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, 2022

☐	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 2, 2022
Common Stock, $0.01 par value per share		7,319,886 Shares

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

FORM 10-Q

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

PART I - FINANCIAL INFORMATION:		Page

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Operations Three and Nine Months Ended October 31, 2022 and 2021	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended October 31, 2022 and 2021	4

	Condensed Consolidated Balance Sheets October 31, 2022 and January 31, 2022	5

	Condensed Consolidated Statements of Stockholders’ Equity Three and Nine Months Ended October 31, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows Nine Months Ended October 31, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION:

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	26

	Signature Pages	27

Table of Contents

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

	Three Months Ended October 31,						Nine Months Ended October 31,
	2022			2021			2022			2021
Net sales	$	28,387		$	30,032		$	83,849		$	91,590
Cost of goods sold		16,083			17,262			48,862			51,184
Gross profit		12,304			12,770			34,987			40,406
Operating expenses		10,082			8,544			29,522			25,483
Operating profit		2,222			4,226			5,465			14,923
Other income (expense), net		(72	)		(1	)		(140	)		(14	)
Interest expense		(4	)		(2	)		(25	)		(7	)
Income before taxes		2,146			4,223			5,300			14,902
Income tax expense		715			1,327			3,610			4,036
Net income	$	1,431		$	2,896		$	1,690		$	10,866
Net income per common share:
Basic	$	0.19		$	0.37		$	0.22		$	1.37
Diluted	$	0.19		$	0.36		$	0.22		$	1.34
Weighted average common shares outstanding:
Basic		7,514,725			7,849,591			7,600,272			7,942,162
Diluted		7,704,695			7,998,965			7,787,662			8,095,025

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 (LOSS)

(UNAUDITED)

($000’s)

	Three Months Ended October 31,					Nine Months Ended October 31,
	2022			2021		2022			2021

Net income	$	1,431		$	2,896	$	1,690		$	10,866
Other comprehensive income (loss):
Foreign currency translation adjustments		(1,744	)		70		(2,916	)		6
Comprehensive income (loss)	$	(313	)	$	2,966	$	(1,226	)	$	10,872

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)

ASSETS	October 31,			January 31,
	2022			2022
Current assets
Cash and cash equivalents	$	34,949		$	52,719
Accounts receivable, net of allowance for doubtful accounts of $758 and $666 at October 31, 2022 and January 31, 2022, respectively		16,675			14,771
Inventories		57,195			47,711
Prepaid VAT and other taxes		1,781			1,675
Other current assets		3,628			3,770
Total current assets		114,228			120,646
Property and equipment, net		8,620			8,714
Operating leases right-of-use assets		4,573			5,296
Deferred tax assets		2,083			2,072
Other assets		1,399			1,361
Investments		5,513			2,704
Total assets	$	136,416		$	140,793
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,455		$	5,855
Accrued compensation and benefits		2,960			3,225
Other accrued expenses		1,842			1,372
Income tax payable		461			321
Current portion of operating lease liabilities		1,023			1,242
Total current liabilities		12,741			12,015
Deferred income taxes		1,804			-
Long-term portion of operating lease liabilities		3,100			3,678
Total liabilities		17,645			15,693
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued)		-			-
Common stock, $0.01 par; authorized 20,000,000 shares Issued 8,650,580 and 8,555,672; outstanding 7,319,886 and 7,615,967 at October 31, 2022 and January 31, 2022, respectively		87			86
Treasury stock, at cost; 1,330,694 and 939,705 shares at October 31, 2022 and January 31, 2022, respectively		(19,646	)		(14,206	)
Additional paid-in capital		78,162			77,826
Retained earnings		64,582			62,892
Accumulated other comprehensive loss		(4,414	)		(1,498	)
Total stockholders' equity		118,771			125,100
Total liabilities and stockholders' equity	$	136,416		$	140,793

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)

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

Balance, January 31, 2021		8,498,457	$	85		(509,242	)	$	(5,023	)	$	76,781		$	51,520	$	(1,612	)	$	121,751
Net income		—		—		—			—			—			10,866		—			10,866
Other comprehensive loss		—		—		—			—			—			—		6			6
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		$	62,386	$	(1,606	)	$	127,140

Balance, July 31, 2021		8,542,372	$	86		(736,696	)	$	(10,017	)	$	76,927		$	59,490	$	(1,676	)	$	124,810
Net income		—		—		—			—			—			2,896		—			2,896
Other comprehensive income		—		—		—			—			—			—		70			70
Stock-based compensation:
Restricted stock issued		13,300		—		—			—			—			—		—			—
Restricted stock plan		—		—		—			—			417			—		—			417
Return of shares in lieu of payroll withholding		—		—		—			—			(160	)		—		—			(160	)
Treasury stock purchased		—		—		(43,570	)		(893	)		—			—		—			(893	)
Balance, October 31, 2021		8,555,672	$	86		(780,266	)	$	(10,910	)	$	77,184		$	62,386	$	(1,606	)	$	127,140

Balance, January 31, 2022		8,555,672	$	86		(939,705	)	$	(14,206	)	$	77,826		$	62,892	$	(1,498	)	$	125,100
Net income		—		—		—			—			—			1,690		—			1,690
Other comprehensive loss		—		—		—			—			—			—		(2,916	)		(2,916	)
Stock-based compensation:
Restricted stock issued		94,908		1		—			—			—			—		—			1
Restricted stock plan		—		—		—			—			1,141			—		—			1,141
Return of shares in lieu of payroll withholding		—		—		—			—			(805	)		—		—			(805	)
Treasury stock purchased		—		—		(390,989	)		(5,440	)		—			—		—			(5,440	)
Balance, October 31, 2022		8,650,580	$	87		(1,330,694	)	$	(19,646	)	$	78,162		$	64,582	$	(4,414	)	$	118,771

Balance, July 31, 2022		8,650,580	$	87		(1,135,855	)	$	(17,332	)	$	77,811		$	63,151	$	(2,670	)	$	121,047
Net income		—		—		—			—			—			1,431		—			1,431
Other comprehensive loss		—		—		—			—			—			—		(1,744	)		(1,744	)
Stock-based compensation:
Restricted stock issued		—		—		—			—						—		—			—
Restricted stock plan		—		—		—			—			351			—		—			351
Return of shares in lieu of payroll withholding		—		—		—			—			—			—		—			—
Treasury stock purchased		—		—		(194,839	)		(2,314	)		—			—		—			(2,314	)
Balance, October 31, 2022		8,650,580	$	87		(1,330,694	)	$	(19,646	)	$	78,162		$	64,582	$	(4,414	)	$	118,771

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,
	2022			2021
Cash flows from operating activities:
Net income	$	1,690		$	10,866
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Provision for doubtful accounts		92			(86	)
Deferred income taxes		1,788			585
Depreciation and amortization		1,370			1,470
Stock based and restricted stock compensation		1,141			1,025
(Gain) loss on disposal of property and equipment		(4	)		51
Equity in loss of equity investment		252			—
Non-cash operating lease expense		—			229
(Increase) decrease in operating assets
Accounts receivable		(2,197	)		4,792
Inventories		(10,257	)		(3,502	)
Prepaid VAT and other taxes		(106	)		(979	)
Other assets		(22	)		1,020
Increase (decrease) in operating liabilities
Accounts payable		613			(965	)
Accrued expenses and other liabilities		499			(1,454	)
Operating lease liabilities		(89	)		(461	)
Net cash (used in) provided by operating activities		(5,230	)		12,591
Cash flows from investing activities:
Purchases of property and equipment		(1,273	)		(581	)
Investments		(3,061	)		(2,783	)
Net cash (used in) investing activities:		(4,334	)		(3,364	)
Cash flows from financing activities:
Purchase of treasury stock under stock repurchase program		(5,440	)		(5,887	)
Shares returned to pay employee taxes under restricted stock program		(805	)		(622	)
Net cash (used in) financing activities		(6,245	)		(6,509	)
Effect of exchange rate changes on cash and cash equivalents		(1,961	)		219
Net increase (decrease) in cash and cash equivalents		(17,770	)		2,937
Cash and cash equivalents at beginning of period		52,719			52,596
Cash and cash equivalents at end of period	$	34,949		$	55,533

Supplemental disclosure of cash flow information:
Cash paid for interest	$	25		$	7
Cash paid for taxes	$	2,614		$	4,217

Noncash investing and financing activities
Leased assets obtained in exchange for operating lease liabilities	$	34		$	3,238

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 STATEMENTS

(UNAUDITED)

1. Business

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

2. Basis of Presentation

The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2023, or for any future period. The January 31, 2022, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2022 and 2021, and for each of the two years in the period ended January 31, 2022, included in our most recent annual report on Form 10-K filed on April 21, 2022.

In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY23 refers to the fiscal year ending January 31, 2023, (b) “Q” refers to quarter; thus, for example, Q3 FY23 refers to the third quarter of the fiscal year ending January 31, 2023, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet, and (d) “Statement of Operations” refers to the unaudited condensed consolidated statement of operations.

3. Investments

On October 18, 2021, the Company entered into an Investment Agreement (the “Investment Agreement”) with Inova Design Solutions Ltd, a private limited company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak^® (“Bodytrak”), and the other parties thereto, pursuant to which Bodytrak agreed to issue and sell to the Company 508,905 cumulative convertible series A shares of Bodytrak (“Series A Shares”) in exchange for a payment by the Company of £2,000,000 ($2.8 million). The closing of this minority investment transaction occurred on October 18, 2021. The Series A Shares issued to the Company at the closing represented approximately 11.43% of Bodytrak’s total share capital.

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On April 28, 2022, the Company, under the terms of the Investment Agreement, acquired an additional 381,679 Series A Shares of Bodytrak for £1,500,000 ($1.9 million). On October 26, 2022, the Company acquired an additional 254,452 Series A Shares of Bodytrak for £1,000,000 ($1.2 million). After completion of the additional investments, the Company owns 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, including internally developed intellectual property, of Bodytrak.

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

For the three and nine months ended October 31, 2022, the Company recognized losses of $0.1 million and $0.3 million, respectively, as the Company’s share of Bodytrak’s net loss. The loss is reflected in other income (expense), net in the consolidated statements of operations.

4. Inventories

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

	October 31, 2022			January 31, 2022

Raw materials	$	24,378		$	20,231
Work-in-process		1,116			626
Finished goods		35,388			29,910
Excess and obsolete adjustments		(3,687	)		(3,056	)
	$	57,195		$	47,711

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5. Long-Term Debt

Revolving Credit Facility

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

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

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

As of October 31, 2022, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.

Borrowings in UK

There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at October 31, 2022 and January 31, 2022. Amounts due to the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $0.2 million and $1.2 million as of October 31, 2022, and January 31, 2022, respectively, are included in other current assets on the accompanying consolidated balance sheets.

6. Concentration of Risk

Credit Risk

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

The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Raymond James in Argentina; TD Canada Trust; Banco Itaú S.A., Banco Credito Inversione in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations. There was approximately $3.3 million total included in the U.S. bank accounts and approximately $31.7 million total in foreign bank accounts as of October 31, 2022, of which $34.3 million was uninsured.

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Major Customer

One customer, Aramsco, accounted for more than 10% of net sales during the three month period ended October 31, 2022. No customer accounted for more than 10% of net sales during the three month period ended October 31, 2021 or the nine month periods ended October 31, 2022 and 2021.

Major Supplier

No vendor accounted for more than 10% of purchases during the three and nine month periods ended October 31, 2022 and 2021.

7. Stockholders’ Equity

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

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

An aggregate of 840,000 shares of the Company’s common stock are authorized for issuance under the 2017 Plan, as amended subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. If any shares subject to an award are forfeited, expire, lapse or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, lapse or termination, again be available for issuance under the 2017 Plan.

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

	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
2017 Plan:
Total restricted stock and stock option programs	$	351	$	418	$	1,141	$	1,025
Total income tax expense recognized for stock-based compensation arrangements	$	74	$	108	$	240	$	266

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Restricted Stock and Restricted Stock Units

Under the 2017 Plan, as described above, the Company awarded performance-based and service-based shares of restricted stock and restricted stock units to eligible employees and directors. The following table summarizes the activity under the 2017 Plan for the nine months ended October 31, 2022 and 2021. This table reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the maximum performance level under the December 2019, April 2020, June 2021, April 2022 and June 2022 grants.

	Performance- Based			Service- Based			Total			Weighted Average Grant Date Fair Value
Outstanding at January 31, 2022		232,838			14,970			247,808		$	20.89
Awarded		33,492			53,082			86,574		$	18.17
Vested		(119,164	)		(22,669	)		(141,833	)
Forfeited		—			—			—
Outstanding at October 31, 2022		147,166			45,383			192,549		$	19.66

	Performance- Based			Service- Based		Total			Weighted Average Grant Date Fair Value
Outstanding at January 31, 2021		245,210			30,930		276,140		$	13.24
Awarded		23,101			38,071		61,172		$	21.71
Vested		(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 April 2020 and June 2021 grants and revenue growth and EBITDA margin for the April 2022 and June 2022 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Committee.

The compensation cost is based on the fair value at the grant date, recognized over the requisite performance/service period using the straight-line method, and periodically adjusted for the probable number of shares to be awarded. As of October 31, 2022, unrecognized stock-based compensation expense totaled $1.8 million pursuant to the 2017 Plan based on outstanding awards under the 2017 Plan. This expense is expected to be recognized over approximately two years.

Stock Repurchase Program

On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Existing Share Repurchase Program”).

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On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”), effective upon the completion of the Existing Share Repurchase Program. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time.

Shares repurchased in Q3 FY23 totaled 194,839 shares at a cost of $2.3 million leaving approximately $0.4 million remaining under the stock repurchase programs at October 31, 2022. 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.

8. Income Taxes

The Company’s provision for income taxes for the three and nine months ended October 31, 2022 and 2021 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company's effective tax rate for the third quarter of FY23 was 33.3% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and Global Intangible Low-Taxed Income (“GILTI”). The Company's effective tax rate for the third quarter of FY22 was 31.4% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes

In Q2 FY23 the Company changed its permanent reinvestment assertions for its Chinese operations due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies. The Company recorded $2 million in withholding taxes for a planned repatriation. Going forward, any adjustments to this provision will be reflected through current tax expense.

The Company's effective tax rate for the nine months ended October 31, 2022 was 68.1%. In addition to the $2 million in withholding taxes discussed above, in Q1 FY23, the Company recorded deferred tax benefits of $0.2 million related to accruals for China social taxes based on our evaluation of the deductibility of these items. Excluding these discrete items, the effective rate was 33.8% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and GILTI. The Company's effective tax rate for the nine months ended October 31, 2021 was 27.1% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions, state income taxes and the discrete item discussed above.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $3.7 million and $3.2 million at October 31, 2022 and January 31, 2022, respectively.

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9. Net Income Per Share

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

	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
Numerator:
Net income	$	1,431	$	2,896	$	1,690	$	10,866
Denominator:
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 1,330,694 and 780,266 at October 31, 2022 and 2021, respectively		7,514,725		7,849,591		7,600,272		7,942,162
Effect of dilutive securities from restricted stock plan		189,970		149,374		187,390		147,613
Denominator for diluted net income (loss) per share (adjusted weighted average shares)		7,704,695		7,998,965		7,787,662		8,089,775
Basic net income (loss) per share	$	0.19	$	0.37	$	0.22	$	1.37
Diluted net income (loss) per share	$	0.19

SEC Form 10-Q filed by Lakeland Industries Inc.