lake_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended October 31, 2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to _______________

Commission File Number: 0-15535

LAKELAND INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware		13-3115216
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1525 Perimeter Parkway, Suite 325 Huntsville, AL		35806
(Address of Principal Executive Offices)		(Zip Code)

(Registrant's telephone number, including area code) (256) 350-3873

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LAKE	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☒
Nonaccelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class		Outstanding at December 3, 2021
Common Stock, $0.01 par value per share		7,775,406 Shares

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

FORM 10-Q

The following information of the Registrant and its subsidiaries is submitted herewith:

		Page

PART I - FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Income Three and Nine Months Ended October 31, 2021 and 2020	3

	Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended October 31, 2021 and 2020	4

	Condensed Consolidated Balance Sheets October 31, 2021 and January 31, 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity Three and Nine Months Ended October 31, 2021 and 2020	6

	Condensed Consolidated Statements of Cash Flows Nine Months Ended October 31, 2021 and 2020	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitiative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II - OTHER INFORMATION:

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 6.	Exhibits	25

	Signature Pages	26

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LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

($000’s except for share and per share information)

	Three Months Ended October 31,						Nine Months Ended October 31,
	2021			2020			2021			2020
Net sales	$	30,032		$	41,451		$	91,590		$	122,054
Cost of goods sold		17,399			19,763			51,853			60,882
Gross profit		12,633			21,688			39,737			61,172
Operating expenses		8,544			9,195			25,483			26,575
Operating profit		4,089			12,493			14,254			34,597
Other income (expense), net		(1	)		12			(14	)		49
Interest expense		(2	)		(4	)		(7	)		(23	)
Income before taxes		4,086			12,501			14,233			34,623
Income tax expense		1,294			3,237			4,242			7,386
Net income	$	2,792		$	9,264		$	9,991		$	27,237
Net income per common share:
Basic	$	0.36		$	1.16		$	1.26		$	3.41
Diluted	$	0.35		$	1.14		$	1.23		$	3.36
Weighted average common shares outstanding:
Basic		7,849,591			7,979,902			7,942,162			7,976,228
Diluted		7,998,965			8,123,848			8,095,025			8,110,435

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

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LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

($000’s)

	Three Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2021		2020

Net income	$	2,792	$	9,264	$	9,991	$	27,237
Other comprehensive income (loss):
Foreign currency translation adjustments		69		216		5		225
Comprehensive income	$	2,861	$	9,480	$	9,996	$	27,462

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

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LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(000’s except for share information)

	October 31,			January 31,
	2021			2021
ASSETS
Current assets
Cash and cash equivalents	$	55,533		$	52,596
Accounts receivable, net of allowance for doubtful accounts of $613 and $700 at October 31, 2021 and January 31, 2021, respectively		16,879			21,702
Inventories		47,042			43,833
Prepaid VAT and other taxes		2,322			1,343
Other current assets		3,113			4,134
Total current assets		124,889			123,608
Property and equipment, net		8,878			9,819
Operating leases right-of-use assets		5,356			2,347
Deferred tax assets		2,048			2,839
Other assets		1,198			1,312
Investments		2,783		----
Total assets	$	145,152		$	139,925
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,426		$	7,397
Accrued compensation and benefits		3,030			3,902
Other accrued expenses		2,192			1,793
Income tax payable		913			1,534
Current portion of operating lease liabilities		1,311			768
Total current liabilities		13,872			15,394
Long-term portion of operating lease liabilities		3,849			1,613
Total liabilities		17,721			17,007
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued)	----			----
Common stock, $0.01 par; authorized 20,000,000 shares Issued 8,555,672 and 8,498,457; outstanding 7,775,406 and 7,984,518 at October 31, 2021 and January 31, 2021, respectively		86			85
Treasury stock, at cost; 780,266 and 509,242 shares at October 31, 2021 and January 31, 2021, respectively		(10,910	)		(5,023	)
Additional paid-in capital		77,184			76,781
Retained earnings		62,678			52,687
Accumulated other comprehensive loss		(1,607	)		(1,612	)
Total stockholders' equity		127,431			122,918
Total liabilities and stockholders' equity	$	145,152		$	139,925

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

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LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(000’s except for share information)

																Accummulated
											Additional					Other
	Common Stock				Treasury Stock						Paid-in			Retained		Comprehensive
	Shares		Amount		Shares			Amount			Capital			Earnings		Loss			Total
			($000’s)					($000’s)			($000’s)			($000’s)		($000’s)			($000’s)

Balance, January 31, 2020		8,481,665	$	85		(509,242	)	$	(5,023	)	$	75,171		$	17,581	$	(2,762	)	$	85,052
	—		—		—			—			—				27,237	—				27,237
Net income	—		—		—			—			—			—			225			225
Other comprehensive income
Stock-based compensation:
Restricted stock issued		9,595	—		—			—			----			—		—			----
Restricted Stock Plan	—		—		—			—				1,186		—		—				1,186
Return of shares in lieu of payroll withholding	—		—		—			—				(79	)	—		—				(79	)
Balance, October 31, 2020		8,491,260	$	85		(509,242	)	$	(5,023	)	$	76,278		$	44,818	$	(2,537	)	$	113,621

Balance, July 31, 2020		8,489,144	$	85		(509,242	)	$	(5,023	)	$	75,494		$	35,554	$	(2,753	)	$	103,357
Net Income	—		—		—			—			—				9,264	—				9,264
Other comprehensive income	—		—		—			—			—			—			216			216
Stock-based compensation:
Restricted stock issued		2,116	—		—			—			—			—		—			—
Restricted stock plan	—		—		—			—				808		—		—				808
Return of shares in lieu of payroll withholding	—		—		—			—				(24	)	—		—				(24	)
Balance, October 31, 2020		8,491,260	$	85		(509,242	)	$	(5,023	)	$	76,278		$	44,818	$	(2,537	)	$	113,621

Balance, January 31, 2021		8,498,457	$	85		(509,242	)	$	(5,023	)	$	76,781		$	52,687	$	(1,612	)	$	122,918
Net Income	—		—		—			—			—				9,991	—				9,991
Other comprehensive loss	—		—		—			—			—			—			5			5
Stock-based compensation:
Restricted stock issued		57,215		1	—			—			—			—		—				1
Restricted stock plan	—		—		—			—				1,025		—		—				1,025
Return of shares in lieu of payroll withholding	—		—		—			—				(622	)	—		—				(622	)
Treasury stock purchased	—		—			(271,024	)		(5,887	)	----			----		----				(5,887	)
Balance, October 31, 2021		8,555,672	$	86		(780,266	)	$	(10,910	)	$	77,184		$	62,678	$	(1,607	)	$	127,431

Balance, July 31, 2021		8,542,372	$	86		(736,696	)	$	(10,017	)	$	76,927		$	59,886	$	(1,676	)	$	125,206
Net Income	—		—		—			—			—				2,792	—				2,792
Other comprehensive income	—		—		—			—			—			—			69			69
Stock-based compensation:
Restricted stock issued		13,300	—		—			—			—			—		—			—
Restricted stock plan	—		—		—			—				418		—		—				418
Return of shares in lieu of payroll withholding	—		—		—			—				(161	)	—		—				(161	)
Treasury stock purchased	—		—			(43,570	)		(893	)	----			----		----				(893	)
Balance, October 31, 2021		8,555,672	$	86		(780,266	)	$	(10,910	)	$	77,184		$	62,678	$	(1,607	)	$	127,431

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

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LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

($000)’s

	Nine Months Ended October 31,
	2021			2020
Cash flows from operating activities:
Net income	$	9,991		$	27,237
Adjustments to reconcile net income to net cash provided by operating activities
Provision for doubtful accounts		(86	)		315
Deferred income taxes		790			3,194
Depreciation and amortization		1,470			1,425
Stock based and restricted stock compensation		1,025			1,245
Loss on disposal of property and equipment		51			5
Non-cash operating lease expense		229			267
(Increase) decrease in operating assets
Accounts receivable		4,792			(9,249	)
Inventories		(3,234	)		(808	)
Prepaid VAT and other taxes		(979	)		(10	)
Other assets		1,020			(484	)
Increase (decrease) in operating liabilities
Accounts payable		(965	)		810
Accrued expenses and other liabilities		(1,052	)		4,365
Operating lease liabilities		(461	)		(286	)
Net cash provided by operating activities		12,591			28,026
Cash flows from investing activities:
Purchases of property and equipment		(581	)		(1,325	)
Investments		(2,783	)	----
Net cash (used in) investing activities:		(3,364	)		(1,325	)
Cash flows from financing activities:
Loan repayments, short-term	----				(1,319	)
Loan borrowings, short-term	----				158
Purchase of treasury stock under stock repurchase program		(5,887	)	----
Shares returned to pay employee taxes under restricted stock program		(622	)		(79	)
Net cash (used in) financing activities		(6,509	)		(1,240	)
Effect of exchange rate changes on cash and cash equivalents		219			119
Net increase in cash and cash equivalents		2,937			25,580
Cash and cash equivalents at beginning of period		52,596			14,606
Cash and cash equivalents at end of period	$	55,533		$	40,186

Supplemental disclosure of cash flow information:
Cash paid for interest	$	7		$	22
Cash paid for taxes	$	4,217		$	2,376

Noncash investing and financing activities
Leased assets obtained in exchange for operating lease liabilities	$	3,238		$	870

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

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LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	Business

	Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, through distributors, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia.

Basis of Presentation

The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2022, or for any future period. The January 31, 2021, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2021 and 2020, and for each of the two years in the period ended January 31, 2021, included in our most recent annual report on Form 10-K filed on April 16, 2021.

In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY22 refers to the fiscal year ending January 31, 2022, (b) “Q” refers to quarter; thus, for example, Q3 FY22 refers to the third quarter of the fiscal year ending January 31, 2022, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Income” refers to the unaudited condensed consolidated statement of income.

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.

Bodytrak provides wearable monitoring solutions for customers in industrial health, safety, defense and first responder markets wanting to achieve better employee health and performance. Bodytrak’s solution is provided as a platform as a service (PaaS), delivering real-time data and cloud-based analytics, and hardware that includes a patented earpiece for, physiological monitoring and audio communications.

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The Series A Shares issued to the Company at the closing represent approximately 11.43% of Bodytrak’s total share capital. Under the terms of the Investment Agreement, the Company may also elect, within 30 months of the date of the initial investment, to acquire up to an additional 381,679 Series A Shares of Bodytrak for £1,500,000 (approximately $2.0 million at current exchange rates) assuming all 381,679 Series A Shares are acquired by the Company), which would result in the Company owning an aggregate of 18.42% of Bodytrak’s share capital, assuming no other shares are issued by Bodytrak. The investment in Bodytrak will be accounted for under the equity method given our board representation and the resulting ability to exercise significant influene. A substantial portion of our investment represents differences in our investment and our share of the underlying recognized net assets of Bodytrak. These differences are predominately attributable to non-amortizing intangible assets, including internally developed intellectual property, of Bodytrak.

4.	Inventories

	Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist of the following (in $000s):

	October 31, 2021			January 31, 2021

Raw materials	$	17,988		$	18,941
Work-in-process		415			409
Finished goods		31,420			27,047
Excess and obsolete adjustments		(2,781	)		(2,564	)
	$	47,042		$	43,833

Long-Term Debt

Revolving Credit Facility

On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured $12.5 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility. The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00. The credit facility will mature on June25,2025.

On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $12.5 million to $25.0 million. The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.

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

As of October 31, 2021, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.

Prior to the execution of the Loan Agreement with Bank of America, the Company repaid a $1.2 million term loan that was outstanding under a similar agreement with SunTrust Bank. The Company has terminated the borrowing agreement with SunTrust Bank.

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Borrowings in UK

There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at October 31, 2021 and January 31, 2021. Amounts due the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $1.1 million and $2.0 million as of October 31, 2021, and January 31, 2021, respectively, are included in other current assets on the accompanying consolidated balance sheets.

Concentration of Risk

Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across geographic areas. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.

The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Banco Nacion in Argentina; TD Canada Trust; Banco Itaú S.A., Santander in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations. There was approximately $13.9 million total included in U.S. bank accounts and approximately $41.6 million total in foreign bank accounts as of October 31, 2021, of which $54.8 million was uninsured.

Major Customer

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

Major Supplier

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

Stockholders’ Equity

On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), except that with respect to all non-employee directors, the Committee shall be deemed to include the full Board. The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“SARs”).

On June 16, 2021, the stockholders of the Company approved Amendment No. 1 (the “Amendment”) to the 2017 Plan. The Amendment increases the number of shares of common stock, par value $0.01per share (the “Common Stock”), of the Company reserved for issuance under the Plan by 480,000 shares.

An aggregate of 840,000shares of the Company’s common stock are authorized for issuance under the 2017 Plan, subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. 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.

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The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s):

	Three Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2021		2020
2017 Plan:
Total restricted stock and stock option programs	$	418	$	835	$	1,025	$	1,245
Total income tax expense recognized for stock-based compensation arrangements	$	108	$	175	$	266	$	262

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 nine months ended October 31, 2021. This table reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the maximum performance level under the December 2019, April 2020 and June 2021 grants.

	Performance- Based			Service-Based		Total			Weighted Average Grant Date Fair Value
Outstanding at January 31, 2021		245,210			30,930		276,140		$	13.24
Awarded		23,101			38,071		61,172		$	21.71
Vested		(79,574	)		----		(79,574	)
Forfeited		----			----		----
Outstanding at October 31, 2021		188,737			69,001		257,738		$	14.75

The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the December 2019, April 2020 and June 2021 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Committee.

The compensation cost is based on the fair value at the grant date, is recognized over the requisite performance/service period using the straight-line method, and is periodically adjusted for the probable number of shares to be awarded. As of October 31, 2021, unrecognized stock-based compensation expense totaled $1.7 million pursuant to the 2017 Plan based on outstanding awards under the Plan. This expense is expected to be recognized over approximately two years.

Stock Repurchase Program

On February 17, 2021, the Company’s Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $5.0 million of its outstanding common stock. This program replaced the prior program which had approximately $800,000 remaining for repurchases. On July 6, 2021, the Company’s Board of Directors authorized a $5.0million increase in the Company’s current stock repurchase program. During the three months ended July 31, 2021, the Company repurchased 227,454shares for $5.0million leaving $5.0million remaining under the stock repurchase program at July 31, 2021. During the three months ended October 31, 2021, the Company repurchased 43,570shares for $0.9 million leaving $4.1 million remaining under the stock repurchase program at October 31, 2021.

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Income Taxes

The Company's effective tax rate for the third quarter of FY22 was 31.7% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company's effective tax rate for the third quarter of FY21 was 25.9%, which differs from the U.S. statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes.

The Company's effective tax rate for the nine months ended October 31, 2021 was 29.8% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company recorded a discrete item related to the remeasurement of deferred taxes for $0.8 million of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor. The Company's effective tax rate for the nine months ended October 31, 2020 was 21.3% which differs from the U.S. statutory rate of 21% primarily due to Global Intangible Low-Taxed Income (“GILTI”) and an adjustment to reflect the recapture of U.S. NOL as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $3.0 million and $2.7 million at October 31, 2021 and January 31, 2021, respectively.

9.	*Net Income Per Share*

	The following table sets forth the computation of basic and diluted net income per share at October 31, 2021 and 2020 as follows (in $000s except per share amounts):

	Three Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2021		2020
Numerator:
Net income	$	2,792	$	9,264	$	9,991	$	27,237
Denominator:
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 780,266 and 509,242 at October 31, 2021 and 2020, respectively		7,849,591		7,979,902		7,942,162		7,976,228
Effect of dilutive securities from restricted stock plan		149,374		143,946		152,863		134,207
Denominator for diluted net income per share (adjusted weighted average shares)		7,998,965		8,123,848		8,095,025		8,110,435
Basic net income per share	$	0.36	$	1.16	$	1.26	$	3.41
Diluted net income per share	$	0.35	$	1.14	$	1.23	$	3.36

10.

Contingencies

From time to time, the Company is a party to litigation, claims and other contingencies, including environmental, regulatory and employee matters and examinations and investigations by governmental agencies, which arise in the ordinary course of business. The Company records a contingent liability when it is probable that a loss has been incurred and the amount of loss is reasonably estimable in accordance with ASC Topic 450, Contingencies, or other applicable accounting standards.

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

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The Company’s Exit from Brazil

On March 9, 2015, Lakeland Brazil, S.A. changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao Individual LTDA (“Lakeland Brazil”).

Transfer of Shares Agreement

On July 31, 2015, Lakeland and Lakeland Brazil completed a conditional closing of a Shares Transfer Agreement (the “Shares Transfer Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee acquired all of the shares of Lakeland Brazil owned by the Company.

Although the Company formally completed the terms of the Shares Transfer Agreement, pursuant to which our entire equity interest in Lakeland Brazil was transferred, during the fiscal year ended January 31, 2016, we may continue to be exposed to certain liabilities arising in connection with the operations of Lakeland Brazil, which was shut down in late March 2019. The Company understands that under the laws of Brazil, a parent company may be held liable for the liabilities of a former Brazilian subsidiary in the event of fraud, misconduct, or under various theories. In this respect, as regards labor claims, a parent company could conceivably be held liable for the liabilities of a former Brazilian subsidiary. Although the Company would have the right of adversary system, full defense and due process, in case of potential litigation, there can be no assurance as to the findings of the courts in Brazil.

Labor Claims in Brazil

As disclosed in our periodic filings with the Securities and Exchange Commission (the “SEC”), we agreed to make certain payments in connection with ongoing labor litigation involving our former Brazilian subsidiary. While the vast majority of these labor suits have been resolved, one significant claim remains; a civil claim filed by separate former officers of our former Brazilian subsidiary. Lakeland is a named co-defendant in the civil matter.

In the civil matter filed five years ago in 2016, a former Lakeland Brazil manager is seeking approximately USD $700,000 he alleges is due to him against an unpaid promissory note. Lakeland has not been served with process and no decision on the merits has been issued in this case yet.

Lakeland Brazil may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019. The Company has no obligation under the Shares Transfer Agreement to make any additional payments in connection with these potential new labor lawsuits. The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories.

Although the Company would have the right to due process in case of potential litigation, there can be no assurance as to the findings of the courts of Brazil.

General litigation contingencies

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 October 31, 2021, to the best of the Company’s knowledge, there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above.

*11.*	*Segment Reporting*

	We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily distribution to customers of the bulk of our products and light manufacturing of our chemical, wovens, reflective, and fire products). The Company also maintains one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in Mexico (primarily disposable, reflective, fire and chemical suit production), a manufacturing facility in Vietnam (primarily disposable production) and a small manufacturing facility in India. Our China facility produces the majority of the Company’s products and China generates a significant portion of the Company’s international revenues. We evaluate the performance of these entities based on operating profit, which is defined as gross profit less operating expenses. We have sales forces in the United States, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan, Australia and China, which sell and distribute products shipped from the United States, Mexico, India, Vietnam or China.

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

	Three Months Ended October 31,						Nine Months Ended October 31,
	(in millions of dollars)						(in millions of dollars)
	2021			2020			2021		2020
Net Sales:
USA Operations (including Corporate)	$	11.72		$	17.43		$	39.43	$	57.11
Other foreign		2.22			3.39			7.23		8.81
Europe (UK)		1.70			5.58			8.79		12.75
Mexico		1.25			2.12			4.12		4.84
Asia		21.85			23.25			59.31		67.42
Canada		2.92			4.20			6.78		10.92
Latin America		2.49			3.75			9.28		9.38
Less intersegment sales		(14.12	)		(18.27	)		(

SEC Form 10-Q filed by Lakeland Industries, Inc.