Leasehold improvements Shorter of lease term or useful life 3,059 2,388 Computer hardware and software 3 5,141 5,430 Land and building 20 - 30 7,623 7,625 31,179 27,203 Less accumulated depreciation and amortization ( 18,201 ) ( 17,600 ) Construction-in-progress 970 1,081 $ 13,948 $ 10,685 Depreciation and amortization expense for FY25 and FY24 amounted to $ 2.6 million and $ 1.9 million, respectively. 4. 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. On April 28, 2022, the Company, under the terms of the Investment Agreement, acquired an additional 381,679 Series A1 Shares of Bodytrak for £1,500,000 ($ 1.9 million). On October 26, 2022, the Company acquired an additional 254,452 Series A Shares of Bodytrak for £1,000,000 ($ 1.2 million). After the completion of these additional investments, the Company owned 22.5 % 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 of Bodytrak, including internally developed intellectual property. F-18 Table of Contents On May 19, 2023, the Company entered into an agreement with Bodytrak to provide an additional investment of up to an aggregate of £1,500,000 ($1.9 million on the date of initial investment) in the form of a secured convertible loan with an option for an additional £1,000,000 investment at the Company’s discretion. An initial investment funding of £500,000 ($ 0.6 million on the date of investment) was made on May 19, 2023. Additional investment fundings of £700,000 ($ 0.9 million on the date of investment), £500,000 ($ 0.6 million on the date of investment), £500,000 ($ 0.6 million on the date of investment) and £200,000 ($ 0.3 million on the date of investment) were made on September 8, 2023, December 15, 2023, February 13, 2024 and August 28, 2024, respectively. The loaned amounts are due twenty-four months from the issue date, which can be extended upon mutual agreement. The convertible notes bear interest at either an annual rate of 12% for cash interest or 15% for payment in kind interest on the outstanding amount under the note, such rate being selected by Bodytrak. There have been no payments received on the convertible notes during the years ended January 31, 2025 and 2024. The notes were convertible into equity shares of Bodytrak under a number of conditions, including a qualified equity financing as defined in the agreement, a change of control, an IPO, default or conversion at the discretion of the Company and upon the occurrence of the specified event. The convertible notes are secured by Bodytrak’s intellectual property. 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, cloud-based analytics, and hardware that includes a patented earpiece for physiological monitoring and audio communications. The Company’s investment in Bodytrak has generated losses since its initial acquisition and has required repeated rounds of financing to maintain operations. In February 2025, Bodytrak entered insolvency proceedings in the United Kingdom. Since the initial date of acquisition through January 31, 2025, the Company has recognized a total of $ 1.5 million in losses from its investment in Bodytrak. As of January 31, 2025, the Company recorded an impairment loss of $ 7.6 million for the remaining recorded value of the equity method and convertible debt investments. 5. GOODWILL AND INTANGIBLE ASSETS Goodwill as of January 31, 2025 and 2024, and changes in goodwill during the fiscal years then ended, were as follows (in $000s): USA Operations Europe Other Foreign Total Balance at January 31, 2023 $ 871 $ 7,602 $ - $ 8,473 Measurement period adjustment - 1,447 - 1,447 Acquisitions - - 3,749 3,749 Impairment - - - - Currency translation - - - - Balance at January 31, 2024 $ 871 $ 9,049 $ 3,749 $ 13,669 Measurement period adjustment - - ( 691 ) ( 691 ) Acquisitions 4,956 8,969 - 13,925 Impairment - ( 7,512 ) ( 3,026 ) ( 10,538 ) Currency translation - ( 93 ) ( 32 ) ( 125 ) Balance at January 31, 2025 $ 5,827 $ 10,413 $ - $ 16,240 The Company performed valuations of the Pacific and Eagle reporting units using market value and discounted cash flow methodologies. Pacific’s forecast was impac ted b y planned investments to improve future profitability, but the profitability has not improved as much as expected. Eagle has variability in their revenue as they primarily sell through tenders which impacte d their financial outlook. Given the results of the quantitative assessment, the Company determined that the goodwill of the Pacific reporting unit was impaired and the goodwill of the Eagle reporting unit was partially impaired. As a result, the Company recognized a goodwill impairment charge of $ 3.0 million representing the entire amount of goodwill related to the Pacific reporting unit in the Other Foreign geographic segment and recognized a goodwill impairment charge of $ 7.5 million representing 83% of goodwill related to the Eagle reporting unit in the Europe geographic segment for the year ended January 31, 2025. F-19 Table of Contents During FY24 , a measurement period adjustment was recorded to recognize deferred tax liabilities of $ 1.4 million associated with the finite-lived intangibles acquired in the FY23 Eagle acquisition, with a corresponding increase to goodwill. Intangible assets as of January 31, 2025 and 2024, and changes in intangible assets during the fiscal years then ended, were as follows (in $000s): 2025 2024 Balance at beginning of year $ 6,830 $ 6,042 Acquisitions 19,319 1,211 Measurement period adjustments 1,093 - Amortization ( 997 ) ( 423 ) Currency translation ( 742 ) - Balance at end of year $ 25,503 $ 6,830 January 31, 2025 January 31, 2024 Intangible Assets (in $000s) Weighted Average Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 20 $ 20,543 $ ( 1,655 ) $ 18,888 $ 3,558 $ ( 267 ) $ 3,291 Trade names and trademarks 15 5,079 ( 568 ) 4,511 1,773 ( 109 ) 1,664 Technological know-how 15 2,447 ( 343 ) 2,104 1,989 ( 114 ) 1,875 Total $ 28,069 $ ( 2,566 ) $ 25,503 $ 7,320 $ ( 490 ) $ 6,830 Amortization expense was $ 1.0 million and $ 0.4 million for the fiscal years ended January 31, 2025 and 2024, respectively. Intangible asset amortization expense over the next five years is expected to be approximately $ 1.9 million per year. 6. ACQUISITIONS Acquisition of Veridian On December 16, 2024, the Company acquired 100 % of U.S. based Veridian Limited (Veridian) for cash consideration of approximately $ 26.1 million subject to post-closing adjustments and customary holdback provisions. Founded in 1992, Veridian is a leading provider of firefighter protective apparel, including fire and rescue garments, gloves and boots. Veridian’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. Veridian’s operating results and assets, including acquired intangibles and goodwill, are reported as part of United States in our geographic segment reporting. F-20 Table of Contents The following table summarizes the preliminary fair values of the Veridian assets acquired and liabilities assumed at the date of the acquisition: Net working capital acquired, including cash of $0.5 million $ 8,843 Property, plant and equipment 1,287 Right of use assets 768 Customer relationships 9,950 Trade names 1,400 Goodwill 4,956 Backlog 200 Lease liabilities ( 768 ) Other liabilities assumed ( 568 ) Total net assets acquired $ 26,068 Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management, based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships using customer inputs and contributory charges, the relief from royalty method for trade names and trademarks and technological know-how, and the cost method for the assembled workforce which was included in goodwill. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on Veridian’s pre-acquisition forecasts. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. Amortization of Veridian’s identifiable intangible assets will be deductible for tax purposes. Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of Veridian with our operations. Goodwill related to the Veridian acquisition is deductible for tax purposes. Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals of inventory, contractual relationships, tangible assets and intangible assets. Changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date. Acquisition of LHD On July 1, 2024, the Company acquired 100 % of the shares of the fire and rescue business of LHD Group Deutschland GmbH and its subsidiaries in Hong Kong and Australia (collectively, "LHD") in an all-cash transaction subject to post-closing adjustments and customary holdback provisions. Total consideration was $ 14.8 million, net of $ 1.5 million cash acquired, of which $ 15.5 million was paid to retire LHD’s debt and $ 0.8 million was paid to the seller at closing. LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment cleaning, repair, and maintenance. LHD has 111 employees worldwide and is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia. LHD’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. LHD’s operating results and assets, including acquired intangibles and goodwill, are reported as part of Europe in our geographic segment reporting. F-21 Table of Contents The following table summarizes the fair values of the LHD assets acquired and liabilities assumed at the date of the acquisition and reflective of measurement period adjustments: Net working capital acquired, including cash of 1.5 million $ 5,903 Property, plant and equipment 801 Right of use assets 2,905 Customer relationships 5,237 Trade names and trademarks 1,296 Technological know-how 270 Other ( 76 ) Goodwill 7,606 Lease liabilities ( 2,905 ) Other liabilities assumed ( 4,780 ) Total net assets acquired $ 16,257 Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management, based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships using customer inputs and contributory charges, the relief from royalty method for trade names and trademarks and technological know-how. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on LHD’s pre-acquisition forecasts. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The customer relationships, trade names and trademarks and technological know-how acquired in the LHD transaction are being amortized over periods of 20 years, 10 years and 15 years, respectively, and are not deductible for tax purposes . Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of LHD with our operations. Goodwill related to the LHD acquisition is not deductible for tax purposes. Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not limited to, the completion of independent appraisals, inventory, contractual relationships, tangible assets and intangible assets. These changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date. Acquisition of Jolly On February 5, 2024, the Company acquired 100 % of the shares of Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, “Jolly”) in an all-cash transaction. Total consideration was $ 9.0 million, of which $ 7.5 million was paid to the seller at closing, and $ 1.5 million remained unpaid subject to post-closing adjustments and customary holdback provisions. Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees. Jolly’s primary customers are based in Europe. Jolly’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. Jolly’s operating results and assets, including acquired intangibles and goodwill, are reported as part of Europe in our geographic segment reporting. F-22 Table of Contents The following table summarizes the fair values of the Jolly assets acquired and liabilities assumed at the date of the acquisition and reflective of measurement period adjustments: Net working capital acquired, including cash of $3.0 million and inventory of $6.0 million $ 9,246 Property, plant and equipment 1,277 Right of use assets 1,783 Customer relationships 425 Trade names and trademarks 610 Technological know-how 272 Goodwill 1,363 Lease liabilities ( 1,783 ) Other liabilities assumed, including debt of $3.7 million ( 4,212 ) Total net assets acquired $ 8,981 Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management, based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships using customer inputs and contributory charges, the relief from royalty method for trade names and trademarks and technological know-how. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on Jolly’s pre-acquisition forecasts. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The customer relationships, trade names and trademarks and technological know-how acquired in the Jolly transaction are being amortized over periods of 14 years, 10 years and 10 years, respectively, and are not deductible for tax purposes . Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of Jolly with our operations. Goodwill related to the Jolly acquisition is not deductible for tax purposes. Acquisition of Pacific On November 30, 2023 the Company acquired 100 % of the shares of New Zealand-based Pacific Helmets NZ Limited (“Pacific”) in an all-cash transaction valued at approximately $ 6.3 million including the assumption of debt, subject to post-closing adjustments and customary holdback provisions. The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective helmets. Headquartered in Whanganui, New Zealand, Pacific is a leading designer and provider of structural firefighting, wildland firefighting, and technical rescue helmets. The transaction was funded through the revolving credit facility and cash balances. Pacific’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. As part of the acquisition agreement, Pacific paid from the holdback an amount equal to the amount by which Pacific’s revenue fell below NZ$ 11.1 million for Pacific’s fiscal year ended March 31, 2024 subject to certain conditions. The amount of the reduction to the holdback was $ 0.3 million. F-23 Table of Contents The following table summarizes the fair values of the Pacific assets acquired and liabilities assumed at the date of the acquisition and reflective of measurement period adjustments: Net working capital acquired including cash of $0.1 million $ 1,694 Property, plant and equipment 2,265 Right of use assets 350 Customer relationships 1,236 Trade names and trademarks 440 Technological know-how 495 Goodwill 3,190 Total assets acquired 9,670 Lease liabilities ( 350 ) Less liabilities assumed ( 3,054 ) Total net assets acquired $ 6,266 Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management, based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships using customer inputs and contributory charges, the relief from royalty method for trade names and trademarks and technological know-how. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on Pacific’s pre-acquisition forecasts. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The customer relationships, trade names and trademarks and technological know-how acquired in the Pacific transaction are being amortized over periods of 14 years, 15 years and 10 years, respectively, and are not deductible for tax purposes . Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will result from combining the operations of Pacific with our operations. Goodwill related to the Pacific acquisition is not deductible for tax purposes. Total acquisition-related costs were $ 2.0 million and $ 0.5 million for the years ended January 31, 2025 and 2024, respectively. Transactional costs and acquisition-related amortization is included in operating expenses in the Consolidated Statements of Operations. The following unaudited pro forma information presents our combined results of operations as if the Veridian, LHD, Jolly and Pacific acquisitions had occurred at the beginning of FY24. The unaudited pro forma combined financial information was prepared using the acquisition method of accounting under existing U.S. GAAP. The Company has been treated as the acquirer. The unaudited pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition; (2) factually supportable, and (3) expected to have a continuing impact on the combined company's results. There were no material transactions between the Company and the acquired entities during the periods presented that are required to be eliminated. The unaudited pro forma combined financial information does not reflect cost savings, operating synergies or revenue enhancements that the combined companies may achieve or the costs to integrate the operations or the costs necessary to achieve cost savings, operating synergies or revenue enhancements. F-24 Table of Contents Pro forma combined financial information (Unaudited) , (in millions, except per share amounts) Year Ended January 31 2025 2024 Net sales $ 178.5 $ 173.2 Net income $ ( 18.3 ) $ 5.4 Basic earnings per share $ ( 2.46 ) $ 0.73 Diluted earnings per share $ ( 2.46 ) $ 0.71 The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations that we would have reported had the acquisition been completed as of the beginning of FY24 and should not be taken as representative of our consolidated results of operations following the acquisition. In addition, the unaudited pro forma combined financial information is not intended to project the future results of the combined company. 7. LONG-TERM DEBT Revolving Credit Facility On June 25, 2020, the Company entered into a Loan Agreement (the “Original Loan Agreement”) with Bank of America, N.A. (“Lender”), as amended by Amendment No. 1 to the Loan Agreement, dated June 18, 2021 (“Amendment No. 1”), Amendment No. 2 to the Loan Agreement, dated March 3, 2023 (“Amendment No. 2”), Amendment No. 3 to the Loan Agreement, dated November 30, 2023 (“Amendment No. 3”), Amendment No. 4 to the Loan Agreement, dated March 28, 2024 (“Amendment No. 4”), and Amendment No. 5 to the Loan Agreement, dated December 12, 2024 (“Amendment No. 5” and, collectively with Amendment No. 1, Amendment No. 2, Amendment No. 3, and Amendment No. 4, the “Loan Agreement Amendments”; and the Original Loan Agreement, as amended by the Loan Agreement Amendments, the “Amended Loan Agreement”). The Amended Loan Agreement provides the Company with a secured revolving credit facility of up to $ 60.0 million of borrowings from December 12, 2024 through January 31, 2026 and of up to $ 50.0 million of borrowings from February 1, 2026 through January 31, 2027 (in each case, such limits remain subject to a reduction to no less than $40.0 million from the net proceeds of equity issuances if the Company raises capital during such periods). The revolving credit facility includes a $ 10.0 million letter of credit sub-facility. On January 24, 2025, as required by the Amended Loan Agreement, the Company used certain net proceeds of its equity issuance to reduce the principal amount outstanding under the Amended Loan Agreement. As a result thereof, the maximum principal amount under the revolving credit facility was reduced to $ 40 million. The credit facility matures on December 12, 2029. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of (i) the greater of the daily Secured Overnight Financing Rate (“SOFR”) or an index floor of 1% plus (ii) the Applicable Rate (as defined in the Amended Loan Agreement). The Applicable Rate is based upon a funded debt to EBITDA ratio (discussed below) and includes four different levels constituting a SOFR margin range from 1.25 % to 2.00 %. All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $ 5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The Amended Loan Agreement provides for a fee on any difference between the line of credit commitment and the amount of credit it actually uses, determined by the daily amount of credit outstanding during the specified period. Such fee is calculated at the Applicable Rate and is payable quarterly. The Company made certain representations and warranties to the Lender in the Amended Loan Agreement that are customary for credit arrangements of this type. The Company also agreed to maintain, as of the end of each fiscal quarter a minimum “basic fixed charge coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.20x and a “funded debt to EBITDA ratio” (as defined in the Amended Loan Agreement) not to exceed 3.5x (with step-downs to 3.25x and 3.0x on February 1, 2026 and February 1, 2027, respectively), in each case for the trailing 12-month period ending with the applicable quarterly reporting period. In addition, the Company has agreed to maintain a springing “asset coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.10x, but only to the extent that the maximum funded debt to EBITDA ratio exceeds 3.25x at any reporting period. The Company was in compliance with all of its debt covenants as of January 31, 2025. F-25 Table of Contents The Company also agreed to certain negative covenants under the Amended Loan Agreement that are customary for credit arrangements of this type, including restrictions regarding the ability of the Company and/or its subsidiaries to conduct business, grant liens, make certain investments, make substantial changes in the present executive or management personnel, and incur additional indebtedness, which negative covenants are subject to certain exceptions. Moreover, the Amended Loan Agreement contains restrictions on the Company’s ability to enter into mergers and other business combination transactions and to purchase or acquire other businesses or their assets, although the Company may purchase a business or its assets without the consent of the Lender if the aggregate amount of consideration paid for by the Company is less than $26,000,000 for any individual acquisition or $36,000,000 on a cumulative basis for all such acquisitions or purchases subsequent to the date of Amendment No. 5. The Amended Loan Agreement also authorizes the Company to enter into additional lines of credit or incur liabilities in connection with the acquisitions of foreign subsidiaries in foreign countries where the Lender lacks a physical presence (such amounts not to exceed $10.0 million in the aggregate). The Amended Loan Agreement contains customary events of default that include, among other things (subject to any applicable cure periods and materiality qualifier), non-payment of principal, interest or fees, defaults under related agreements with the Lender, cross-defaults under agreements for other indebtedness, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments and material adverse change. Upon the occurrence of an event of default, the Lender may terminate all loan commitments, declare all outstanding indebtedness owing under the Amended Loan Agreement and related documents to be immediately due and payable, and may exercise its other rights and remedies provided for under the Amended Loan Agreement. In connection with the Amended Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65% of those subsidiaries that are considered “controlled foreign subsidiaries” as set forth in the Internal Revenue Code and regulations). The Company’s obligations to the Lender under the Amended Loan Agreement are also secured by a negative pledge evidenced by a Non-encumbrance Agreement covering the real property owned by the Company in Decatur, Alabama. As of January 31, 2025, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $ 13.2 million outstanding under the revolving credit facility and there was $ 26.8 million of additional available credit under the Loan Agreement. The interest rate on outstanding borrowings was 6.47 % at January 31, 2025. F-26 Table of Contents Borrowings in UK On December 31, 2014, the Company and Lakeland Industries Europe, Ltd. (“Lakeland UK”), a wholly owned subsidiary of the Company, amended the terms of its existing line of credit facility with HSBC Bank to provide for (i) a one-year extension of the maturity date of the existing financing facility to December 19, 2016, (ii) an increase in the facility limit from £1,250,000 (approximately USD $ 1.9 million, based on exchange rates at time of closing) to £1,500,000 (approximately USD $ 2.3 million, based on exchange rates at time of closing), and (iii) a decrease in the annual interest rate margin from 3.46 % to 3.0 %. In addition, pursuant to a letter agreement dated December 5, 2014, the Company agreed that £400,000 (approximately USD $ 0.6 million, based on exchange rates at the time of closing) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of payment to the subsidiary’s obligations to HSBC under the financing facility. This agreement has been subsequently amended with the most recent amendment on March 8, 2022. The cumulative result of the amendments through March 8, 2022 reflect a reduction of the service charge to 0.76 5%. The agreement can be terminated with three months’ notice. There were no borrowings outstanding under this facility at January 31, 2025. Pacific Borrowings Pacific has two facilities with the Bank of New Zealand. Pacific has a trade finance facility where the lender finances vendor purchases. The trade finance facility has a limit of 500,000 New Zealand dollars and carries an interest rate at the prevailing base rate for the relevant currency of the vendor plus a margin of 3.00% per annum. The facility includes two term loans. The first term loan of 1,500,000 New Zealand dollars matures on December 17, 2025, carries an interest rate of 2.3% per annum and requires monthly payments of $19,350.27 New Zealand dollars. The second term loan of 550,000 New Zealand dollars matures on November 18, 2024, carries an interest rate of 3.5% per annum and requires monthly payments of 10,005 New Zealand dollars. The facilities expire in August 2026 and are secured by a security interest in Pacific’s real property. Borrowings under the trade finance facility and total amounts due under the term loans were $ 0.5 million at January 31, 2025. Jolly Borrowings On May 9, 2024, Jolly entered into a term loan agreement for 1,500,000 Euros to support working capital requirements with Banca Intesa Spa. The term loan will expire on March 31, 2027 , and carries an interest rate of 5.42 %. The term loan will be repaid in 11 installments of 136,364 Euros, paid quarterly and beginning September 30, 2024. Interest payments are made quarterly. The loan is guaranteed by SACE S.p.A., the Italian state-owned export credit finance agency. Jolly received an advance of 1,200,000 Euros from BNL Bank as an advance on an Italian firefighters contract that will conclude in FY26. Interest on the advance is Euribor plus 1.0%. As of January 31, 2025, the outstanding balance under the term loans was $ 2.5 million. LHD Borrowings Prior to the Company’s acquisition, LHD secured a federally guaranteed term loan of 800,000 Euros from Commerzbank AG under the “KfW Quick Loan 2020” program, launched by the German government in 2020 to support small and medium-sized enterprises affected by the COVID-19 crisis. Repayments of the loan, which matures on June 30, 2030 , began on September 30, 2022, with quarterly installments of 25,000 Euros. As of January 31, 2025, the outstanding balance was 555,000 Euros ($576,000). The loan carries an interest rate of 3 % per annum, with interest payments being due in arrears at the end of each quarter. Veridian Borrowings Prior to the Company’s acquisition, in February 2024, Veridian secured a term loan with USBank for a piece of equipment. The loan is for 60 months with monthly payments of approximately $8,000. The interest rate on the loan is 5.13 %. As of January 31, 2025, the outstanding balance was $ 0.4 million. Approximate maturities on our term loans over the next five years are $0.9 million in FY26, $2.3 million in FY27, $0.4 million in FY28, $0.2 million in FY29, $13.6 million thereafter . F-27 Table of Contents 8. 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. The 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); Royal Bank of Scotland, Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina, Australia 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; ALFA Bank and Bank Uralsib in Russia, JSC Bank Centercredit in Kazakhstan; Bank of New Zealand in New Zealand; BNL Gruppo Paribas, Banca Monti Dei ‘Paschi and Banca Intesa Spa in Italy; BCR in Romania; NAB in Australia: and Commerzbank AG in Germany. 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 $ 1.3 million total included in U.S. bank accounts and approximately $ 16.2 million total in foreign bank accounts as of January 31, 2025, of which $ 16.7 million was uninsured. 9. 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”). An aggregate of 1,240,000 shares of the Company’s common stock are currently 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 expense, which are reflected in operating expenses (in 000’s): Year Ended January 31, 2025 2024 2017 Plan: Total restricted stock and stock option programs $ 1,558 $ 1,365 Total income tax expense recognized for stock-based compensation arrangements $ 327 $ 287 F-28 Table of Contents Restricted Stock 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 years ended January 31, 2025 and 2024. This table reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the target performance level under the June 2021, June 2022, March 2023 and April 2024 grants. Performance- Based Service-Based Total Weighted Average Grant Date Fair Value Outstanding at January 31, 2023 127,480 40,665 168,145 $ 22.95 Awarded 64,953 130,390 195,343 $ 14.19 Vested ( 71,202 ) ( 26,336 ) ( 97,538 ) $ 14.90 Forfeited ( 38,901 ) ( 31,829 ) ( 70,730 ) Outstanding at January 31, 2024 82,330 112,890 195,220 $ 16.61 Awarded 27,042 146,256 173,298 $ 18.98 Vested - ( 70,220 ) ( 70,220 ) $ 20.27 Forfeited ( 39,702 ) ( 6,791 ) ( 46,493 ) Outstanding at January 31, 2025 69,670 182,135 251,805 $ 17.36 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 June 2021 grants. Performance measures for the April 2022 grants are revenue growth and EBITDA margin. Performance measures for the March 2023 grants are revenue growth, EBITDA margin and return on invested capital. The performance measures for the April 2024 grants are aggregate revenue during FY25, FY26, and FY27; EBITDA margin; and free cash flow margin. 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, 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 January 31, 2025, unrecognized stock-based compensation expense totaled $ 3.0 million pursuant to the 2017 Plan based on outstanding awards under the Plan. This expense is expected to be recognized over approximately two years. Stock Repurchase Program On April 7, 2022, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $ 5 million of its outstanding common stock, which became effective upon the completion of a prior share repurchase program. On December 1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program, under which the Company may repurchase up to an additional $ 5 million of its outstanding common stock. No shares were repurchased during FY25, leaving $ 5.0 million remaining under the share repurchase program at January 31, 2025. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time. Sale of Common Stock On January 24, 2025, the Company sold 2,093,000 shares of its common stock at a price of $ 20.68 after underwriting discount. After offering expenses, the Company received approximately $ 46.2 , million which was used to pay down the credit facility. F-29 Table of Contents 10. INCOME TAXES Income tax expense (benefit) is based on the following pretax income (loss): Years Ended January 31, 2025 2024 Domestic $ ( 14,701 ) $ 8,648 Foreign ( 3,655 ) 708 Total $ ( 18,356 ) $ 9,356 The domestic and foreign pretax income (loss) in the schedule above reflects intercompany dividends paid to the U.S. from international subsidiaries of $ 4.8 million and $ 11.4 million for fiscal years ended January 31, 2025 and 2024, respectively. Years Ended January 31, 2025 2024 Income Tax Expense (Benefit) Current: Federal $ 8 $ 17 State and other taxes 29 58 Foreign 3,832 4,674 Total Current Tax Expense $ 3,869 $ 4,749 Deferred: Domestic $ ( 3,312 ) $ ( 186 ) Foreign ( 838 ) ( 633 ) Total Deferred Tax Expense ( 4,150 ) ( 819 ) Total Income Taxes $ ( 281 ) $ 3,930 The following is a reconciliation of the Federal statutory rate to the Company’s effective income tax rate:: Years Ended January 31, 2025 2024 Statutory rate 21.00 % 21.00 % State Income Taxes, Net of Federal Tax Benefit 1.66 % 0.49 % Adjustment to Deferred ( 5.38 )% ( 23.26 )% GILTI 0.00 % 9.07 % Foreign Tax Credit – GILTI 0.00 % ( 2.42 )% Goodwill Impairment ( 12.06 )% 0.00 % Section 250 Deduction 0.00 % (4.92 )% Permanent Differences ( 1.48 )% 0.20 % Valuation Allowance-Deferred Tax Asset 0.17 % 33.29 % Foreign Tax Credit 8.19 % ( 15.24 )% Section 78 Gross-up 0.00 % 0.77 % Argentina Flow Through Loss ( 6.14 )% 7.20 % Withholding Taxes ( 1.40 )% 5.72 % Foreign Rate Differential ( 2.11 )% 18.25 % Change in State Apportionment Rate ( 0.01 )% ( 1.48 )% Foreign employee benefits 0.00 % ( 1.58 )% Foreign Dividends Paid to U.S. ( 5.48 )% 25.69 % Foreign Dividends Received Deduction 5.48 % ( 25.69 )% Earnout Adjustment 0.81 % ( 5.70 )% Other ( 1.72 )% 0.62 % Effective Rate 1.53 % 42.01 % F-30 Table of Contents The tax effects of temporary cumulative differences which give rise to deferred tax assets and liabilities are summarized as follows: January 31, 2025 2024 Deferred tax assets: Inventories $ 661 $ 1,545 US tax loss carryforwards, including work opportunity credit 2,364 167 Accounts receivable and accrued rebates 313 295 Accrued compensation and other 326 441 India reserves - US deduction 0 24 Equity based compensation 508 346 Foreign tax credit carry-forward 5,184 4,548 State and local carry-forwards 1,528 1,256 Depreciation and amortization ( 4,230 ) ( 1,846 ) Prepaid expenses ( 301 ) ( 253 ) Right-of-use asset ( 1,577 ) ( 1,590 ) Operating lease liability 1,660 1,672 Foreign carry-forwards 1,029 1,102 Investments 1,404 268 Section 163(j) Interest Expense 293 0 Withholding taxes ( 139 ) ( 383 ) Other - 83 Deferred tax assets 9,023 7,675 Less valuation allowance ( 6,644 ) ( 6,675 ) Net deferred tax assets $ 2,379 $ 1,000 January 31, Balance sheet classification 2024 2025 Long-term deferred tax assets $ 6,270 $ 3,097 Long-term deferred tax liability $ 3,891 $ 2,097 F-31 Table of Contents The benefit relating to operating loss, and credit carryforwards included in the above table at January 31, 2025, consisted of: Gross Carryforward Benefit Amount Valuation Allowance Expiration Beginning In State operating loss carryforwards $ 35,834 $ 1,528 $ ( 925 ) 2028 Foreign tax credit carryforwards 5,184 ( 3,509 ) 2026 Federal credit carryforwards 167 - 2035 Mexico operating loss carryforwards $ 1,022 307 ( 307 ) 2033 Chile operating loss carryforwards $ 1,625 439 ( 439 ) Indefinite Germany operating loss carryforwards $ 2 1 ( 1 ) Indefinite UK operating loss carryforwards $ 241 60 ( 60 ) Indefinite Total $ 7,686 $ ( 5,241 ) A significant portion of our net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor rules for that state in 2021 which moved the state to a single sales factor apportionment method. The impact of the state law change significantly reduced our apportionment factor in that state, making it unlikely that we will generate sufficient income allocated to that state in order to utilize the full amount of our net loss carryforwards prior to their expiration. Indefinite Reinvestment Assertion The Company generally considers all earnings generated outside of the U.S. to be permanently reinvested offshore, with the exception of countries where cash can be repatriated without withholding taxes, and in China in which the Company previously determined excess cash over what was required to fund operations and growth existed. During FY25, the Company repatriated $4.8 million from two of its subsidiaries in China. The Company also identified an additional $0.4 million in excess cash in its Chinese operations, which it plans to repatriate in the future . A withholding tax liability of $ 0.1 million has been established for the expected withholding taxes as of the year ended January 31, 2025. Income Tax Audits The Company is subject to US federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. Returns for the years since FY21 are still open based on statutes of limitation only. Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2024 with no significant issues noted, and we believe our tax positions are reasonably stated as of January 31, 2025. The 2024 tax review will be performed before May 31, 2025 in China. Change in Valuation Allowance We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The valuation allowance as of January 31, 2025 and January 31, 2024 was $ 6.6 million and $ 6.7 million, respectively. F-32 Table of Contents 11. NET INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted net income (loss) per share as follows: Years Ended January 31, (000’s except share information) 2025 2024 Numerator – Net (Loss) Income $ ( 18,075 ) $ 5,425 Denominator for basic net (loss) income per share (weighted-average shares which reflect 1,358,208 treasury shares at January 31, 2025 and 2024, respectively) 7,426,401 7,352,356 Effect of dilutive securities from restricted stock plan and from dilutive effect of stock options - 187,349 Denominator for diluted net income per share (adjusted weighted average shares) 7,426,401 7,539,705 Basic net (loss) income per share $ ( 2.43 ) $ 0.74 Diluted net (loss) income per share $ ( 2.43 ) $ 0.72 12. Derivative Instruments and Foreign Currency Exposure The Company is exposed to foreign currency risk. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts to sell the Canadian Dollar and the Euro other than the cash flow hedge discussed below. Such contracts are largely timed to expire on the last day of the fiscal quarter, with a new contract purchased on the first day of the next quarter to match the Company's operating cycle. We designated the forward contracts as derivatives but not as hedging instruments, with loss and gain recognized in current earnings. The Company accounts for its foreign exchange derivative instruments by recognizing all derivatives as either assets or liabilities at fair value, which may result in additional volatility in current period earnings or other comprehensive income, depending on whether the instrument was designated as a cash flow hedge, as a result of recording recognized and unrecognized gains and losses from changes in the fair value of derivative instruments. We have one type of derivatives to manage the risk of foreign currency fluctuations. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies. Those forward contract derivatives, not designated as hedging instruments, were generally settled quarterly. Gain and loss on those forward contracts are included in current earnings. There were no outstanding forward contracts at January 31, 2025 or 2024. 13. COMMITMENTS AND CONTINGENCIES Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, which inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential 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. During the third quarter of FY24, the Company sent a letter to the landlord outlining certain structural defects on the newly constructed facility in Monterrey, Mexico that would inhibit the Company from effectively utilizing the facility for its intended purpose. The Company has initiated discussions with the landlord as to potential remedies which may inform our decision-making process with respect to this property. Changes in our long-term intended use for the building may impact the carrying value of the currently recorded right of use asset. F-33 Table of Contents 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 January 31, 2025, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation. Leases We lease real property, equipment and automobiles. The Company made the accounting policy election to account for short-term leases as described herein. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. The Company uses its incremental borrowing rate ("IBR") at the recognition date in determining the present value of future payments for leases that do not have a readily determinable implicit rate. The Company’s IBR reflects a fully secured rate based on our revolving credit agreement, taking into consideration the repayment timing of the lease and any impacts due to the economic environment in which the lease operates. All of the Company’s real estate leases are classified as operating leases. Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. Lease cost The components of lease expense are included on the consolidated statement of operations as follows (in 000’s): Classification Year Ended January 31, 2025 Year Ended January 31, 2024 Operating lease cost Cost of goods sold $ 1,040 $ 1,092 Operating expenses $ 2,393 $ 1,402 Short-term lease cost Operating expenses $ 132 $ 221 Weighted-average lease terms and discount rates are as follows: January 31, 2025 January 31, 2024 Weighted-average remaining lease term (years) Operating leases 6.1 8.0 Weighted-average discount rate Operating leases 8.9 % 10.4 % Supplemental cash flow information related to leases were as follows (in 000’s): Cash paid for amounts included in the measurement of lease liabilities: Year Ended January 31, 2025 Year Ended January 31, 2024 Operating cash flows from operating leases $ 3,351 $ 1,932 Leased assets obtained in exchange for new operating lease liabilities $ 5,005 $ 5,591 F-34 Table of Contents Maturity of Lease Liabilities Maturity of lease liabilities as of January 31, 2025 was as follows (in $000’s): Year ending January 31, Operating Leases 2026 $ 3,602 2027 3,258 2028 2,795 2029 1,810 2030 1,653 Thereafter 5,028 Total lease payments 18,146 Less: Interest 3,863 Present value of lease liability $ 14,283 F-35 Table of Contents 14. SEGMENT REPORTING Domestic and international sales from continuing operations are as follows in millions of dollars: 2025 2024 Domestic $ 60.4 $ 55.3 International 106.8 69.4 Total $ 167.2 $ 124.7 The Company is organized into seven geographical operating segments that are based on management responsibilities: US Operations (including Corporate), Europe, Mexico, Asia, Canada, Latin America and Other Foreign. The Company adopted ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures for the year ended January 31, 2025 and applied it retrospectively for the prior period presented. Gross profit and Operating profit are the measures used by the chief operating decision maker, identified as our President and Chief Executive Officer, to evaluate segment performance and identify opportunities when allocating resources. The accounting principles applied at the reportable segment level in determining the segment measure of profit or loss are the same as those applied at the consolidated financial statement level. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation. 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) and facilities in Iowa and Arkansas (fire services). The Company also maintains one manufacturing facility 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), a manufacturing in Argentina (primarily wovens and production), a manufacturing facility in Romania (boots), a manufacturing facility in New Zealand (helmets) and two small manufacturing facilities in India. Our China and Vietnam facilities produce a significant portion of the Company’s products. We evaluate the performance of these entities based on gross profit which is defined as net sales less cost of goods sold, and 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, Australia, New Zealand and China, which sell and distribute products shipped from the United States, Mexico, China, Vietnam or India. The table below represents information about reportable segments for the years noted therein: Year Ended January 31, 2025 2024 (in millions of dollars) Net Sales US Operations (including Corporate) $ 66.7 $ 60.9 Europe 42.9 16.4 Mexico 7.6 6.7 Asia 53.8 46.2 Canada 10.3 9.3 Latin America 21.3 16.3 Other foreign 18.3 14.0 Less intersegment sales ( 53.7 ) ( 45.1 ) Consolidated sales $ 167.2 $ 124.7 External Sales USA Operations (including Corporate) $ 60 $ 55.3 Europe 42.1 16.3 Mexico 5.0 4.0 Asia 13.9 13.8 Canada 10.3 9.3 Latin America 21.2 16.1 Other foreign 14.3 9.9 Consolidated external sales $ 167.2 $ 124.7 Intersegment Sales USA Operations (including Corporate) $ 6.3 $ 5.6 Europe (UK) 0.8 0.1 Mexico 2.6 2.7 Asia 39.9 32.4 Canada - - Latin America 0.1 0.2 Other foreign 4.0 4.1 Consolidated intersegment sales $ 53.7 $ 45.1 F-36 Table of Contents Year Ended January 31, 2025 2024 (in millions of dollars) Cost of Goods Sold: USA Operations (including Corporate) $ 41.6 $ 40.9 Europe 32.5 11.5 Mexico 7.1 6.5 Asia 41.7 36.7 Canada 6.2 4.9 Latin America 11.4 8.1 Other foreign 10.9 9.1 Less intersegment cost of goods sold ( 52.9 ) ( 44.2 ) Consolidated cost of goods sold $ 98.5 $ 73.5 Gross Profit (Loss); USA Operations (including Corporate) $ 25.0 $ 20.0 Europe 10.4 4.9 Mexico 0.6 0.2 Asia 12.1 9.5 Canada 4.1 4.4 Latin America 9.8 8.2 Other foreign 7.4 4.9 Less intersegment (profit) loss ( 0.7 ) ( 0.9 ) Consolidated gross profit $ 68.7 $ 51.2 Operating Expenses: USA Operations (including Corporate) $ 33.4 $ 23.9 Europe 12.0 4.3 Mexico 2.1 2.3 Asia 5.6 4.7 Canada 4.2 2.9 Latin America 5.4 5.4 Other foreign 6.1 2.9 Less intersegment (profit) loss ( 1.4 ) ( 1.2 ) Consolidated operating expenses $ 67.4 $ 45.2 Goodwill Impairment: Europe $ 7.5 $ - Other foreign 3.0 - Goodwill impairment $ 10.5 $ - Operating (Loss) Profit: USA Operations (including Corporate) $ ( 8.0 ) $ ( 3.5 ) Europe ( 9.6 ) 0.1 Mexico ( 1.5 ) ( 2.1 ) Asia 6.5 4.9 Canada ( 0.2 ) 1.5 Latin America 4.5 2.8 Other foreign ( 1.7 ) 2.0 Less intersegment (profit) loss ( 0.7 ) 0.3 Operating (loss) profit $ ( 9.3 ) $ 6.0 F-37 Table of Contents As of January 31, 2025 2024 (in millions of dollars) Total Assets: USA Operations (including Corporate) $ 167.4 $ 92.2 Europe 60.3 30.0 Mexico 13.7 12.1 Asia 48.0 51.6 Canada 6.4 8.5 Latin America 21.7 15.0 Other foreign 18.3 20.3 Less intersegment ( 123.3 ) ( 76.0 ) Consolidated assets $ 212.5 $ 153.7 Total Assets Less Intersegment: USA Operations (including Corporate) $ 85.6 $ 47.1 Europe 55.3 27.2 Mexico 11.2 10.2 Asia 21.3 29.0 Canada 4.6 8.3 Latin America 18.0 12.3 Other foreign 16.5 19.6 Consolidated assets $ 212.5 $ 153.7 Total Goodwill and Intangible Assets USA Operations (including Corporate) $ 17.1 $ 0.9 Europe 22.7 14.7 Other foreign 1.9 4.9 Consolidated goodwill and intangible assets $ 41.7 $ 20.5 15. SUBSEQUENT EVENTS The Company has reviewed and evaluated whether any material subsequent events have occurred from January 31, 2025 through the filing date of the Company’s Annual Report on Form 10-K. All appropriate subsequent event disclosures have been made in the consolidated financial statements. F-38 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.