UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period endedApril 30, 2023

~~For the quarterly period ended~~~~October 31, 2017~~

☐	¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________ to _______________

~~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~~ LAKELAND INDUSTRIES, INC.
(~~State~~Exact name of ~~incorporation)~~			~~(IRS Employer Identification Number)~~Registrant as specified in its charter)

~~3555 Veterans Memorial Highway, Suite C, Ronkonkoma, New York~~ Delaware	~~11779~~	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)~~Principal Executive Offices)		(Zip Code)

~~(631) 981-9700~~

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

~~(Former name, former address and former fiscal year, if changed since last report)~~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.

Yesx ☒ No¨ ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).

Yesx ☒ No¨ ☐

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

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

~~Accelerated filer~~¨

~~Nonaccelerated filer~~¨~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~x

~~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 ~~provided~~ pursuant to Section 13(a) of the Exchange Act.¨ ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule ~~12-b-2~~12b-2 of the Exchange Act).

Yes¨ ☐ Nox ☒

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

Class		Outstanding at ~~December 12, 2017~~May 31, 2023
Common Stock, $0.01 par value per share		7,351,048 Shares

~~8,116,199 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:			Page

Item 1.	Financial Statements (Unaudited)		3

~~Introduction~~	3

	Condensed Consolidated Statements of Operations Three ~~and Nine~~ Months Ended ~~October 31, 2017~~April 30, 2023 and ~~2016~~2022	5	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three ~~and Nine~~ Months Ended ~~October 31, 2017~~April 30, 2023 and ~~2016~~2022	6	4

	Condensed Consolidated Balance Sheets ~~October 31, 2017~~April 30, 2023 and January 31, ~~2017~~2023	7	5

	Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended April 30, 2023 and 2022		6

	Condensed Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~October 31, 2017~~April 30, 2023 and ~~2016~~2022	8	7

	Notes to Condensed Consolidated Financial Statements	9	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27	17

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	34	21

Item 4.	Controls and Procedures	35	22

PART II - OTHER INFORMATION:

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 6.	Exhibits		24

	Signature Pages		25


		2
~~Item 6.~~	~~Exhibits~~	36
		Table of Contents
~~Signature Pages~~		37

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 April 30,
	2023			2022
Net sales	$	28,700		$	27,278
Cost of goods sold		16,256			16,222
Gross profit		12,444			11,056
Operating expenses		10,506			9,607
Operating profit		1,938			1,449
Other income (expense), net		(69	)		(26	)
Interest expense		(8	)		(9	)
Income before taxes		1,861			1,414
Income tax expense		541			285
Net income		1,320			1,129
Net income per common share:
Basic	$	0.18		$	0.15
Diluted	$	0.18		$	0.14
Weighted average common shares outstanding:
Basic		7,325,005			7,615,967
Diluted		7,502,863			7,798,198

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

	~~PART I~~	~~FINANCIAL INFORMATION~~
3

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~~Item 1. Financial Statements~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

($000’s)

	Three Months Ended April 30,
	2023			2022

Net income	$	1,320		$	1,129
Other comprehensive income (loss):
Foreign currency translation adjustments		(718	)		(760	)
Comprehensive income	$	602		$	369

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	April 30,			January 31,
	2023			2023
Current assets
Cash and cash equivalents	$	26,021		$	24,639
Accounts receivable, net of allowance for doubtful accounts of $890 and $800 at April 30, 2023 and January 31, 2023, respectively		16,856			17,296
Inventories		57,896			58,176
Prepaid VAT and other taxes		2,578			1,963
Income tax receivable and other current assets		4,591			2,908
Total current assets		107,942			104,982
Property and equipment, net		9,217			9,140
Operating leases right-of-use assets		5,269			5,472
Deferred tax assets		2,940			2,764
Other assets		107			100
Goodwill		8,473			8,473
Intangible assets, net		5,940			6,042
Investments		5,206			5,354
Total assets	$	145,094		$	142,327
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,297		$	6,558
Accrued compensation and benefits		3,390			2,522
Other accrued expenses		4,526			4,068
Income tax payable		519			-
Short-term borrowings		115			405
Accrued earnout agreement		2,688			3,182
Current portion of operating lease liabilities		998			1,253
Total current liabilities		20,533			17,988
Deferred income taxes		769			769
Long-term portion of operating lease liabilities		3,654			3,580
Total liabilities		24,956			22,337
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 8,709,256 and 8,655,699; outstanding 7,355,748 and 7,325,005 at April 30, 2023 and January 31, 2023, respectively		87			87
Treasury stock, at cost; 1,353,508 and 1,330,694 shares at April 30, 2023 and January 31, 2023, respectively		(19,922	)		(19,646	)
Additional paid-in capital		78,543			78,475
Retained earnings		65,839			64,765
Accumulated other comprehensive loss		(4,409	)		(3,691	)
Total stockholders' equity		120,138			119,990
Total liabilities and stockholders' equity	$	145,094		$	142,327

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)

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

Balance, January 31, 2022		8,555,672	$	86		(939,705	)	$	(14,206	)	$	77,826		$	62,892		$	(1,498	)	$	125,100
Net Income		—		—		—			—			—			1,129			—			1,129
Other comprehensive loss		—		—		—			—			—			—			(760	)		(760	)
Restricted stock issued		79,686	—			—			—			—			—			—		—
Restricted stock plan		—		—		—			—			407			—			—			407
Return of shares in lieu of payroll withholding		—		—		—			—			(678	)		—			—			(678	)
Treasury stock purchased		—		—		(25,017	)		(406	)	—			—			—				(406	)
Balance, April 30, 2022		8,635,358	$	86		(964,722	)	$	(14,612	)	$	77,555		$	64,021		$	(2,258	)	$	124,792

Balance, January 31, 2023		8,655,699	$	87		(1,330,694	)	$	(19,646	)	$	78,475		$	64,765		$	(3,691	)	$	119,990
Net income		—		—		—			—			—			1,320			—			1,320
Other comprehensive loss		—		—		—			—			—			—			(718	)		(718	)
Dividends		—		—		—			—			—			(246	)	—				(246	)
Stock-based compensation:
Restricted stock issued		53,557	—			—			—			—			—			—		—
Restricted stock plan		—		—		—			—			407			—			—			407
Return of shares in lieu of payroll withholding		—		—		—			—			(339	)		—			—			(339	)
Treasury stock purchased		—		—		(22,814	)		(276	)	—			—			—				(276	)
Balance, April 30, 2023		8,709,256	$	87		(1,353,508	)	$	(19,922	)	$	78,543		$	65,839		$	(4,409	)	$	120,138

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)

	Three Months Ended April 30,
	2023			2022
Cash flows from operating activities:
Net income	$	1,320		$	1,129
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (recovery of) doubtful accounts		90			(30	)
Deferred income taxes		(176	)		(424	)
Depreciation and amortization		533			425
Stock based and restricted stock compensation		407			407
(Gain) loss on disposal of property and equipment		-			27
Equity in (earnings) loss of equity investment		147			27
Revaluation of earnout consideration		(493	)		-
(Increase) decrease in operating assets
Accounts receivable		865			725
Inventories		178			(2,222	)
Prepaid VAT and other taxes		(614	)		23
Other current assets		(1,644	)		(670	)
Increase (decrease) in operating liabilities
Accounts payable		1,181			2,316
Accrued expenses and other liabilities		1,854			143
Operating lease liabilities		22			35
Net cash provided by operating activities		3,670			1,911
Cash flows from investing activities:
Purchases of property and equipment		(690	)		(465	)
Investments		-			(1,891	)
Net cash (used in) investing activities:		(690	)		(2,356	)
Cash flows from financing activities:
Short-term borrowings (repayments)		(290	)		-
Purchase of treasury stock under stock repurchase program		(276	)		(406	)
Dividends paid		(246	)		-
Shares returned to pay employee taxes under restricted stock program		(339	)		(678	)
Net cash (used in) financing activities		(1,151	)		(1,084	)
Effect of exchange rate changes on cash and cash equivalents		(447	)		(336	)
Net increase (decrease) in cash and cash equivalents		1,382			(1,865	)
Cash and cash equivalents at beginning of period		24,639			52,719
Cash and cash equivalents at end of period	$	26,021		$	50,854

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1		$	9
Cash paid for taxes	$	893		$	1,098

Noncash investing and financing activities
Leased assets obtained in exchange for operating lease liabilities	$	91			-

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)

~~Introduction~~1. Business

~~SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~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 directly to a mixture of end users 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, Middle East 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, 2024, or for any future period. The January 31, 2023, 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, 2023 and 2022, and for each of the two years in the period ended January 31, 2023, included in our most recent annual report on Form 10-K filed on April 18, 2023.

In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY24 refers to the fiscal year ending January 31, 2024, (b) “Q” refers to quarter; thus, for example, Q1 FY24 refers to the first quarter of the fiscal year ending January 31, 2024, (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 and Acquisitions

Bodytrak

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 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.

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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 recognized losses of $0.1 million and $27,000 for the three months ended April 30, 2023 and 2022, 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.

On May 19, 2023, subsequent to quarter-end, the Company entered into an agreement with Bodytrak to provide an additional investment up to an aggregate of £1,500,000 ($1.9 million on the date of initial investment) in the form of a convertible loan. An initial investment funding of £500,000 ($0.6 million on the date of investment) was made on May 19, 2023. The loaned amounts (“Notes”) are due twenty-four months from the issue date, which can be extended upon mutual agreement. The notes bear interest at either an annual rate of 12% for cash interest or 15% for payment in kind interest on the outstanding notes, such rate being selected by Bodytrak.

The notes can be converted 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.

Acquisition of Eagle

On December 2, 2022, the Company acquired 100% of Eagle Technical Products Limited’s (Eagle) common stock in an all-cash transaction valued at $10.5 million, net of net working capital acquired.

Headquartered in Manchester, UK, Eagle is a leading designer and provider of protective apparel to the fire and industrial sectors. Eagle provides differentiated product offerings through its innovative and technical solutions.

Eagle’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 Eagle acquisition agreement, the Company agreed to pay an earnout payment equal to the amount by which Eagle’s revenue exceeds 6 million GBP for the period May 1, 2022 through April 30, 2023. The Company will also pay an earnout payment equal to the amount by which Eagle’s revenue exceeds 6.3 million GBP for the period May 1, 2023 through April 30, 2024. The estimated amount of the earnout payment developed using a Monte Carlo simulation, included in the preliminary valuation was $3.2 million.

Eagle did not reach the revenue threshold for the period May 1, 2022 through April 30, 2023 and will receive no payment for that period. Based on the revised forecast for the period May 1, 2023 through April 30, 2024, the estimated amount of the earnout payment developed using a Monte Carlo simulation is $2.7 million. The adjustment to the accrued earnout payment of $0.5 million was recorded in the quarter ended April 30, 2023 and reflected as a reduction in operating expenses.

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 and valuations related to contingent consideration, inventory, contractual relationships 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. There were no material changes to the valuation during the quarter ended April 30, 2023.

The following unaudited pro forma information presents our combined results as if the Eagle acquisition had occurred at the beginning of FY22. 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 Eagle 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.

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Pro forma combined financial information (Unaudited)

(in millions, except per share amount)	Quarter Ended April 30,
	2023		2022
Net sales	$	28.7	$	28.2
Net income	$	1.3	$	1.1
Basic earnings per share	$	0.18	$	0.15
Diluted earnings per share	$	0.18	$	0.15

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 or financial position that we would have reported had the acquisition been completed as of the date and for the periods presented and should not be taken as representative of our consolidated results of operations or financial condition following the acquisition. In addition, the unaudited pro forma combined financial information is not intended to project the future results of the combined company.

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.

4.Inventories

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

	April 30, 2023			January 31, 2023

Raw materials	$	29,473		$	29,036
Work-in-process		992			952
Finished goods		32,378			32,855
Excess and obsolete adjustments		(4,947	)		(4,668	)
	$	57,896		$	58,176

5. Goodwill and Intangible Assets, Net

Changes in intangible assets, net, during the three months ended April 30, 2023, were as follows (in $000s):

Balance at February 1, 2023	$	6,042
Amortization expense		(102	)
Balance at April 30, 2023	$	5,940

There were no material changes to goodwill during the quarter ended April 30, 2023.

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6. Contract Advances

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. The following is a roll-forward of the advances from January 31, 2023 through April 30, 2023 (in $000s):

Contract liability – January 31, 2023	$	1,627
Increases to contract liability		212
Decreases to contract liability		(500	)
Contract liability – April 30, 2023	$	1,339

7.Long-Term Debt

Revolving Credit Facility

On June 25, 2020, the Company entered into a Loan Agreement with Bank of America (“Lender”). The Loan Agreement, as amended to date (the “Loan Agreement”), provides the Company with a secured $25.0 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 $30.0 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 Loan Agreement permits, without the prior consent of the Lender, acquisitions of a business or its assets by the Company or its subsidiaries 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. On March 3, 2023 the Company changed the benchmark interest rate in the credit facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The credit facility will mature on June 25, 2025.

As of April 30, 2023, 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 $0.1 and $0.4 million in borrowings outstanding under the Company’s credit facility with HSBC Bank at April 30, 2023 and January 31, 2023.

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. 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 $0.9 million total included in the U.S. bank accounts and approximately $25.1 million total in foreign bank accounts as of April 30, 2023, of which $25.3 million was uninsured.

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Major Customer

No customer accounted for more than 10% of net sales during the three-month periods ended April 30, 2023 and 2022.

Major Supplier

No vendor accounted for more than 10% of purchases during the three-month periods ended April 30, 2023 and 2022.

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”).

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 April 30,
	2023		2022
2017 Plan:
Total restricted stock and stock option programs	$	407	$	407
Total income tax expense recognized for stock-based compensation arrangements	$	85	$	85

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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 three months ended April 30, 2023 and 2022. 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 June 2021, April 2022, June 2022 and April 2023 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			63,302			128,255		$	14.50
Vested		(71,202	)		(8,931	)		(80,133	)
Forfeited		(24,031	)		(14,379	)		(38,410	)
Outstanding at April 30, 2023		97,200			80,657			177,858		$	16.38

	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		26,794			26,793		53,587		$	18.75
Vested		(119,164	)		-		(119,164	)
Forfeited		----			-		-
Outstanding at April 30, 2022		140,468			41,763		182,231		$	17.63

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 in part on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the June 2021 grants and revenue growth and EBITDA margin for the April 2022 and June 2022 grants and revenue growth, EBITDA margin and return on invested capital for the April 2023 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 April 30, 2023, unrecognized stock-based compensation expense totaled $2.1 million pursuant to the 2017 Plan based on outstanding awards under the 2017 Plan. This expense is expected to be recognized over approximately two years.

Stock Repurchase Program

On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company mayrepurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s stock repurchase program of up to an additional $5 million of its outstanding common stock. 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, which became effective upon the completion of the 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.

Shares repurchased during the three months ended April 30, 2023 totaled 22,814 shares at a cost of $0.3 million, leaving $5.1 million remaining under the share repurchase program at April 30, 2023. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

10.Income Taxes

The Company’s provision for income taxes for the three months ended April 30, 2023 and 2022 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company's effective tax rate for the first quarter of FY24 was 29.1%, which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and the Global Intangible Low-Taxed Income (“GILTI”).

The Company's effective tax rate for the first quarter of FY23 was 20.2%. The Company recorded deferred tax benefits of $0.2 million related to accruals for China social taxes based on our evaluation of the deductibility of these items. Excluding this discrete benefit the effective rate was 32.9% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and GILTI.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $3.6 million at April 30, 2023 and January 31, 2023, respectively.

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11.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 April 30,
	2023		2022
Numerator:
Net income	$	1,320	$	1,129
Denominator:
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 1,353,508 and 964,722 at April 30, 2023 and 2022, respectively		7,325,005		7,615,967
Effect of dilutive securities from restricted stock plan		177,858		182,231
Denominator for diluted net income per share (adjusted weighted average shares)		7,502,863		7,798,198
Basic net income per share	$	0.18	$	0.15
Diluted net income per share	$	0.18	$	0.14

12.Contingencies

Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

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

General litigation contingencies

The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of April 30, 2023, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation.

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13.Segment Reporting

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

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

	Three Months Ended April 30,
	(in millions of dollars)
	2023			2022
Net Sales:
USA Operations (including Corporate)	$	13.61		$	12.24
Other foreign		3.08			2.20
Europe (UK)		4.02			1.98
Mexico		1.24			1.24
Asia		11.12			14.66
Canada		2.53			2.28
Latin America		3.18			1.90
Less intersegment sales		(10.08	)		(9.22	)
Consolidated sales	$	28.70		$	27.28
External Sales:
USA Operations (including Corporate)	$	12.27		$	11.23
Other foreign		2.27			1.81
Europe (UK)		4.02			1.98
Mexico		0.80			0.84
Asia		3.67			7.24
Canada		2.53			2.28
Latin America		3.14			1.90
Consolidated external sales	$	28.70		$	27.28

Intersegment Sales:
USA Operations (including Corporate)	$	1.34	$	1.01
Other foreign		0.82		0.39
Mexico		0.44		0.40
Asia		7.44		7.42
Latin America		0.04		-
Consolidated intersegment sales	$	10.08	$	9.22

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	Three Months Ended April 30,
	(in millions of dollars)
	2023			2022
Operating Profit (Loss):
USA Operations (including Corporate)	$	(1.82	)	$	(2.06	)
Other foreign		0.66			0.21
Europe (UK)		0.21			(0.26	)
Mexico		(0.39	)		(0.54	)
Asia		0.85			2.56
Canada		0.45			0.63
Latin America		0.88			0.30
Intersegment profit (loss)		1.10			0.61
Consolidated operating profit	$	1.94		$	1.45

	April 30, 2023			January 31, 2023
	(in millions of dollars)
Total Assets:
USA Operations (including Corporate)	$	66.88		$	52.34
Other foreign		9.55			9.20
Europe (UK)		11.49			8.01
Mexico		5.83			4.65
Asia		35.92			54.84
Canada		6.11			6.15
Latin America		9.31			7.45
Consolidated assets	$	145.09		$	142.64

The table below presents external sales by product line:

	Three Months Ended April 30, (in millions of dollars)
	2023		2022
External Sales by product lines:
Disposables	$	12.36	$	14.50
Chemical		5.46		5.11
Fire		5.47		2.69
Gloves		0.71		0.54
High Visibility		1.15		1.60
High Performance Wear		1.26		1.37
Wovens		2.29		1.47
Consolidated external sales	$	28.70	$	27.28

14.Subsequent Events

Convertible Loan Investment in Bodytrak

On May 19, 2023, the Company entered into an agreement with Bodytrak to provide an additional investment up to an aggregate of £1,500,000 ($1.9 million, on the date of initial investment) in the form of a convertible loan. An initial investment funding of £500,000 ($0.6 million on the date of investment) was made on May 19, 2023. The loaned amounts (“notes”) are due twenty-four months from the issue date which can be extended upon mutual agreement. The notes bear interest at either an annual rate of 12% for cash interest or 15% for payment in kind interest on the outstanding notes such rate being selected by Bodytrak.

Second Quarter Dividend

On May 1, 2023, the Company’s Board of Directors declared a quarterly cash dividend. The quarterly dividend of $0.03 per share or approximately $0.2 million, was paid on May 22, 2023, to stockholders of record as of May 15, 2023.

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

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this quarterly report on Form 10-Q. This Form 10-Q may contain certain forward-looking statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “project”, “plan,” “seek,” “will,” “may,” “might,” “would,” “could” and similar expressions, are intended to identify forward-looking statements. They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

~~our ability to obtain additional funds, if necessary;~~

	·	we are subject to ~~substantial regulatory and legal risks~~risk as a result of our international manufacturing operations and are subject to the risk of doing business in foreign countries, particularly in China and Vietnam, which could affect our ability to manufacture or sell our products, obtain products from foreign suppliers or control the costs of our products;
	·	we identified a material weakness in our internal control over accounting for foreign currency exchange and foreign currency translation and remeasurement related to our international subsidiaries that could adversely affect our results of operations, our stock price and investor confidence in our Company;
	·	a terrorist attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively impact our domestic and/or international operations;

our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates;

	·	~~most~~the implementation of our Enterprise Resource Planning ("ERP") system had, and may in the future as we implement ERP into foreign operations have, an adverse effect on operating results;
	·	we have manufacturing and other operations in China which may be adversely affected by tariff wars and ~~a material portion~~other trade maneuvers;
	·	our results of operations may vary widely from quarter to quarter;
	·	disruption in our supply chain, manufacturing or distribution operations could adversely affect our business;
	·	climate change and other sustainability matters may adversely affect our business and operations;
	·	some of our sales are to foreign buyers, which exposes us to additional risks;
	·	we deal in countries where corruption is an obstacle;

we have experienced material weaknesses in internal controls in the past and although we believe such weaknesses have been remediated, there can be no assurance that such weaknesses will not occur in the future;

~~there is no assurance that our disposition of our Brazilian subsidiary will be entirely successful in that we may continue to be~~are exposed to ~~certain liabilities in connection with the operations of such company. In addition, while our~~U.S. and foreign tax advisors believe that the worthless stock deduction taken by our company in connection therewith is valid, there can be no assurance that the IRS will not challenge it and, if challenged, that we will prevail.risks;

~~rapid technological change could negatively affect sales of our products, inventory levels and our performance;~~

~~we must estimate customer demand~~ because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact our inventory levels and net sales;

~~our operations are substantially dependent upon key personnel;~~

we rely on a limited number of suppliers and manufacturers for specific fabrics, and we may not be able to obtain substitute suppliers and manufacturers on terms that are as favorable, or at all, if our supplies are interrupted;

~~our inability to protect our intellectual property;~~

~~our effective tax rate could change as a result of tax reform and the result could be a significant one-time noncash charge to tax expense in order to adjust our deferred tax asset;~~

we face competition from ~~many~~ other companies, a number of which have substantially greater resources than we do;

~~nearly half of~~ our ~~sales~~operations are ~~to foreign buyers, which exposes us to additional risks;~~substantially dependent upon key personnel;

~~a significant reduction in government funding for preparations for terrorist~~cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely ~~affect~~impact our ~~net sales;~~reputation and results of operations;

we may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims;

	·	environmental laws and regulations may subject us to significant liabilities;
	·	provisions in our ~~directors~~restated certificate of incorporation and ~~executive officers have~~by-laws and Delaware law could make a merger, tender offer or proxy contest difficult;
	·	we may not achieve the ~~ability to exert significant influence on us and on matters subject to a vote of our stockholders;~~

	·	~~our failure to realize anticipated~~expected benefits from strategic acquisitions, ~~divestitures~~investments, joint ventures, capital investments and other corporate transactions that we have pursued or ~~restructurings,~~may pursue;
	·	we may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned;
	·	adverse developments affecting the ~~possibility that such acquisitions, divestitures~~financial services industry, including events or ~~restructurings~~concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect ~~us;~~our business, financial condition or results of operations;

rapid technological change could negatively affect sales of our ~~ability to make payments on~~products, inventory levels and our ~~indebtedness~~performance; and, ~~comply with the restrictive covenants therein;~~

~~covenants in our credit facilities may restrict our financial and operating flexibility;~~

the other factors referenced in this Form 10-Q, including, without limitation, in the ~~sections~~section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the factors described under “Risk Factors” disclosed in our fiscal ~~2017~~2023 Form 10-K.

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We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or ~~otherwise.~~otherwise, except as may be required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.

~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(UNAUDITED)~~

Three Months Ended Nine Months Ended
October 31, October 31,
($000’s except for share information)
2017 2016 2017 2016
Net sales $ 23,960 $ 23,243 $ 70,831 $ 65,881
Cost of goods sold 14,907 14,724 44,530 41,999
Gross profit 9,053 8,519 26,301 23,882
Operating expenses 6,388 6,271 18,981 18,886
Operating profit 2,665 2,248 7,320 4,996
Other income (loss), net 7 (2 ) 13 20
Interest expense (35 ) (150 ) (147 ) (522 )
Income before taxes 2,637 2,096 7,186 4,494
Income tax expense 831 583 1,828 1,548
Net income $ 1,806 $ 1,513 $ 5,358 $ 2,946
Net income per common share:
Basic $ 0.23 $ 0.21 $ 0.72 $ 0.41
Diluted $ 0.23 $ 0.21 $ 0.71 $ 0.40
Weighted average common shares outstanding:
Basic 7,894,582 7,258,697 7,477,202 7,255,966
Diluted 7,922,397 7,332,997 7,530,637 7,321,587

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

~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(UNAUDITED)~~

Three Months Ended Nine Months Ended
October 31, October 31,
($000’s) ($000’s)
2017 2016 2017 2016

Net income $ 1,806 $ 1,513 $ 5,358 $ 2,946
Other comprehensive income (loss):
Cash flow hedges 122 — (80 ) 23
Foreign currency translation adjustments (40 ) (193 ) 292 (102 )
Other comprehensive income (loss) 82 (193 ) 212 (79 )
Comprehensive income $ 1,888 $ 1,320 $ 5,570 $ 2,867

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

~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(UNAUDITED)~~

October 31, January 31,
2017 2017
($000’s)
ASSETS
Current assets
Cash and cash equivalents $ 21,493 $ 10,365
Accounts receivable, net of allowance for doubtful accounts of $375 and $417 at October 31, 2017 and January 31, 2017, respectively 13,032 10,704
Inventories, net of allowance of $2,439 and $2,305 at October 31, 2017 and January 31, 2017, respectively 38,453 35,535
Prepaid VAT tax 1,824 1,361
Other current assets 1,843 2,121
Total current assets 76,645 60,086
Property and equipment, net 8,624 8,527
Assets held for sale 901 901
Deferred income tax 12,764 13,515
Prepaid VAT and other taxes 319 478
Other assets 239 176
Goodwill 871 871
Total assets $ 100,363 $ 84,554
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 8,547 $ 4,928
Accrued compensation and benefits 1,216 1,311
Other accrued expenses 1,244 1,024
Current maturity of long-term debt 158 50
Short-term borrowings 754 153
Borrowings under revolving credit facility — 4,865
Total current liabilities 11,919 12,331
Long-term portion of debt 1,351 716
Total liabilities 13,270 13,047
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued) — —
Common stock, $.01 par; authorized 10,000,000 shares, Issued 8,472,640 and 7,620,215; outstanding 8,116,199 and 7,263,774 at October 31, 2017 and January 31, 2017, respectively 85 76
Treasury stock, at cost; 356,441 shares at October 31, 2017 and January 31, 2017 (3,352 ) (3,352 )
Additional paid-in capital 74,771 64,764
Retained earnings 17,759 12,401
Accumulated other comprehensive loss (2,170 ) (2,382 )
Total stockholders' equity 87,093 71,507
Total liabilities and stockholders' equity $ 100,363 $ 84,554

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

~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

For the Nine Months Ended
October 31,

2017 2016
($000’s) ($000’s)
Cash flows from operating activities:
Net income $ 5,358 $ 2,946
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (recovery of) inventory obsolescence 134 (5 )
Recovery of doubtful accounts (42 ) (41 )
Deferred income taxes 750 153
Depreciation and amortization 582 963
Stock-based and restricted stock compensation 291 177
Loss on disposal of property and equipment — 31
(Increase) decrease in operating assets
Accounts receivable (2,121 ) 176
Inventories (2,953 ) 4,283
Prepaid VAT taxes (463 ) (374 )
Other current assets 366 (510 )
Increase (decrease) in operating liabilities
Accounts payable 3,535 477
Accrued expenses and other liabilities 194 (145 )
Net cash used by the sale of Brazil (99 ) 80
Net cash provided by operating activities 5,532 8,211
Cash flows from investing activities:
Purchases of property and equipment (619 ) (116 )
Cash flows from financing activities:
Net repayments under revolving credit facility (4,865 ) (3,687 )
Loan repayments, short-term (867 ) (4,511 )
Loan borrowings, short-term 102 1,329
Loan repayments, long-term (66 ) —
Loan borrowing, long-term 1,575 —
UK borrowings under line of credit facility, net 538 243
Proceeds from exercise of stock options — 41
Shares returned to pay employee taxes under restricted stock program (376 ) (3 )
Proceeds from public offering, net of issuance costs of approximately $1.0 million 10,113 —
Net cash provided by (used in) financing activities 6,154 (6,588 )
Effect of exchange rate changes on cash and cash equivalents 61 (76 )
Net increase in cash and cash equivalents 11,128 1,431
Cash and cash equivalents at beginning of period 10,365 7,022
Cash and cash equivalents at end of period $ 21,493 $ 8,453

Supplemental disclosure of cash flow information:
Cash paid for interest $ 147 $ 522
Cash paid for taxes $ 928 $ 1,126

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

~~LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Business~~

Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or ��us”), a Delaware corporation organized in April 1986, manufactures and sells a comprehensive line of safety garments and accessories for the industrial protective clothing market.

~~Basis of Presentation~~

The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present fairly the unaudited condensed consolidated financial information required herein. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January 31, 2017.

~~The results of operations for the three and nine month period ended October 31, 2017 are not necessarily indicative of the results to be expected for the full year.~~

In this Form 10-Q, (a) “FY” means fiscal year; thus, for example, FY18 refers to the fiscal year ending January 31, 2018, (b) “Q” refers to quarter; thus, for example, Q3 FY18 refers to the third quarter of the fiscal year ending January 31, 2018, (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.

~~Summary of Significant Accounting Policies~~

~~Principles of Consolidation~~

The accompanying unaudited condensed 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 unaudited condensed 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.

~~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 recognizes losses when information available indicates that it is probable that a receivable has been impaired based on criteria noted above at the date of the financial statements, and the amount of the loss can be reasonably estimated. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customers, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other less creditworthy accounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

~~Inventories, net~~

Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Provision is made for slow-moving, obsolete or unusable inventory.

~~Goodwill~~

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is evaluated for impairment at least annually; however, this evaluation may be performed more frequently when events or changes in circumstances indicate the carrying amount may not be recoverable. Factors that the Company considers important that could identify a potential impairment include: significant changes in the overall business strategy and significant negative industry or economic trends. The Company measures any potential impairment on a projected discounted cash flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual results. As of October 31, 2017 and January 31, 2017, no impairment was recorded.

~~Impairment of Long-Lived Assets~~

The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The Company measures any potential impairment on a projected undiscounted cash flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual results. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. As of October 31, 2017 and January 31, 2017, no impairment was recorded.

~~Revenue Recognition~~

The Company derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of high-end chemical protective suits, firefighting and heat protective apparel, gloves and arm guards and reusable woven garments. Sales are recognized when goods are shipped, at which time title and the risk of loss pass to the customer. Sales are reduced for sales returns and allowances. Payment terms are generally net 30 days for United States sales and net 90 days for international sales.

~~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 unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated balance sheets.

~~Foreign Operations and Foreign Currency Translation~~

The Company maintains manufacturing operations in Mexico, Argentina, India, and the People’s Republic of China and can access independent contractors in Mexico, Argentina and China. It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan and Mexico. The Company is vulnerable to currency risks in these countries. The functional currency for the United Kingdom subsidiary is the Euro; the trading company in China, the RMB; the Canadian Real Estate subsidiary, the Canadian dollar; and the Russian operation, the Russian Ruble and Kazakhstan Tenge. All other operations have the US dollar as its functional currency.

Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies, other than the US 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 statement of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed 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. Foreign currency transaction losses included in net income for the three and nine months ended October 31, 2017 were approximately $119,000 and $586,000 and for the three and nine months ended October 31, 2016 were approximately $38,000 and $244,000, respectively.

~~Fair Value of Financial Instruments~~

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.~~

Foreign currency forward and hedge contracts are recorded in the unaudited condensed consolidated balance sheets at their fair value as of the balance sheet dates based on current market rates as further discussed in Note 10.

The financial instruments of the Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, short-term borrowings, 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.

~~The Company believes that the fair values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current market rate available to the Company.~~

~~Earnings Per Share~~

Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings per share are based on the weighted average number of common shares and common stock equivalents. The diluted earnings per share calculation takes into account unvested restricted shares and the shares that may be issued upon 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 period.

~~Reclassifications~~

~~Certain reclassifications have been made to the prior period’s unaudited condensed consolidated financial statements to conform to the current period presentation.~~

~~Recent Accounting Pronouncements~~

~~The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.~~

~~New Accounting Pronouncements Recently Adopted~~

In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail inventory method to measure inventory at the lower of cost and net realizable value. The Company adopted this guidance in the first quarter of FY18 using a prospective application. The adoption of this guidance did not have a material impact to the unaudited condensed consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows. The Company adopted this guidance in the first quarter of FY18, which did not have a material impact to the unaudited condensed consolidated financial statements and related disclosures. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively. The inclusion of excess tax benefits and deficiencies as a component of our income tax expense will increase volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on our stock price at the date the awards are exercised or settled. The Company does not expect the impact to be material to the consolidated results of operations; however, such determination is subject to change based on facts and circumstances at the time when awards vest or settle. The Company accounts for forfeitures of share-based awards when they occur. The Company will apply the amendments related to the presentation of excess tax benefits on the consolidated statement of cash flows using a retrospective transition method, and as a result, excess tax benefits related to share-based awards which had been previously classified as cash flows from financing activities will be reclassified as cash flows from operating activities.

~~New Accounting Pronouncements Not Yet Adopted~~

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in US GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which means it will be effective for the Company’s fiscal year beginning February 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. The Company plans to adopt Topic 606 in the first quarter of its fiscal 2019 using the retrospective transition method. The Company does not expect a significant impact on its consolidated financial statements upon the adoption of this guidance.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements but has not determined the effects that the adoption of the pronouncement may have on its unaudited condensed consolidated financial statements and related disclosures.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets” to clarify the scope of Subtopic 610-20 and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendment amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” The amendments in Part I of ASU No. 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of ASU No. 2017-11 recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of ASU No. 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

~~Inventories, net~~

~~Inventories, net of allowance consist of the following (in $000s):~~

October 31, 2017 January 31, 2017

Raw materials $ 13,490 $ 14,312
Work-in-process 1,993 1,233
Finished goods 22,970 19,990
$ 38,453 $ 35,535

~~Debt~~

~~Revolving Credit Facility~~

On June 28, 2013, as amended on March 31, 2015 and June 3, 2015, Lakeland Industries, Inc. and its wholly owned Canadian subsidiary, Lakeland Protective Wear Inc. (collectively the “Borrowers”), entered into a Loan and Security Agreement (the “AloStar Loan Agreement”) with AloStar Business Credit, a division of AloStar Bank of Commerce (“AloStar”). The AloStar Loan Agreement provided the Borrowers with a $15 million revolving line of credit (the “AloStar Credit Facility”), at a variable interest rate based on LIBOR, with a first priority lien on substantially all of the United States and Canada assets of the Company, except for its Mexican plant and the Canadian warehouse. After these amendments the maturity date of the AloStar Credit Facility was extended to June 28, 2017 and the minimum interest rate floor became 4.25% per annum. On May 10, 2017, the AloStar Loan Agreement was terminated, and the existing balance due was repaid with the proceeds from a new loan agreement with SunTrust Bank.

On May 10, 2017, the Company entered into a Loan Agreement (the “Loan Agreement”) with SunTrust Bank (“Lender”). The Loan Agreement provides the Company with a secured (i) $20.0 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility, and (ii) $1,575,000 term loan with Lender. The Company may request from time to time an increase in the revolving credit loan commitment of up to $10.0 million (for a total commitment of up to $30.0 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 85% of eligible accounts receivable, as defined, plus (b) an inventory formula amount, as defined, minus (c) an amount equal to the greater of (i) $1,500,000 or (ii) 7.5% of the then current revolver commitment amount, minus (d) certain reserves as determined by the Loan Agreement. The credit facility matures on May 10, 2020 (subject to earlier termination upon the occurrence of certain events of default as set forth in the Loan Agreement). At the closing, the Company’s existing financing facility with AloStar was fully repaid and terminated using proceeds of the revolver in the amount of approximately $3.0 million.

Borrowings under the term loan and the revolving credit facility bear interest at an interest rate determined by reference whether the loan is a base rate loan or Eurodollar loan, with the rate election made by the Company at the time of the borrowing or at any time the Company elects pursuant to the terms of the Loan Agreement. The term loan is payable in equal monthly principal installments of $13,125 each, beginning on June 1, 2017, and on the first day of each succeeding month, with a final payment of the remaining principal and interest on May 10, 2020 (subject to earlier termination as provided in the Loan Agreement). For that portion of the term loan that consists of Eurodollar loans, the term loan shall bear interest at the LIBOR Market Index Rate (“LIBOR”) plus 2.0% per annum, and for that portion of the term loan that consists of base rate loans, the term loan shall bear interest at the base rate then in effect plus 1.0% per annum. All principal and unpaid accrued interest under the revolver credit facility shall be due and payable on the maturity date of the revolver. For that portion of the revolver loan that consists of Eurodollar loans, the revolver shall bear interest at LIBOR plus a margin rate of 1.75% per annum for the first six months and thereafter between 1.5% and 2.0%, depending on the Company’s “availability calculation” (as defined in the Loan Agreement) and, for that portion of the revolver that consists of base rate loans, the revolver shall bear interest at the base rate then in effect plus a margin rate of 0.75% per annum for the first six months and thereafter between 0.50% and 1.0%, depending on the availability calculation. As of the closing, the Company elected all borrowings under the Loan Agreement to accrue interest at LIBOR which, as of that date, was 0.99500% (1.2317% as of October 31, 2017). As such, the initial rate of interest for the revolver is 2.745% per annum and the initial rate of interest for the term loan is 2.995% per annum. The Loan Agreement provides for payment of an unused line fee of between 0.25% and 0.50%, depending on the amount by which the revolving credit loan commitment exceeds the amount of the revolving credit loans outstanding (including letters of credit), which shall be payable monthly in arrears on the average daily unused portion of the revolver.

The Company agreed to maintain a minimum “fixed charge coverage ratio” (as defined in the Loan Agreement) as of the end of each fiscal quarter, commencing with the fiscal quarter ended July 31, 2017, of not less than 1.10 to 1.00 during the applicable fiscal quarter, and agreed to certain negative covenants that are customary for credit arrangements of this type, including restrictions on the Company’s ability to enter into mergers, acquisitions or other business combination transactions, conduct its business, grant liens, make certain investments, incur additional indebtedness, and make stock repurchases.

In connection with the Loan Agreement, the Company entered into a security agreement, dated May 10, 2017, with Lender pursuant to which the Company granted to Lender a first priority perfected security interest in substantially all real and personal property of the Company.

~~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 Hong Kong and Shanghai Banking Corporation (“HSBC”) 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 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. The balance under this loan outstanding at October 31, 2017 and January 31, 2017 was USD $0.7 million and USD $0.1 million, respectively. On December 31, 2016, Lakeland UK entered into an extension of the maturity date of its existing financing facility with HSBC Invoice Finance (UK) Ltd. to December 19, 2017, which was subsequently extended to March 31, 2018. Other than the extension of the maturity date and a small reduction of the service charge from 0.9% to 0.85%, all other terms of the facility remain the same.

~~Canada Loans~~

In September 2013, the Company refinanced its loan with the Development Bank of Canada (“BDC”) for a principal amount of approximately $1.1 million in both Canadian dollars and USD (based on exchange rates at time of closing). Such loan is for a term of 240 months at an interest rate of 6.45% per annum with fixed monthly payments of USD $6,048 (CAD $8,169) including principal and interest. It is collateralized by a mortgage on the Company's warehouse in Brantford, Ontario. This loan was paid in full on September 26, 2017. The amount outstanding at January 31, 2017 was USD $716,000 (CAD $1.0 million) in long term borrowings, net of current maturities of USD $50,000.

~~Argentina Loan~~

In April 2015, Lakeland Argentina S.R.L. (“Lakeland Argentina”), the Company’s Argentina subsidiary was granted a $300,000 line of credit denominated in Argentine pesos, pursuant to a standby letter of credit granted by the parent company. The line of credit was paid in full during the course of normal operations and prior to October 31, 2017, except for approximately USD $60,000 noted below.

On July 1, 2016, Lakeland Argentina and Banco de la Nación Argentina (“BNA”) entered into an agreement for Lakeland Argentina to obtain a loan in the amount of ARS 569,000 (approximately USD $38,000, based on exchange rates at time of closing); such loan was for a term of one year at an interest rate of 27.06% per annum. This agreement was paid in full prior to October 31, 2017.

On May 19, 2017 Lakeland Argentina and Banco de la Nación Argentina (“BNA”) entered into an agreement for Lakeland Argentina to obtain a loan in the amount of ARS 1.8 million (approximately USD $112,000, based on exchange rates at time of closing); such loan is for a term of one year at an interest rate of 20.0% per annum. The amount outstanding at October 31, 2017 was ARS 1.1 million (approximately USD $60,000 which is included as short-term borrowings on the unaudited condensed consolidated balance sheet.)

~~Below is a table to summarize all of the debt amounts pursuant to the various banking arrangements described above (in 000’s):~~

Short-Term Long-term
Current Maturity of
Long-term

Revolving Credit
Facility

10/31/17 1/31/17 10/31/17 1/31/17 10/31/17 1/31/17 10/31/17 1/31/17
Argentina $ 60 $ 27 $ — $ — $ — $ — $ — $ —
Canada — — — 716 — 50 — —
UK 694 126 — — — — — —
USA — — 1,351 — 158 — — 4,865
TOTALS $ 754 $ 153 $ 1,351 $ 716 $ 158 $ 50 $ 0 $ 4,865
~~Five-year Debt Payout Schedule~~
~~This schedule reflects the liabilities as of October 31, 2017, and does not reflect any subsequent event (in 000’s):~~
Total
1 Year
or less
2 Years 3 Years 4 Years 5 Years
After 5
Years

Revolving credit facility $ — $ — $ — $ — $ — $ — $ —
Borrowing in USA 1,509 158 158 1,193 — — —
Borrowings in Canada — — — — — — —
Borrowings in UK 694 694 — — — — —
Borrowings in Argentina 60 60 — — — — —
Total $ 2,263 $ 912 $ 158 $ 1,193 $ — $ — $ —
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. 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; 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 is approximately $11.1 and $1.4 million total included in the U.S. bank accounts and approximately $10.4 and $9.0 million total in foreign bank accounts as of October 31, 2017 and January 31, 2017, respectively.
16
~~Major Customer~~
~~No customer accounted for more than 10% of net sales during the three and nine month periods ended October 31, 2017 and 2016.~~
~~Major Supplier~~
~~No supplier accounted for more than 10% of net purchases during the three and nine month periods ended October 31, 2017 and 2016.~~
7. ~~Stockholders’ Equity~~
~~The 2017, 2015 and 2012 Stock Plans~~
On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) at the Annual Meeting of Stockholders. 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.
The 2017 Plan also permits the grant of awards that qualify for “performance-based compensation” within the meaning of Section 162(m) of the U.S. Internal Revenue Code. The Committee has the authority to determine the type of award, as well as the amount, terms and conditions of each award, under the 2017 Plan, subject to the limitations and other provisions of the 2017 Plan. An aggregate of 360,000 shares of the Company’s common stock are authorized for issuance under the 2017 Plan, subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. 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 following table summarizes the unvested shares granted on September 12, 2017, which have been made under the 2017 Plan.
Number of shares awarded total
Minimum Target Maximum Cap
Employees 21,145 31,718 42,291 50,748
Non-Employee Directors 7,246 10,870 14,493 17,391
Total 28,391 42,588 56,784 68,139
Value at grant date (numbers below are rounded to the nearest $100)
Minimum Target Maximum Cap
Employees $ 291,800 $ 437,700 $ 583,600 $ 700,300
Non-Employee Directors 100,000 150,000 200,000 240,000
Total $ 391,800 $ 587,700 $ 783,600 $ 940,300
Of the total number of shares awarded at Maximum, there are an aggregate of 56,784 shares underlying restricted stock awards and in addition in the 2017 Plan there are 6,376 shares underlying awards of stock appreciation rights with a base price of $13.80 per share. These stock appreciation rights are classified as liability awards and are remeasured at fair value each reporting period until the award is settled. As of October 31, 2017 the Company has recorded a liability in the amount of $13,072 related to these stock appreciation rights..
17
The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a full three fiscal year performance period commencing on February 1, 2017 and ending on January 31, 2020, based on the level of earnings before interest, taxes, depreciation and amortization (“EBITDA”) achieved by the Company over this period. The EBITDA targets have been set for each of the Minimum, Target, Maximum and Cap levels, at higher amounts for each of the higher levels. The actual EBITDA amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, which items may include, without limitation, the charges or costs associated with restructurings of the Company or any subsidiary, discontinued operations, and the cumulative effects of accounting changes.
Under the 2017 Plan, as described above, the Company awarded performance-based restricted stock and stock appreciation rights to eligible employees and directors. Such awards were at either Minimum, Target, Maximum or Cap levels, based on three year EBITDA targets. The Company recognizes expense related to performance-based restricted share awards over the requisite performance period using the straight-line attribution method based on the most probable outcome (minimum, target, maximum, cap or zero) at the end of the performance period and the price of the Company’s common stock price at the date of grant. The Company is recognizing expense related to awards under the 2017 Plan at maximum and these expenses were $62,106 for the nine months ended October 31, 2017.
The 2017 Plan is the successor to the Lakeland Industries, Inc. 2015 Stock Plan (the “2015 Plan”). The executive officers and all other employees and directors of the Company and its subsidiaries were eligible to participate in the 2015 Plan. The 2015 Plan authorized the issuance of awards of restricted stock, restricted stock units, performance shares, performance units and other stock-based awards. The 2015 Plan also permitted the grant of awards that qualify for “performance-based compensation” within the meaning of Section 162(m) of the U.S. Internal Revenue Code. The aggregate number of shares of the Company’s common stock that was issuable under the 2015 Plan was 100,000 shares. Under the 2015 Plan, as of October 31, 2017, there were 67,000 shares vested; of which 43,029 shares were issued and 23,971 shares were returned to the Company to pay employee taxes.
The 2015 Plan, was the successor to the Company’s 2012 Stock Incentive Plan (the “2012 Plan”). The Company’s 2012 Plan authorized the issuance of up to a maximum of 310,000 shares of the Company’s common stock to employees and directors of the Company and its subsidiaries in the form of restricted stock, restricted stock units, performance shares, performance units and other share-based awards. Under the 2012 Plan, as of October 31, 2017, the Company issued 293,887 fully vested shares of common stock; there are no outstanding shares to vest according to the terms of the 2012 Plan.
Under the 2012 Plan and the 2015 Plan, the Company generally awarded eligible employees and directors with either performance-based or time-based restricted shares. Performance-based restricted shares were awarded at either baseline (target), maximum or zero amounts. The number of restricted shares subject to any award was not tied to a formula or comparable company target ranges, but rather was determined at the discretion of the Committee at the end of the applicable performance period, which was two years under the 2015 Plan and had been three years under the 2012 Plan. The Company recognized expense related to performance-based restricted share awards over the requisite performance period using the straight-line attribution method based on the most probable outcome (baseline, maximum or zero) at the end of the performance period and the price of the Company’s common stock price at the date of grant.
As of October 31, 2017, unrecognized stock-based compensation expense totaled $0 pursuant to both the 2012 and 2015 Plans and $822,566 pursuant to the 2017 Plan based on the maximum performance award level. Such unrecognized stock-based compensation expense totaled $0 for both the 2012 and 2015 Plans and $411,283 for the 2017 Plan at the minimum performance award level. The cost of these non-vested awards is expected to be recognized over a weighted-average period of three years for the 2017 Plan.
18
~~The Company recognized total stock-based compensation costs, which are reflected in operating expenses:~~

Three Months Ended
October 31,

Nine Months Ended
October 31,

2017 2016 2017 2016
2012 Plan $ — $ 392 $ 206 $ (9,756 )
2015 Plan — 98,642 197,284 186,712
2017 Plan 93,981 — 93,981 —
Total stock-based compensation $ 93,981 $ 99,034 $ 291,471 $ 176,966
Total income tax benefit recognized for stock-based compensation arrangements $ 33,833 $ 35,652 $ 104,929 $ 63,708
Shares issued under 2017,
2015 and 2012 Stock Plans

Outstanding
Unvested Grants
at Maximum at
Beginning of
FY18

Granted during
FY18 through
October 31,
2017

Becoming
Vested during
FY18 through
October 31,
2017

Forfeited
during
FY18 through
October 31,
2017

Outstanding
Unvested
Grants at
Maximum at
End of
October 31,
2017

Restricted stock grants – employees 67,619 42,291 40,570 27,049 42,291
Restricted stock grants – non-employee directors — 14,493 — — 14,493
Retainer in stock – non-employee directors 32,372 2,674 27,151 — 7,895
Total restricted stock 99,991 59,458 67,721 27,049 64,679

Weighted average grant date fair value $ 10.18 $ 13.89 $ 10.18 $ 10.19 $ 13.59
~~Other Compensation Plans/Programs~~
Pursuant to the Company’s restrictive stock program, all directors are eligible to elect to receive any director fees in shares of restricted stock in lieu of cash. Such restricted shares are subject to a two-year vesting period. The valuation is based on the stock price at the grant date and is amortized to expense over the two-year period, which approximates the performance period. Since the director is giving up cash for unvested shares, and is subject to a vesting requirement, the amount of shares awarded is 133% of the cash amount based on the grant date stock price. As of October 31, 2017, unrecognized stock-based compensation expense related to these restricted stock awards totaled $0 for the 2015 Plans and $10,519 for the 2017 Plan. The cost of these non-vested awards is expected to be recognized over a weighted-average period. In addition, as of October 31, 2017, the Company granted awards for up to an aggregate of 5,221 for the 2015 Plan and 2,674 for the 2017 Plan.
~~Stock Repurchase Program~~
On July 19, 2016, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $2,500,000 of its outstanding common stock. The Company has not repurchased any stock under this program as of the date of this filing.
~~Warrants~~
In October 2014, the Company issued a five-year warrant that is immediately exercisable to purchase up to 55,500 shares of the Company’s common stock at an exercise price of $11.00 per share. As of October 31, 2017 and January 31, 2017, the warrant to purchase up to 55,500 shares remains outstanding.
19
~~Public Offering~~
On August 17, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC, as underwriters (collectively, the “Underwriters”), to issue and sell 725,000 shares of common stock, par value $0.01 per share (“Common Stock”), of the Company at a public offering price of $13.80 per share (the “Offering Price”) in a firm commitment underwritten public offering. The underwriting discount was $0.966 per share sold in the Offering. The Offering with respect to the sale of the 725,000 shares of Common Stock closed on August 22, 2017. Pursuant to the Underwriting Agreement, the Underwriters had the option, exercisable for a period of 45-days after execution of the Underwriting Agreement, to purchase up to an additional 108,750 shares of the Common Stock at the Offering Price. In September 2017, the Underwriters exercised their option to purchase 83,750 shares of Common Stock. The net proceeds to the Company from the Offering, including the overallotment, were approximately $10.1 million, after deducting underwriting discounts and estimated offering expenses payable by the Company.
The offer and sale of shares of Common Stock in the Offering have been registered under the Securities Act of 1933, as amended, pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-216943) declared effective by the Securities and Exchange Commission (the “Commission”) on April 11, 2017 (the “Registration Statement”). The offer and sale of the shares of Common Stock in the Offering are described in the Company’s prospectus constituting a part of the Registration Statement, as supplemented by a final prospectus supplement filed with the Commission on August 18, 2017.
8. ~~Income Taxes~~
~~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 FY2014 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 2015 with no significant issues noted and we believe our tax positions are reasonably stated as of October 31, 2017. Weifang Meiyang Products Co., Ltd. (“Meiyang”), one of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers and equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd. (“WF”), another of our Chinese operation thereby reducing our tax exposure.
Lakeland Protective Wear, Inc., our Canadian subsidiary, is subject to Canadian federal income tax, as well as income tax in the Province of Ontario. Income tax return for the 2014 fiscal year and subsequent years are still within the normal reassessment period and open to examination by tax authorities.
In connection with the exit from Brazil (see Note 11), the Company claimed a worthless stock deduction which generated a tax benefit of approximately USD $9.5 million, net of a USD $2.2 million valuation allowance. While the Company and its tax advisors believe that this deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.
Except and as set forth in the next paragraph, it is our practice and intention to reinvest the earnings of our non-US subsidiaries in their operations. As of October 31, 2017, the Company had not made a provision for US or additional foreign withholding taxes on approximately $26.4 million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration ($24.7 million at January 31, 2017). Generally, such amounts become subject to US taxation upon remittance of dividends and under certain other circumstances. If these earnings were repatriated to the US, the deferred tax liability associated with these temporary differences would be approximately $3.5 million at October 31, 2017.
The Company’s Board of Directors has instituted a plan subject to declaration and approval each year to elect to pay annual dividends to the Company from a portion of Canada’s future profits, a portion of Weifang’s future profits, a portion of Meiyang’s future profits and a portion of the UK’s future profits which started in FY15 and from a portion of Beijing’s future profits possibly starting in FY19. All other retained earnings are expected to be reinvested indefinitely.
20
~~Change in Valuation Allowance~~
~~We record net deferred tax assets to the extent we believe these assets will more likely than not to be realized. The valuation allowance was $2.2 million at October 31, 2017 and January 31, 2017.~~
~~Income Tax Expense~~
Income tax expenses consist of federal, state and foreign income taxes. The statutory rate is the US rate. Reconciling items to the effective rate are foreign dividend income, foreign income subject to US tax, tax deductions for restricted stock vesting, company borrowing structures, and other permanent tax differences.
9. ~~Earnings Per Share~~
~~The following table sets forth the computation of basic and diluted earnings per share at October 31, 2017 and 2016, as follows:~~

Three Months Ended
October 31,

Nine Months Ended
October 31,

(in 000’s except for share information)
2017 2016 2017 2016
Numerator:
Net income $ 1,806 $ 1,513 $ 5,358 $ 2,946

Denominator:
Denominator for basic earnings per share (weighted-average shares which reflect 356,441 shares in the treasury) 7,894,582 7,258,697 7,477,202 7,255,966
Effect of dilutive securities from restricted stock plan, from dilutive effect of stock options and warrants 27,815 74,300 53,435 65,621
Denominator for diluted earnings per share (adjusted weighted average shares) 7,922,397 7,332,997 7,530,637 7,321,587
Basic earnings per share $ 0.23 $ 0.21 $ 0.72 $ 0.41

Diluted earnings per share $ 0.23 $ 0.21 $ 0.71 $ 0.40
~~10.~~ ~~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 with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the operating cycle of the Company. 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 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 two types of derivatives to manage the risk of foreign currency fluctuations.~~
21
From time to time, 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, are generally settled quarterly. Gains and losses on those forward contracts are included in current earnings. There were no outstanding forward contracts at October 31, 2017 or January 31, 2017.
We may also enter into cash flow hedge contracts with financial institutions to manage our currency exposure on future cash payments denominated in foreign currencies. The effective portion of gain or loss on cash flow hedge is reported as a component of accumulated other comprehensive loss. The notional amount of these contracts was $0.8 million and $1.5 million at October 31, 2017 and January 31, 2017, respectively. The corresponding unrealized income or loss is recorded in the unaudited condensed consolidated statements of comprehensive income. The corresponding asset (liability) amounted to $(53,818) and $25,826 at October 31, 2017 and January 31, 2017, respectively.
~~11.~~ ~~Contingencies~~
~~Litigation:~~
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, 2017, to the best of the Company’s knowledge, there were no outstanding claims or litigation.
~~The Company’s exit from Brazil:~~
~~Transfer of Shares Agreement~~
On July 31, 2015 (the “Closing Date”), Lakeland and Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao Individual LTDA (“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 has acquired all of the shares of Lakeland Brazil owned by the Company. The closing of this agreement was subject to Brazilian approval of the Shares transfer, which was received in October 2015.
The Company understands that under the laws of Brazil, a concept of fraudulent bankruptcy exists, which may hold a parent company liable for the liabilities of its Brazilian subsidiary in the event some level of fraud or misconduct is shown during the period that the parent company owned the subsidiary. While the Company believes that there has been no such fraud or misconduct relating to the proposed transfer of stock of Lakeland Brazil and the transactions contemplated by the Shares Transfer Agreement, as evidenced by the Company’s funding support for continuing operations of Lakeland Brazil, there can be no assurance that the courts of Brazil will not make such a finding nonetheless. The risk of exposure to the Company continues to diminish as the Transferee continues to operate Lakeland Brazil, as the risk of a finding of fraudulent bankruptcy lessens and pre-sale liabilities are paid off. Should the Transferee operate Lakeland Brazil for a period of two years, the Company believes the risk of a finding of fraudulent bankruptcy is eliminated.
~~VAT Tax Issues in Brazil~~
Value Added Tax (“VAT”) in Brazil is charged at the state level. Lakeland Brazil has three pending VAT claims totaling R$1.3 million (USD $0.5 million) excluding interest, penalties and fees of R$2.7 million (USD $0.9 million), which our attorney informed us were likely to be successfully defended based on state auditor misunderstanding. Any liabilities hereunder are the responsibility of Lakeland Brazil which, as described above, is no longer owned by the Company.
22
~~Labor Claims in Brazil~~
The Company may continue to be exposed to certain liabilities arising in connection with lawsuits pending in the labor courts in Brazil in which plaintiffs were seeking, as at July 31, 2015, a total of nearly USD $8,000,000 in damages from the Company’s then Brazilian subsidiary (Lakeland Brazil). The Company believes many of these labor court claims are without merit and the amount of damages being sought is significantly higher than any damages which may have been incurred. Pursuant to the Shares Transfer Agreement, the Company is required to fully fund amounts owed by Lakeland Brazil in connection with the then existing labor claims and to pay amounts potentially owed for future labor claims up to an aggregate amount of $375,000 plus 60% of the excess of such amount until the earlier of (i) the date all labor claims against Lakeland Brazil deriving from events prior to the sale are settled, (ii) by our mutual agreement with Lakeland Brazil or (iii) on the two (2) year anniversary of closing of the sale. Although the two-year period has expired, the Company continues to support Lakeland Brazil in defending the remaining claims. While the vast majority of these labor suits have been resolved, there are four which remain active. In one such case a former employee of our former Brazilian subsidiary filed a counterclaim in the action seeking approximately USD $700,000 that he purports to be owed to him by our former Brazilian subsidiary under a purported promissory note and alleges that we are liable for payment therefor. Management firmly believes the counterclaim is without merit, intends to vigorously defend our position, and does not anticipate a negative outcome resulting in significant expense to us.
12. ~~Segment Reporting~~
~~Domestic and international sales from continuing operations are as follows in millions of dollars:~~
Three Months Ended October 31, Nine Months Ended October 31,
2017 2016 2017 2016

Domestic $ 12.85 53.64 % $ 11.26 48.45 % $ 38.18 53.91 % $ 35.24 53.49 %
International 11.11 46.36 % 11.98 51.55 % 32.65 46.09 % 30.64 46.51 %
Total $ 23.96 100.00 % $ 23.24 100.00 % $ 70.83 100.00 % $ 65.88 100.00 %
We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily the distribution to customers of the bulk of our products and the light manufacturing of our chemical, 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) and a small manufacturing facility in India. Our China facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s international revenues. We evaluate the performance of these entities based on operating profit, which is defined as income before income taxes, interest expense and other income and expenses. We have sales forces in the USA, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan and China, which sell and distribute products shipped from the United States, Mexico, India or China. The table below represents information about reported segments for the periods noted therein:
23

Three Months Ended
October 31,
(in millions of dollars)

Nine Months Ended
October 31,
(in millions of dollars)

2017 2016 2017 2016
Net Sales:
USA $ 14.16 $ 12.75 $ 41.46 $ 38.09
Other foreign 4.94 5.34 13.66 12.25
Europe (UK) 2.24 1.90 6.46 6.95
Mexico 0.90 0.84 2.77 2.42
China 13.47 10.41 36.88 30.37
Corporate 0.45 0.27 0.98 1.44
Less intersegment sales (12.20 ) (8.27 ) (31.38 ) (25.64 )
Consolidated sales $ 23.96 $ 23.24 $ 70.83 $ 65.88
External Sales:
USA $ 12.85 $ 11.26 $ 38.18 $ 35.24
Other foreign 4.39 5.09 12.47 11.49
Europe (UK) 2.24 1.90 6.42 6.95
Mexico 0.51 0.40 1.66 1.13
China 3.97 4.59 12.10 11.07
Consolidated external sales $ 23.96 $ 23.24 $ 70.83 $ 65.88
Intersegment Sales:
USA $ 1.31 $ 1.49 $ 3.28 $ 2.85
Other foreign 0.55 0.25 1.19 0.76
Europe (UK) — — 0.04 —
Mexico 0.39 0.44 1.11 1.29
China 9.50 5.82 24.78 19.30
Corporate 0.45 0.27 0.98 1.44
Consolidated intersegment sales $ 12.20 $ 8.27 $ 31.38 $ 25.64
24

Three Months Ended
October 31,
(in millions of dollars)

Nine Months Ended
October 31,
(in millions of dollars)

2017 2016 2017 2016
Operating Profit (Loss):
USA $ 2.62 $ 1.58 $ 7.40 $ 5.62
Other foreign 0.92 0.81 2.04 1.36
Europe (UK) (0.02 ) 0.01 0.09 0.29
Mexico (0.06 ) 0.04 (0.02 ) 0.05
China 0.66 1.37 2.21 3.15
Corporate (1.46 ) (1.60 ) (4.56 ) (5.56 )
Less intersegment profit (loss) 0.01 0.03 0.16 0.09
Consolidated operating profit $ 2.67 $ 2.25 $ 7.32 $ 5.00
Depreciation and Amortization Expense:
USA $ 0.03 $ 0.04 $ 0.09 $ 0.12
Other foreign 0.04 0.03 0.10 0.11
Europe (UK) — — 0.01 —
Mexico 0.03 0.03 0.09 0.09
China 0.06 0.08 0.19 0.25
Corporate 0.05 0.14 0.14 0.43
Less intersegment (0.01 ) 0.04 (0.04 ) (0.04 )
Consolidated depreciation & amortization expense $ 0.20 $ 0.36 $ 0.58 $ 0.96
Interest Expense:
USA (shown in Corporate) $ — $ — $ — $ —
Other foreign 0.02 0.02 0.05 0.08
Europe (UK) 0.01 — 0.01 —
Mexico — — — —
China — 0.04 — 0.12
Corporate 0.01 0.09 0.09 0.32
Less intersegment — — — —
Consolidated interest expense $ 0.04 $ 0.15 $ 0.15 $ 0.52
Income Tax Expense (Benefits):
USA (shown in Corporate) $ — $ — $ — $ —
Other foreign 0.16 0.16 0.42 0.27
Europe (UK) 0.01 0.01 0.05 0.04
Mexico — — — —
China 0.12 0.36 0.50 0.81
Corporate 0.55 0.04 0.83 0.41
Less intersegment (0.01 ) 0.01 0.03 0.02
Consolidated income tax expense $ 0.83 $ 0.58 $ 1.83 $ 1.55
Capital Expenditures:
USA $ 0.01 $ 0.02 $ 0.02 $ 0.02
Other foreign — (0.01 ) — —
Europe (UK) — — — —
Mexico 0.03 — 0.06 —
China 0.01 0.01 0.07 0.03
India 0.06 — 0.08 0.02
Corporate 0.06 0.05 0.39 0.05
Consolidated capital expenditures $ 0.17 $ 0.07 $ 0.62 $ 0.12
25

October 31, 2017
(in millions of dollars)

January 31, 2017
(in millions of dollars)

Total Assets:*
USA $ 63.84 $ 56.34
Other foreign 21.17 18.16
Europe (UK) 4.65 3.61
Mexico 4.38 3.99
China 36.94 30.54
India (1.10 ) (1.36 )
Corporate 29.40 26.00
Less intersegment (58.92 ) (52.73 )
Consolidated assets $ 100.36 $ 84.55
Total Assets Less Intersegment:*
USA $ 29.88 $ 30.94
Other foreign 12.87 10.17
Europe (UK) 4.65 3.58
Mexico 4.46 4.07
China 21.33 18.44
India 0.84 0.43
Corporate 26.33 16.92
Consolidated assets $ 100.36 $ 84.55
Property and Equipment:
USA $ 2.01 $ 2.09
Other foreign 1.46 1.55
Europe (UK) 0.03 0.03
Mexico 2.02 2.05
China 1.93 2.05
India 0.10 0.03
Corporate 1.05 0.75
Less intersegment 0.02 (0.02 )
Consolidated property and equipment $ 8.62 $ 8.53
Goodwill:
USA $ 0.87 $ 0.87
Consolidated goodwill $ 0.87 $ 0.87
*Negative assets reflect intersegment amounts eliminated in consolidation
26
~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
This Form 10-Q may contain certain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. See “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS” at the beginning of Part I, Item 1.
Based on our closing stock price as reported by The NASDAQ Global Market on July 31, 2017, starting with our next Annual Report on Form 10-K, we will transition to an “accelerated filer” under Rule 12b-2 of the Securities Exchange Act of 1934, and, as such, be required to obtain audits of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002 and meet accelerated deadlines for financial reporting.

Overview

We manufacture and sell a comprehensive line of ~~safety garments~~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, ~~our regional sales managers~~ and authorized independent sales representatives to a network of over ~~1,200 North American~~1,600 global safety and ~~mill~~industrial supply distributors. ~~These~~Our authorized distributors ~~in turn~~ supply end ~~user industrial customers,~~users, such as integrated oil, chemical/petrochemical, ~~utilities,~~ automobile, steel, glass, construction, smelting, ~~munition plants,~~cleanroom, janitorial, pharmaceutical, ~~mortuaries~~ and high technology electronics manufacturers, as well as scientific, medical laboratories and ~~medical laboratories.~~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, ~~sales are~~we sell to a mixture of end users directly and to industrial distributors depending on the particular country and market. ~~Sales~~In addition to the United States, sales are made to more than 4050 foreign countries, ~~but are primarily~~the majority of which were in China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Middle East and Southeast Asia.

We have operated facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the ~~labor intensive~~labor-intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. AsDuring Q1 FY24, the Company was impacted by tariff costs on certain products imported from China. The Company has been able to pass along a portion of these costs to its customers. We added manufacturing operations in Vietnam and India to offset increasing manufacturing costs in China and further diversify our manufacturing capabilities. Our China operations will continue primarily manufacturing for the Chinese market and other markets where duty advantages exist. The Company is adding a new manufacturing facility in Monterrey, Mexico that we ~~have increasingly moved production of our products~~expect to ~~our facilities in Mexico and China, we have seen improvements~~be operational in the ~~profit margins~~second half of FY 24. This new capacity will help shorten delivery times for ~~these products.~~ the North American markets. Manufacturing expansion is not only necessary to control rising costs, but also for Lakeland to achieve its growth objectives.

On December 2, 2022, the Company acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $10.5 million, subject to post-closing adjustments and potential future earnout payments. The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective clothing and expands its sales presence in the Middle East and Europe.

Our net sales attributable to customers outside the United States were ~~$11.1~~$16.4 million and ~~$12.0~~$16.0 million for the three months ended April 30, 2023 and ~~$32.7 million and $30.6 million for the nine months ended October 31, 2017 and 2016,~~2022, respectively.

~~Critical Accounting Policies and Estimates~~

~~Our discussion and analysis~~We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations. For the three months ended April 30, 2023, sales in Russia were approximately 4.4% of our ~~financial condition and results of operations are based upon our unaudited condensed~~ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of our unaudited condensed consolidated financial statements in conformity with US GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and ~~expenses and disclosure of contingent~~sales into Ukraine were not significant. We do not have any capital assets ~~and liabilities. We base our estimates on the past experience and on various other assumptions that we believe to be reasonable under the circumstances, and we periodically evaluate these estimates.~~

~~We believe the following critical accounting policies affect our more significant judgments and estimates used~~ in ~~the preparation of our unaudited condensed consolidated financial statements.~~

~~Revenue Recognition~~

Substantially, all the Company’s sales are made through distributors. There are no significant differences across product lines or customers in different geographical areas in the manner in which the Company’s sales are made.

Lakeland offers a growth rebate to certain distributors each year on a calendar-year basis. Sales are tracked on a monthly basis, and accruals are based on sales growth over the prior year. The growth rebate accrual is adjusted either up or down on a monthly basis as a reduction (increase) to revenue and an increase (reduction) to the accrual based on monthly sales trends as compared with prior year. Based on volume and products purchased, distributors can earn anywhere from 1% to 6% rebates in the form of either a quarterly or annual credit to their account, depending on the specific agreement. In estimating the accrual needed, management tracks sales growth over the prior year.

Our sales are generally final; however, requests for return of goods can be made and must be received within 90 days from invoice date. No returns will be accepted without a written authorization. Return products may be subject to a restocking charge and must be shipped freight prepaid. Any special made-to-order items are not returnable. Customer returns have historically been insignificant.

Customer pricing is subject to change on a 30-day notice; exceptions based on meeting competitors’ pricing are considered on a case-by-case basis. Revenue is recorded net of taxes collected from customers. The related taxes that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

For larger orders, except in its Lakeland Fire product line, the Company absorbs the cost of shipping and handling. For those customers who are billed the cost of shipping and handling fees, such amounts are included in net sales.

~~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 recognizes losses when information available indicates that it is probable that a receivable has been impaired based on criteria noted above at the date of the consolidated financial statements, and the amount of the loss can be reasonably estimated. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customers, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other less creditworthy accounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

~~Inventories, net~~

~~Goodwill~~

~~Impairment of Long-Lived Assets~~

~~Income Taxes~~

The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold. If necessary, the Company recognized 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 unaudited condensed consolidated balance sheets.

~~Foreign Operations and Foreign Currency Translation~~

~~Fair Value of Financial Instruments~~

~~The following is a brief description of those three levels:~~Russia.

~~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.18

~~Level 3:~~	~~Unobservable inputs that reflect management’s own assumptions.~~Table of Contents

~~Foreign currency forward and hedge contracts are recorded in the unaudited condensed consolidated balance sheets at their fair value as~~Results of ~~the balance sheet dates based on current market rates as further discussed in the unaudited condensed consolidated financial statements.~~Operations

~~The Company believes that the fair values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current market rate available to the Company.~~

~~Recent Accounting Pronouncements~~

~~See Note 3 in the unaudited condensed consolidated financial statements for management’s periodic review of new accounting standards that were issued.~~

~~Significant Balance Sheet Fluctuation October 31, 2017, As Compared to January 31, 2017~~

Balance Sheet Accounts. Cash increased by $11.1 million in the nine-month period ended October 31, 2017 as a result of the Company’s public offering in the third quarter of fiscal 2018 fully described in Note 7, accounts payable increased $3.6 million and inventory net of reserves increased $2.9 million as the Company replenished stock of core product while managing high levels of back orders. The Company’s borrowings under the revolving credit facility decreased $4.9 million further reducing debt as the Company continues to reduce costs, and accounts receivable increased $2.3 million as sales volume remains strong in the nine months ended October 31, 2017.

Three Months ended ~~October 31, 2017, As~~April 30, 2023, Compared to the Three Months Ended ~~October 31, 2016~~April 30, 2022

Net ~~Sales~~.Sales.Net sales ~~increased to $24.0~~were $28.7 million for the three months ended ~~October 31, 2017~~April 30, 2023, an increase of $1.4 million or 5.2% compared to ~~$23.2~~$27.3 million for the three months ended ~~October 31, 2016,~~April 30, 2022. Sales of our Fire product line increased $2.8 million due to $2.0 million in sales from Eagle and $.8 million growth in the product line. We also saw strength in the Woven product line with an increase of ~~3.1%. Sales~~$0.8 million, primarily in the ~~USA increased $1.6~~international market. The increases were partially offset by $2.2 million ~~or 12.2%~~in reduced sales in our Disposable product line, primarily in China as the impact of COVID-19 lockdowns waned early in the prior fiscal year and other challenges in our Asian markets. Foreign exchange currency translations negatively impacted sales by approximately $0.3 million in the first quarter of fiscal year 2024 due primarily to ~~increased disposables sales~~the strengthening of the U.S. dollar against the Chinese yuan, compared to ~~national accounts and in response to hurricane clean-up efforts, and to increased sales~~negative impact of $0.3 million in the chemical line into oil field service companies and refinery operations as the US economy continues to improve. USA sales of disposables increased $1.2 million, chemicals increased $0.5 million, sales of wovens products increased $0.1 million and sales of gloves increased $0.1 million. Sales of reflective products remained level at $2.1 million and sales of fire products decreased $0.5 million as there were large order in the comparison period lastprior year ~~that did not repeat during~~period.

Gross Profit.Gross profit for the three months ended ~~October 31, 2017. The~~April 30, 2023 was $12.4 million, an increase ~~in wovens sales is mostly due to focused penetration~~ of ~~fire retardant “FR” cotton coveralls into the pipeline industry where activity is increasing. Sales in China and to the Asia Pacific Rim increased $3.1~~$1.3 million, or 29.4% as industrial activity improved and several larger customers began replacing depleted inventories and as intercompany demand increased and the Company worked through a large backlog. Canada sales increased $0.4 million as that country continues to experience an oil and gas turnaround requiring protective wear and as some customers replenished their stock in response to higher than forecasted demand at higher price points. UK sales increased by $0.3 million or 18.3% as new distributors placed stocking orders. Russia and Kazakhstan sales combined increased $0.3 million or 102.6%12.6%, ~~and Latin America sales remain strong at $1.8 million in a continuously improving economy even though~~ compared to ~~the same period in the prior year it is a decrease of 39.8% due to a large sale to Ecuador in the comparison period.~~

~~Gross Profit~~.~~Gross profit increased $0.5 million, or 6.3%, to $9.1~~$11.1 million for the three months ended ~~October 31, 2017, from $8.5 million for the three months ended October 31, 2016.~~April 30, 2022. Gross profit as a percentage of net sales increased to ~~37.8%~~43.4% for the three-month period ended ~~October 31, 2017,~~April 30, 2023, from ~~36.6%~~40.5% for the three months ended ~~October 31, 2016.~~April 30, 2022. Gross ~~margin increases were somewhat offset by labor~~profit performance improved in the three months ended April 30, 2023 due to a better product mix with the reduction in Disposable sales and increases in our ~~manufacturing facilities due~~higher - value products lines and a continued focus on cost savings. Freight costs declined significantly compared to ~~wage increases and overtime associated with relieving~~ the ~~stress in the Company’s internal supply chain. Major factors driving gross margins were:~~prior year, further improving margins.

~~Disposables gross margins increased 4.6 percentage points due to product mix and increased volume.~~

Chemical gross margin increased by 7.5 percentage points primarily due to a reduction in force in the USA to move production to our more cost effective facilities in Mexico and China during Q1FY17 which resulted in improved manufacturing cost, improved volume and sales of higher volume products.

Fire protection gross margin decreased 2.5 percentage points as the Company prepares for the upcoming change to the National Fire Protection Agency (“NFPA”) standards by discounting products produced under the old standard and due to product mix.

~~Wovens gross margins increased 18.0 percentage points due to market price increases on contractor FR coveralls.~~

~~Reflective gross margins increased 14.3 percentage points as a result of increased pricing on some products and the product mix.~~

~~UK gross margins increased 5.9 percentage points as a result of increased sales of a higher margin chemical cool suit.~~

Chile’s gross margin increased 18.8 percentage points as sales of FR garments into the industrial category rebounded and Argentina’s gross margin decreased 16.8 percentage points primarily as compared to the prior year period where a large sale into Ecuador had particularly strong margins.

Operating ~~expenses.~~Expense. Operating ~~expense~~expenses increased ~~3.1%~~by $0.9 million, or 9.3%, from ~~$6.3~~$9.6 million for the three months ended ~~October 31, 2016~~April 30, 2022 to ~~$6.4~~$10.5 million for the three months ended ~~October 31, 2017.~~April 30, 2023. This increase is attributable to increases in severance expenses and currency fluctuations, travel and trade show expenses, and professional fees. Currency fluctuations accounted for $0.3 million of the increases due primarily to the fluctuation in the Argentine peso. During the quarter ended April 30, 2023, the Company evaluated the earnout consideration accrual related to the Eagle acquisition and reduced the accrual by $0.5 million, which was recorded as a reduction in operating expenses. Operating ~~expense~~expenses as a percentage of net sales was ~~26.7%~~36.6% for the three months ended ~~October 31, 2017 and 2016. The main factors~~April 30, 2023, up from 35.2% for the increase in operating expenses are a $0.1 million increase in sales salaries as the Company continues to grow its sales force, an increase of $0.2 million to freight out as a result of rush shipments associated with the backlog as well as freight line price increases, and increase of $0.2 million to bad debt resulting from an increasethree months ended April 30, 2022, primarily due to the accounts receivable allowance for several customers that are slow paying and offset by a $0.4 million decrease to commissions as a result of a large sale in Argentina in the same period last year and a $0.1 million decrease in officer salaries resulting from the reduction of one officer due to retirement.factors noted above.

Operating Profit. Operating profit increased to ~~$2.7~~$1.9 million for the three months ended ~~October 31, 2017,~~April 30, 2023 from ~~$2.3~~$1.4 million for the three months ended ~~October 31, 2016, as most operating expenses are fixed in nature other than commissions and freight out and sales volume increased as compared~~April 30, 2022, due to the ~~three months ended October 31, 2016.~~impacts detailed above. Operating margins were ~~11.1%~~6.8% for the three months ended ~~October 31, 2017,~~April 30, 2023, as compared to ~~9.7%~~5.3% for the three months ended ~~October 31, 2016 and were impacted by the items highlighted in gross profit and operating expenses.~~April 30, 2022.

~~Interest Expense~~. Interest expense decreased to $0.1 million for the three months ended October 31, 2017 from $0.2 million for the three months ended October 31, 2016 as the Company utilized lower interest rates from its revolving credit facility and reduced borrowings for the three months ended October 31, 2017, primarily as a result of greater profitability and proceeds from the Company’s public offering.

Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was ~~$0.8~~$0.5 million for the three months ended ~~October 31, 2017, as~~April 30, 2023, compared to ~~an income tax expense of $0.6~~$0.3 million for the three months ended ~~October 31, 2016.~~April 30, 2022. The increase is due to the increase in pre-tax income. The Company's effective tax ~~expense~~rate for the first quarter of FY24 was ~~a result~~29.1%, which differs from the U.S. federal statutory rate of ~~significantly higher operating income~~21% primarily due to rate differentials in foreign tax jurisdictions and GILTI. The Company's effective tax rate for the ~~US during~~first quarter of FY23 was 20.2%. The Company recorded deferred tax benefits of $0.2 million related to accruals for China social taxes based on our evaluation of the ~~three months ended October 31, 2017 as well as overall improved profitability.~~deductibility of these items. Excluding this discrete benefit, the effective rate was 32.9% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and GILTI.

Net Income.Net income increased by $0.2 million to ~~$1.8~~$1.3 million for the three months ended ~~October 31, 2017~~April 30, 2023 from ~~$1.5~~$1.1 million for the three months ended ~~October~~April 30, 2022.

Significant Balance Sheet Fluctuation April 30, 2023, Compared to January 31, ~~2016. The results~~2023

Cash increased by $1.4 million due to cash provided by operating activities of $3.7 million for the three months ended ~~October 31, 2017 are~~April 30, 2023, primarily due to ~~continuing cost containment efforts~~net income of $1.3 million, non-cash activity of $0.5 million for depreciation and amortization, stock compensation, equity in loss of equity investment and revaluation of the Eagle acquisition earnout accrual, and a net reduction in working capital of $1.8 million due to collection of accounts receivable, increases in ~~sales volume as the industrial sector showed marked performance improvements~~accounts payable and ~~the global economy improved.~~customer advances offset by increases in prepayments for inventory and other prepaid expenses.

~~Nine Months ended October 31, 2017, As Compared to the Nine Months Ended October 31, 2016~~

~~Net Sales~~.~~Net sales increased to $70.8~~Capital expenditures were $0.7 million for the ~~nine~~three months ended ~~October 31, 2017 compared~~April 30, 2023, primarily for capital equipment for the Company’s new manufacturing facility in Monterrey, Mexico, that is scheduled to ~~$65.9~~open in the second half of the current year.

Net cash used in financing activities was $1.2 million for the ~~nine~~three months ended October 31, 2016, an increase of 7.5%. Sales in the USA increased $3.0 million or 7.4% due primarily to increased sales in the chemical and disposables channels. USA sales of disposables increased $1.8 million or 9.1%, sales in the chemicals line increased $0.7 million or 16.1%, sales of fire gear increased $0.4 million or 9.7 %, sales of wovens increased $0.4 million or 16.4% and reflective and glove sales were mostly level at $5.9 million and $2.0 million respectively. Wovens and fire protection sales combined increased $0.8 million or 12.2% mostlyApril 30, 2023, due to focused penetration with strategic fire distributors who support and market our fire gear and increased sales of FR cotton coveralls into the pipeline industry where activity is increasing. Sales in China and to the Asia Pacific Rim increased $6.5 million or 21.4% as industrial activity improved and several larger customers began replacing depleted inventories and as intercompany demand increased. Canada sales increased $0.6 million as that country continues to experience an oil and gas turnaround requiring protective wear. UK sales decreased by $0.5 million or 7.1% mostly due to uncertainty in the economy as a result of Brexit, continuing currency challenges and a strategic decision by the Company to exit two private label businesses in Europe. Russia and Kazakhstan sales combined increased $0.5 million or 49.6%, and Latin America sales increased $0.1 million or 2.0% due to resolution of supply chain issues and an overall increase in industrial activity even as compared to last year which included a large Ecuador sale, respectively.

~~Gross Profit~~.Gross profit increased $2.4 million, or 10.1%, to $26.3 million for the nine months ended October 31, 2017, from $23.9 million for the nine months ended October 31, 2016. Gross profit as a percentage of net sales increased to 37.1% for the nine-month period ended October 31, 2017, from 36.3% for the nine months ended October 31, 2016. Gross margin increases were somewhat offset by labor increases in our manufacturing facilities due to wage increases and overtime associated with relieving the stress in the Company’s internal supply chain. Major factors driving gross margins were:

Chemical gross margin increased by 6.2 percentage points primarily due to a reduction in force in the USA to move production to our more cost effective facilities in Mexico and China during Q1FY17 which resulted in severance payments in that quarter, improved volume and product mix.

~~Disposables margins increased 1.5 percentage points as volume increased and sales of higher margin cleanroom products began to get traction.~~

Fire protection gross margin increased 2.8 percentage points due to a reduction in force in the USA to move production to our more cost effective facility in Mexico in Q1FY17, better margins associated with fire distributors in the industrial market, and improved volume.

~~Wovens gross margins increased 8.7 percentage points as the Company increased sales of higher margin FR products into the pipeline industry in Q1FY18.~~

~~Glove margins increased 8.8 percentage points due to product mix.~~

~~Reflective gross margins increased 5.8 percentage points as a result of product mix and price increases for some products.~~

Chile’s gross margin increased 11.3 percentage points as sales into the industrial category rebounded and Argentina’s gross margin decreased 9.1 percentage points primarily due to a shift in the product mix.

~~Canada’s gross margins increased 9.5 percentage points as a result of product mix, increased volume and currency tailwinds.~~

~~Operating expenses.~~ Operating expense were up slightly at $19.0 million for the nine months ended October 31, 2017 as compared to $18.9 million for the nine months ended October 31, 2016. Operating expense as a percentage of net sales was 26.8% for the nine months ended October 31, 2017 down from 28.7% for the nine months ended October 31, 2016. The main factors for the increase in operating expenses are a $0.3 million ~~increase~~ in ~~sales salaries as the Company continues to grow its sales force, an increase~~shares repurchased, dividends of $0.2 million, ~~to freight out as a result~~repayment of ~~rush shipments associated with the backlog as well as freight line price increases, an increase~~short-term borrowings of $0.2 million to utilities as a normal course of business, an increase of $0.1 million to bad debt resulting from an increase to the accounts receivable allowance for several customers that are slow paying, an increase to currency fluctuation of $0.2and $0.3 million in ~~the normal course of business, and an increase~~shares returned to professional fees of $0.1 million from various legal and accounting work and the public offering fully described in the accompanying unaudited condensed consolidated financial statements offset by a $0.3 million decrease to commissions as a result of a large sale in Argentina in the same period last year, a $0.2 million decrease to payroll administration due to a severance accrual in the prior reporting period, a $0.2 million decrease to depreciation in the normal course of business, and a $0.4 million decrease in officer salaries resulting from the reduction of one officer due to retirement.pay income taxes on shares vested under our equity compensation program.


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~~Operating Profit~~. Operating profit increased to $7.3 million for the nine months ended October 31, 2017, from $5.0 million for the nine months ended October 31, 2016, mainly as a result of stronger sales volume and the fixed nature of most operating expenses other than commissions and freight out. Operating margins were 10.3% for the nine months ended October 31, 2017, compared to 7.6% for the nine months ended October 31, 2016.

~~Interest Expense~~. Interest expense decreased to $0.1 million for the nine months ended October 31, 2017 from $0.5 million for the nine months ended October 31, 2016 as the Company utilized lower interest rates from their revolving credit facility and reduced borrowings for the nine months ended October 31, 2017, primarily as a result of greater profitability, a reduction in inventory levels, and a public offering.

~~Income Tax Expense~~. Income tax expense consists of federal, state and foreign income taxes. Income tax expense for the nine months ended October 31, 2017 was $1.8 million and $1.5 million for the nine months ended October 31, 2016. Profitability was higher in Q3 this year vs. Q3 of last year.

~~Net Income.~~ Net income increased to $5.4 million for the nine months ended October 31, 2017 from $2.9 million for the nine months ended October 31, 2016. The results for nine months ended October 31, 2017 are primarily due to higher sales volume than in the prior fiscal year as well as continuing cost containment efforts, increases in sales volume.

Liquidity and Capital Resources

~~As of October 31, 2017, we had~~

At April 30, 2023, cash and cash equivalents ofwere approximately ~~$21.5~~$26.0 million, and working capital ~~of $64.7~~was approximately $87.5 million. Cash and cash equivalents increased ~~$11.1~~$1.4 million, and working capital increased ~~$17.0~~$0.5 million from January 31, ~~2017 as~~2023 due to the Company consummated a capital raise and continued cost containment efforts. International cash management is affected by local requirements and movements of cash across borders can be slowed down significantly. We believe that based upon our current cash position and projected future revenue, we will have sufficient cash to fund our operations for the next twelve months.balance sheet fluctuations described above.

Of the Company’s total cash and cash equivalents of ~~$21.5~~$26.0 million as of ~~October 31, 2017,~~April 30, 2023, cash held in Latin America of $2.6 million, cash held in the UK of ~~$0.1~~$2.6 million, cash held in Russia and Kazakhstan of $1.1 million, , cash held in India of $0.8 million, cash held in Vietnam of $0.5 million, and cash held in ~~India~~Hong Kong of $0.1 million would not be subject to additional ~~tax as foreign income related thereto has already been subject to US tax. Cash held in Canada of $0.9 million as of October 31, 2017 could be subject to~~ US tax in the event such cash was repatriated due to the change in the US tax law as a result of the ~~change in our financing arrangement. Cash in all other foreign countries~~December 22, 2017 enactment of ~~$9.3 million would incur US tax less any foreign tax credits if~~ the ~~cash was repatriated. In the event that~~2017 Tax Cuts and Jobs Act (the “Tax Act”). When the Company ~~repatriated~~repatriates cash from China, of the ~~$8.3~~$15.5 million balance at ~~October 31, 2017~~April 30, 2023, there ~~would~~could be an additional 10% withholding tax incurred in that country. The Company expects to repatriate cash from China during FY 24 and in anticipation of doing so, has ~~strategically employed a dividend plan subject to declaration and certain approvals in which its Canadian subsidiary sends dividends to the US in the amount~~accrued withholding tax expense of ~~100%~~$0.8 million as of the previous year’s earnings, the UK subsidiary sends dividends to the US in the amount of 50% of the previous year’s earnings, and the Weifang China subsidiary of the Company sends dividends to the US in declared amounts of the previous year’s earnings. Dividends were not declared for our China subsidiary in the first three quarters of FY18 or for the year ended FY17 as management evaluates the possible impact of regulatory changes in the US tax code.April 30, 2023.

Net cash provided by operating activities of ~~$5.5~~$3.7 million for the ~~nine~~three months ended ~~October 31, 2017~~April 30, 2023 was primarily due to an increase in current liabilities of $3.0 million, net income of ~~$5.4~~$1.3 million, non-cash expenses of $0.5 million for deferred taxes, depreciation and ~~an increase~~amortization, stock compensation, equity in ~~accounts payable~~loss of ~~$3.5 million,~~equity investment and revaluation of the Eagle acquisition earnout accrual, partially offset by an increase in ~~accounts receivable~~current assets of ~~$2.1~~$1.2 million. Net cash used in investing activities of $0.7 million for the three months ended April 30, 2023 reflects capital purchases for the new manufacturing facility in Monterrey, Mexico scheduled to open in the second half of this year. Net cash used in financing activities was $1.2 million for the three months ended April 30, 2023, due to $0.3 million in shares repurchased, dividends of $0.2 million, repayment of short-term borrowings of $0.2 million and $0.3 million in shares returned to pay income taxes on shares vested under our equity compensation program.

On December 2, 2022, the Company acquired Eagle in an all-cash transaction valued at approximately $10.5 million, subject to post-closing adjustments and potential future earnout payments. The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective clothing and expands its sales presence in the Middle East and Europe.

We believe our current cash, cash equivalents, borrowing capacity under our Loan Agreement, and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements (including planned capital expenditures) for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.

On June 25, 2020, we entered into a Loan Agreement with Bank of America (“Lender”). The Loan Agreement, as amended to date (the “Loan Agreement”), provides the Company with a secured $25.0 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 ~~inventories~~the revolving credit loan commitment of ~~$3.0 million. Net cash provided by financing activities~~up to $5.0 million (for a total commitment of ~~$6.2 million was~~up to $30.0 million). Borrowing pursuant to the ~~result~~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 ~~equity raise~~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 Loan Agreement permits, without the prior consent of the Lender, acquisitions of a business or its assets by the Company or its subsidiaries 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. The credit facility will mature on June 25, 2025.

Per the terms of the Loan Agreement, borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the one-month LIBOR Daily Floating Rate (“LIBOR”) plus 125 basis points. LIBOR is subject to a floor of 100 basis points. On March 3, 2023, the Company changed the benchmark interest rate in our credit facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”). 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 Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the difference between the total credit line commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.

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The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0. The Loan Agreement also contains customary covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries’ ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, pay dividends, or merge, consolidate or sell or otherwise transfer assets. The Company was in compliance with all of its debt covenants as of April 30, 2023.

Stock Repurchase Program. On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which ~~generated $10.1~~the Company mayrepurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in long term borrowings of $1.6 million and an increase to UK and short term borrowings of $0.6 million, offset by an increase in repayments under our revolving credit facility of $4.9 million and short term and longer term repayments of $0.9 million.

~~Stock Repurchase Program.~~ ~~On July 19, 2016,~~ the Company’s ~~board of directors approved a~~ stock repurchase program, under which the Company may repurchase up to ~~$2,500,000~~an additional $5 million of its outstanding common stock. 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, which became effective upon the completion of the 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.

Shares repurchased in the three months ended April 30, 2023 totaled 22,814 shares at a cost of $0.3 million, leaving $5.1 million remaining under the share repurchase program at April 30, 2023. The ~~Company~~share repurchase program has ~~not repurchased~~no expiration date but may be terminated by the Board of Directors at any ~~stock under this program~~time.

On February 1, 2023, the Board of Directors declared a quarterly cash dividend as part of initiating a recurring quarterly dividend program. The initial quarterly dividend of $0.03 per share was paid on February 22, 2023, to stockholders of record as of ~~the date of this filing.~~ February 15, 2023.

On May 1, 2023, the Board of Directors declared a quarterly cash dividend. The quarterly dividend of $0.03 per share was paid on May 22, 2023, to stockholders of record as of May 15, 2023.

Capital Expenditures. Our capital expenditures ~~through Q3FY18~~for the three months ended April 30, 2023 of ~~$0.6~~$0.7 million principally relate to ~~additions~~capital purchases for our new manufacturing facilities in Monterrey, Mexico, scheduled to ~~equipment in China and manufacturing equipment, computer system and leasehold improvements~~open in the ~~USA.~~second half of this fiscal year. We anticipate ~~FY18~~FY24 capital expenditures to be approximately ~~$1.2~~$3.0 million as ~~there is a new ERP project underway.~~we invest in strategic capacity expansion and replace existing equipment in the normal course of operations. We expect to fund the capital expenditures from our cash flow from operations. The Company may also expend funds in connection with potential acquisitions.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our fiscal year 2023 Form 10-K. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult, or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2023 Form 10-K. There have been no significant changes in the application of our critical accounting policies during the three months ended April 30, 2023.

~~Foreign Currency~~Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~While as a~~

A smaller reporting company ~~disclosure of market risk~~ is not required to provide the ~~Company~~information required by this Item, and therefore, no disclosure is ~~voluntarily including such disclosures.~~required under Item 3 for the Company.

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Item 4. Controls and Procedures

~~We are exposed to changes in foreign currency exchange rates as a result~~Evaluation of ~~our purchases~~Disclosure Controls and ~~sales in other countries. To manage the volatility relating to foreign currency exchange rates, we seek to limit, to the extent possible, our non-US dollar denominated purchases and sales.~~

In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are primarily made in Chinese RMB, the value of which had been largely pegged to the US dollar for the last decade. However, the Chinese RMB has been decoupled from the US Dollar and allowed to float by the Chinese government and, therefore, we have been exposed to additional foreign exchange rate risk on our Chinese raw material and component purchases.Procedures

Our primary risk from foreign currency exchange rate changes is presently related to non-US dollar denominated sales in Canada, Europe and in South American countries. Our sales to customers in Canada are denominated in Canadian dollars and in Europe in Euros and British pounds. If the value of the US dollar increases relative to the Canadian dollar, the Pound or the Euro, then our net sales could decrease as our products would be more expensive to these international customers because of changes in rate of exchange. Our sales from China are denominated in the Chinese RMB and US dollars. We manage the foreign currency risk through the use of rolling 90-day forward contracts against the Canadian dollar and the Euro and through longer term cash flow hedges in the US against the Euro. We do not hedge other currencies at this time. In the event that a non-US dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could have a material adverse impact on our financial results. The only significant unhedged foreign exchange exposure we have is the Argentine peso. Other unhedged currency exposure is not significant. If the Argentina exchange rate varied either way by +/- 10%, it would not be significant so long as prices could be raised to account for more expensive garments.

~~Interest Rate Risk~~

We are exposed to interest rate risk with respect to our credit facilities, which have variable interest rates based upon the London Interbank Offered Rate. At October 31, 2017, we had approximately $1.5 million in borrowings outstanding under our bank credit facility. If the interest rate applicable to this variable rate debt rose 1% in the year ended January 31, 2018, our interest expense would have increased $0.2 million.

~~Tax Risks~~

We are exposed to tax rate risk with respect to our deferred tax asset. Should the effective tax rate decrease as a result of tax reform there could be a significant one-time noncash charge to earnings in order to adjust our deferred tax asset. Though this one-time adjustment might be material, the Company would be in a favorable tax position going forward.

The Company claimed a worthless stock deduction in connection with our exit from Brazil which has generated a tax benefit of approximately US $9.5 million. While, along with our tax advisors, we believe that this deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.

~~Risks Associated with Discontinued Foreign Operations.~~

During the fiscal year ended January 31, 2016 the Company formally executed its exit from Brazil, but we may continue to be exposed to certain liabilities arising in connection with the prior operations of Lakeland Brazil. These risks include but are not limited to pre-existing VAT claims in the amount of $0.5 million excluding interest, penalties and fees and outstanding labor claims totaling approximately $0.3 million as of and at the quarter ended October 31, 2017. The Company understands that under the laws of Brazil, a concept of fraudulent bankruptcy exists, which may hold a parent company liable for the liabilities of a former Brazilian subsidiary in the event some level of fraud or misconduct is shown during the period that the parent company owned the subsidiary. While the Company believes that there has been no such fraud or misconduct relating to operations of and their exit from Brazil, there can be no assurance that the courts of Brazil will not make such a finding. The risk of exposure to the Company continues to diminish as the former subsidiary continues to operate, as the risk of a finding of fraudulent bankruptcy lessens and pre-sale liabilities are paid off. Should the former subsidiary stay in operations for a period of two years, the Company believes the risk of a finding of fraudulent bankruptcy is eliminated.

As disclosed in our periodic filings with 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, there are four which remain active. In one such case a former employee of our former Brazilian subsidiary recently filed a counterclaim in the action seeking approximately US $700,000 that he purports to be owed to him by our former Brazilian subsidiary under a purported promissory note and alleges that we are liable for payment therefore. Management firmly believes the counterclaim is without merit, intends to vigorously defend our position, and does not anticipate a negative outcome resulting in significant expense to us.

~~Item 4.~~

~~Controls and Procedures~~

~~Disclosure Controls and Procedures~~

~~We conducted an evaluation,~~management, under the supervision and with the participation of our ~~management, including the Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer, of~~principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as ~~such term is~~ defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, ~~(the “Exchange Act”)~~or the Exchange Act), as of ~~October 31, 2017. There~~April 30, 2023. The term “disclosure controls and procedures” means controls and other procedures of a company that are ~~inherent limitations~~designed to ensure that information required to be disclosed by a company in the ~~effectiveness of any system of disclosure~~reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures ~~including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure~~include, without limitation, controls and procedures ~~can only provide reasonable assurance of achieving their control objectives.~~designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on ~~their~~such evaluation, ~~the Chief Executive Officer~~our principal executive officer and ~~Chief Financial Officer~~principal financial officer have concluded that as of April 30, 2023, our disclosure controls and procedures were not effective asbecause of ~~October 31, 2017.~~the material weakness in internal control over financial reporting described below.

~~Changes~~Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weakness described below, management has concluded that the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with U.S. generally accepted accounting principles.

Material Weakness in Internal Control over Financial Reporting

~~There~~

As previously disclosed in our 2023 Form 10-K, management identified certain deficiencies in the Company’s internal control over financial reporting that aggregated to a material weakness related to its foreign subsidiary currency translation or remeasurement to ensure the foreign subsidiary’s account balances were accurately stated in the consolidated financial statements.

Management’s Remediation Plan and Status

In response to the material weakness, management has taken the following actions:

	·	Enhanced the existing monthly financial statement management review by including a reconciliation of key account balances on the general ledger back to the originally reported balances from the foreign subsidiary sub-ledgers (translated to USD);

	·	Reconfigured the trial balance import process for its Argentina subsidiary to import and remeasure account balances in a manner consistent with other foreign subsidiaries; and

	·	Developed enhancements to the foreign subsidiary financial reporting packages by specifically quantifying and reviewing the currency fluctuation impact on the overall financial statements.

While we have ~~been~~taken steps to substantially remediate the identified material weakness and will continue to complete the remediation process as quickly as possible, we cannot at this time estimate how long it will take to remediate this material weakness. The material weakness will not be considered remediated until the controls are designed, implemented, and operate for a sufficient period of time and management has concluded, through independent testing, that these controls are operating effectively. As management continues to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting, we may take additional measures to address these control deficiencies or modify certain remediation measures described above.

Changes in Internal Control Over Financial Reporting

Other than continuing to make progress on the ongoing remediation efforts described above, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during ~~Lakeland's third~~the quarter ~~of fiscal 2018 which~~ended April 30, 2023 that materially affected, or are reasonably likely to affect materially, ~~affect,~~ the Company’s internal control over financial reporting.


	3522

Table of Contents

PART II. OTHER INFORMATION

~~Items 1, 1A, 2, 3, 4~~Item 2. Unregistered Sales of Equity Securities and ~~5 are not applicable~~Use of Proceeds

Issuer Purchases of Equity Securities

On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company mayrepurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s then-current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Prior Share Repurchase Program”). On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”). The New Share Repurchase Program became effective upon the completion of the Prior Share Repurchase Program. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time. On December 1, 2022, the Board of Directors authorized an increase in the New Share Repurchase Program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

The common shares available for repurchase under the authorizations currently in effect may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.

The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of the Company’s common stock during the first quarter of fiscal 2024:

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Programs ⁽²⁾
February 1 – February 28		—	$	—		—	$	5,363,998
March 1 – March 31		—	$	—		—	$	5,363,998
April 1 – April 30		49,391	$	12.09		22,814	$	5,087,542
Total		49,391	$	12.09		22,814	$	5,087,542

	~~Item 6.~~ (1)	~~Exhibits~~: Includes withholding of 26,577 restricted shares to cover taxes on vested restricted shares during the first quarter of FY24.

	(2)	Represents the amount remaining under our share repurchase program as of April 30, 2023.

Table of Contents

Item 6. Exhibits:

Exhibits:

* Filed herewith

† Furnished herewith

3.1		Restated Certificate of Incorporation of Lakeland Industries, Inc., as amended (incorporated by reference to Exhibit 4.1 of Lakeland Industries, Inc.’s Registration Statement on Form S-8 filed on September 3, 2021)
3.2		Amended and Restated Bylaws of Lakeland Industries Inc. (incorporated by reference to Exhibit 3.1 of Lakeland Industries, Inc.’s Form 8-K filed April 28, 2017)
10.1*		General Release and Severance Agreement, by and between Lakeland Industries, Inc. and Allen E. Dillard
10.2*		Debt Purchase Facility Agreement, dated as of April 6, 2021, between HSBC Invoice Finance (UK) Limited and Lakeland Industries Europe Limited
10.3*		Amendment to Agreement for Purchase of Debts, dated effectively as of March 3, 2022, between HSBC Invoice Finance (UK) Limited and Lakeland Industries Europe Limited
31.1*		Certification of Chief Executive Officer ~~Pursuant~~pursuant to ~~Section 302 of~~Rule 13a-14(a) or 15(d)-14(a) under the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002~~1934
31.2*		Certification of ~~Chief~~Principal Financial Officer ~~Pursuant~~pursuant to ~~Section 302 of~~Rule 13a-14(a) or 15(d)-14(a) under the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002~~1934
32.1*32.1†		Certification of Chief Executive Officer ~~Pursuant~~as adopted pursuant to 18 U.S.C. Section 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*32.2†		Certification of ~~Chief~~Principal Financial Officer ~~Pursuant~~as adopted pursuant to 18 U.S.C. Section 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*		The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended April 30, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

101.INS*	~~XBRL instance Document~~
101.SCH*	~~XBRL Taxonomy Extension Schema Document~~24
101.CAL*	~~XBRL Taxonomy Extension Definitions Document~~
101.DEF*	~~XBRL Taxonomy Extension Labels Document~~Table of Contents
101.LAB*	~~XBRL Taxonomy Extension Labels Document~~
101.PRE*	~~XBRL Taxonomy Extension Presentations Document~~

* Filed herewith

SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LAKELAND INDUSTRIES, INC. (Registrant)
	~~(Registrant)~~
Date: June 7, 2023	/s/ Charles D. Roberson
~~Date: December 15, 2017~~	~~/s/ Christopher J. Ryan~~
	~~Christopher J. Ryan,~~
	Charles D. Roberson, Chief Executive Officer, President and Secretary
	~~(Principal~~ (Principal Executive Officer and Authorized Signatory)

Date: ~~December 15, 2017~~June 7, 2023	/s/ ~~Teri W. Hunt~~Roger D. Shannon
	~~Teri W. Hunt,~~
	Roger D. Shannon, Chief Financial Officer
	(Principal ~~Accounting~~Financial Officer and Authorized Signatory)


25	37

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	($000’s except for share information)
	2017			2016			2017			2016
Net sales	$	23,960		$	23,243		$	70,831		$	65,881
Cost of goods sold		14,907			14,724			44,530			41,999
Gross profit		9,053			8,519			26,301			23,882
Operating expenses		6,388			6,271			18,981			18,886
Operating profit		2,665			2,248			7,320			4,996
Other income (loss), net		7			(2	)		13			20
Interest expense		(35	)		(150	)		(147	)		(522	)
Income before taxes		2,637			2,096			7,186			4,494
Income tax expense		831			583			1,828			1,548
Net income	$	1,806		$	1,513		$	5,358		$	2,946
Net income per common share:
Basic	$	0.23		$	0.21		$	0.72		$	0.41
Diluted	$	0.23		$	0.21		$	0.71		$	0.40
Weighted average common shares outstanding:
Basic		7,894,582			7,258,697			7,477,202			7,255,966
Diluted		7,922,397			7,332,997			7,530,637			7,321,587

	For the Nine Months Ended October 31,
	2017			2016
	($000’s)			($000’s)
Cash flows from operating activities:
Net income	$	5,358		$	2,946
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (recovery of) inventory obsolescence		134			(5	)
Recovery of doubtful accounts		(42	)		(41	)
Deferred income taxes		750			153
Depreciation and amortization		582			963
Stock-based and restricted stock compensation		291			177
Loss on disposal of property and equipment		—			31
(Increase) decrease in operating assets
Accounts receivable		(2,121	)		176
Inventories		(2,953	)		4,283
Prepaid VAT taxes		(463	)		(374	)
Other current assets		366			(510	)
Increase (decrease) in operating liabilities
Accounts payable		3,535			477
Accrued expenses and other liabilities		194			(145	)
Net cash used by the sale of Brazil		(99	)		80
Net cash provided by operating activities		5,532			8,211
Cash flows from investing activities:
Purchases of property and equipment		(619	)		(116	)
Cash flows from financing activities:
Net repayments under revolving credit facility		(4,865	)		(3,687	)
Loan repayments, short-term		(867	)		(4,511	)
Loan borrowings, short-term		102			1,329
Loan repayments, long-term		(66	)		—
Loan borrowing, long-term		1,575			—
UK borrowings under line of credit facility, net		538			243
Proceeds from exercise of stock options		—			41
Shares returned to pay employee taxes under restricted stock program		(376	)		(3	)
Proceeds from public offering, net of issuance costs of approximately $1.0 million		10,113			—
Net cash provided by (used in) financing activities		6,154			(6,588	)
Effect of exchange rate changes on cash and cash equivalents		61			(76	)
Net increase in cash and cash equivalents		11,128			1,431
Cash and cash equivalents at beginning of period		10,365			7,022
Cash and cash equivalents at end of period	$	21,493		$	8,453

Supplemental disclosure of cash flow information:
Cash paid for interest	$	147		$	522
Cash paid for taxes	$	928		$	1,126

	October 31, 2017		January 31, 2017

Raw materials	$	13,490	$	14,312
Work-in-process		1,993		1,233
Finished goods		22,970		19,990
	$	38,453	$	35,535

	Short-Term				Long-term				Current Maturity of Long-term				Revolving Credit Facility
	10/31/17		1/31/17		10/31/17		1/31/17		10/31/17		1/31/17		10/31/17		1/31/17
Argentina	$	60	$	27	$	—	$	—	$	—	$	—	$	—	$	—
Canada		—		—		—		716		—		50		—		—
UK		694		126		—		—		—		—		—		—
USA		—		—		1,351		—		158		—		—		4,865
TOTALS	$	754	$	153	$	1,351	$	716	$	158	$	50	$	0	$	4,865

	Total		1 Year or less		2 Years		3 Years		4 Years		5 Years		After 5 Years
Revolving credit facility	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Borrowing in USA		1,509		158		158		1,193		—		—		—
Borrowings in Canada		—		—		—		—		—		—		—
Borrowings in UK		694		694		—		—		—		—		—
Borrowings in Argentina		60		60		—		—		—		—		—
Total	$	2,263	$	912	$	158	$	1,193	$	—	$	—	$	—

	Number of shares awarded total
	Minimum		Target		Maximum		Cap
Employees		21,145		31,718		42,291		50,748
Non-Employee Directors		7,246		10,870		14,493		17,391
Total		28,391		42,588		56,784		68,139

	Value at grant date (numbers below are rounded to the nearest $100)
	Minimum		Target		Maximum		Cap
Employees	$	291,800	$	437,700	$	583,600	$	700,300
Non-Employee Directors		100,000		150,000		200,000		240,000
Total	$	391,800	$	587,700	$	783,600	$	940,300

	Three Months Ended October 31,				Nine Months Ended October 31,
	2017		2016		2017		2016
2012 Plan	$	—	$	392	$	206	$	(9,756	)
2015 Plan		—		98,642		197,284		186,712
2017 Plan		93,981		—		93,981		—
Total stock-based compensation	$	93,981	$	99,034	$	291,471	$	176,966
Total income tax benefit recognized for stock-based compensation arrangements	$	33,833	$	35,652	$	104,929	$	63,708

Shares issued under 2017, 2015 and 2012 Stock Plans	Outstanding Unvested Grants at Maximum at Beginning of FY18		Granted during FY18 through October 31, 2017		Becoming Vested during FY18 through October 31, 2017		Forfeited during FY18 through October 31, 2017		Outstanding Unvested Grants at Maximum at End of October 31, 2017
Restricted stock grants – employees		67,619		42,291		40,570		27,049		42,291
Restricted stock grants – non-employee directors		—		14,493		—		—		14,493
Retainer in stock – non-employee directors		32,372		2,674		27,151		—		7,895
Total restricted stock		99,991		59,458		67,721		27,049		64,679

Weighted average grant date fair value	$	10.18	$	13.89	$	10.18	$	10.19	$	13.59

	Three Months Ended October 31,				Nine Months Ended October 31,
	(in 000’s except for share information)
	2017		2016		2017		2016
Numerator:
Net income	$	1,806	$	1,513	$	5,358	$	2,946

Denominator:
Denominator for basic earnings per share (weighted-average shares which reflect 356,441 shares in the treasury)		7,894,582		7,258,697		7,477,202		7,255,966
Effect of dilutive securities from restricted stock plan, from dilutive effect of stock options and warrants		27,815		74,300		53,435		65,621
Denominator for diluted earnings per share (adjusted weighted average shares)		7,922,397		7,332,997		7,530,637		7,321,587
Basic earnings per share	$	0.23	$	0.21	$	0.72	$	0.41

Diluted earnings per share	$	0.23	$	0.21	$	0.71	$	0.40

	Three Months Ended October 31,								Nine Months Ended October 31,
	2017				2016				2017				2016

Domestic	$	12.85	53.64	%	$	11.26	48.45	%	$	38.18	53.91	%	$	35.24	53.49	%
International		11.11	46.36	%		11.98	51.55	%		32.65	46.09	%		30.64	46.51	%
Total	$	23.96	100.00	%	$	23.24	100.00	%	$	70.83	100.00	%	$	65.88	100.00	%

	Three Months Ended October 31, (in millions of dollars)						Nine Months Ended October 31, (in millions of dollars)
	2017			2016			2017			2016
Net Sales:
USA	$	14.16		$	12.75		$	41.46		$	38.09
Other foreign		4.94			5.34			13.66			12.25
Europe (UK)		2.24			1.90			6.46			6.95
Mexico		0.90			0.84			2.77			2.42
China		13.47			10.41			36.88			30.37
Corporate		0.45			0.27			0.98			1.44
Less intersegment sales		(12.20	)		(8.27	)		(31.38	)		(25.64	)
Consolidated sales	$	23.96		$	23.24		$	70.83		$	65.88
External Sales:
USA	$	12.85		$	11.26		$	38.18		$	35.24
Other foreign		4.39			5.09			12.47			11.49
Europe (UK)		2.24			1.90			6.42			6.95
Mexico		0.51			0.40			1.66			1.13
China		3.97			4.59			12.10			11.07
Consolidated external sales	$	23.96		$	23.24		$	70.83		$	65.88
Intersegment Sales:
USA	$	1.31		$	1.49		$	3.28		$	2.85
Other foreign		0.55			0.25			1.19			0.76
Europe (UK)		—			—			0.04			—
Mexico		0.39			0.44			1.11			1.29
China		9.50			5.82			24.78			19.30
Corporate		0.45			0.27			0.98			1.44
Consolidated intersegment sales	$	12.20		$	8.27		$	31.38		$	25.64

	October 31, 2017 (in millions of dollars)			January 31, 2017 (in millions of dollars)
Total Assets:*
USA	$	63.84		$	56.34
Other foreign		21.17			18.16
Europe (UK)		4.65			3.61
Mexico		4.38			3.99
China		36.94			30.54
India		(1.10	)		(1.36	)
Corporate		29.40			26.00
Less intersegment		(58.92	)		(52.73	)
Consolidated assets	$	100.36		$	84.55
Total Assets Less Intersegment:*
USA	$	29.88		$	30.94
Other foreign		12.87			10.17
Europe (UK)		4.65			3.58
Mexico		4.46			4.07
China		21.33			18.44
India		0.84			0.43
Corporate		26.33			16.92
Consolidated assets	$	100.36		$	84.55
Property and Equipment:
USA	$	2.01		$	2.09
Other foreign		1.46			1.55
Europe (UK)		0.03			0.03
Mexico		2.02			2.05
China		1.93			2.05
India		0.10			0.03
Corporate		1.05			0.75
Less intersegment		0.02			(0.02	)
Consolidated property and equipment	$	8.62		$	8.53
Goodwill:
USA	$	0.87		$	0.87
Consolidated goodwill	$	0.87		$	0.87