LAKE 10-K & 10-Q changes, risk factors and insider trading

You should carefully consider the following risks before investing in our common stock. The risks and uncertainties described below are those that we have identified as material, but they are not the only risks that we may face. If any of the events referred to below actually occur, our business, financial condition, liquidity and results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. In addition, the risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in the forward-looking statements. See the section titled “Information Relating to Forward-Looking Statements” for a discussion of such statements and their limitations. You should also refer to the other information in this Form 10-K and in the documents we incorporate by reference into this Form 10-K, including our consolidated financial statements and the related notes.

We are subject to risk as a result of our international manufacturing operations.operations, including risks resulting from recent developments in the international trade environment, such as increased import tariffs.

In recent years, the United StatesU.S. has imposed tariffs on various products imported into the United States.U.S. These tariffs have resulted in, and may continue to trigger, retaliatory actions by affected countries, including the imposition of tariffs on the United StatesU.S. by other countries. Under the current administration, trade policy has been a central focus, with renewed scrutiny on trade relationships with China and efforts to renegotiate or withdraw from key agreements such as the United States-Mexico-Canada Agreement (USMCA). This shift has included the introduction of additional tariffs, including on Mexican, Canadian, Chinese, Vietnamese, European Union and Indian goods, targeted sanctions, and restrictions on investments linked to industries deemed critical to U.S. national security. Certain foreign governments, such as China, Canada, Mexico and the European Union, have instituted or are considering imposing trade sanctions on certain U.S. goods and denying U.S. companies access to critical raw materials. The extent and duration of increased tariffs, which we are unable to predict, and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets.

Our business has been negatively affected by the IEEPA tariffs and may be negatively affected in the future by this quickly evolving tariff situation and the economic uncertainty created thereby. Tariffs increase the cost of our products and the components and raw materials that go into making them. These increased costs adversely impact the gross margin we earn on our products. Tariffs canhave also makeincreased the cost of our products more expensive for customers, whichmaking could make our productsthem less competitive and reducehave resulted in reduced consumer demand. Countries may also adopt other measures, such as controls on imports or exports of goods, technology, or data, that could adversely impact the Company’s operations and supply chain and limit the Company’s ability to offer our products and services as designed. These measures can require us to take various actions, including changing supplierssuppliers, shifting production of certain products to lower-tariff countries and restructuring business relationships. Changing our operations in accordance with new or changed trade restrictions can be expensive, time-consuming, and disruptive to our operationsoperations, andas well as distracting to management. Such restrictions have been, and may be in the future may befuture, announced, amended, paused, reinstatedreinstated, or rescinded with little or no advance notice, and we may not be able to effectively mitigate all adverse impacts from such measures,measures. effectively. Political uncertaintyUncertainty surrounding trade and other international disputes couldhas also havehad a negative effect on consumer confidence and spending.spending, Anyand ofwe thesecannot predict how long such uncertainty may last. These events couldhave reducereduced customer demand, and additional tariff policies could exacerbate those effects, increase the cost of our products and services, or otherwise have a materially adverse impact on our customers’ and suppliers’ businesses and results of operations, which could in turn additionally adversely impact our financial performance and growth prospects.

Our global operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and natural disasters. The occurrence or continuation of any of these events could have an adverse effect on our business results and financial condition.

The impact of the invasion of Ukraine, including economic sanctions or expansions of the war or other military conflicts, as well as potential responses to them by Russia, could adversely affect the Company’s business, supply chain, suppliers or customers and potentially heighten our risk of cyber-attacks. In addition, although negotiations for a potential ceasefireend areto ongoing,hostilities occur periodically, there is no certainty as to whether, when, or for how long any suchresulting ceasefire would haveremain in effect, and the continuation of Russia's invasion of Ukraine could lead to other disruptions, instability, and volatility in global markets and industries that could negatively impact the Company’s operations. ItAdditionally, isthe notconflict possiblein and around Iran has increased instability in the Middle East region and generated new economic uncertainty in global supply chains, due in part to predictthe restriction of shipping activity through the Strait of Hormuz. The broader consequences of thisthese conflict,conflicts whichare uncertain, and could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability of raw materials, supplies, freight and labor, currency exchange rates and financial markets, all of which could impact the Company’s business, financial condition and results of operations.

Further escalation of specific trade tensions, including those between the U.S. and China, and those between the U.S. and Mexico and Canada, or more broadly in global trade conflicts, could adversely impact the Company's business and operations. The Company's business is also impacted by social, political, and labor conditions in locations in which the Company or its suppliers or customers operate; adverse changes in the availability and cost of capital; monetary policy; interest rates; inflation; recession; commodity prices; currency volatility or exchange control; ability to expatriate earnings; and other laws and regulations in the jurisdictions in which the Company or its suppliers or customers operate. For example, changes in local economic conditions or outlooks, such as lower economic growth rates in China, Europe, or other key markets, impact the demand for or profitability of the Company's products.

We have business operations in 16 foreign countries. In FY25,FY26, more than half of our net sales were made by operations outside the United States.U.S. Those operations are subject to various political, economic and other risks and uncertainties, which could have a material adverse effect on our business. These risks include the following:

These variations couldhave in the past negatively impactimpacted our stock price.price and could continue to do so.

Our ability to manufacture, distribute and sell products is critical to our operations. These activities are subject to inherent risks such as natural disasters, power outages, fires or explosions, labor strikes, terrorism, war, epidemics, pandemics, import restrictions, regional economic, business, environmental or political events, governmental regulatory requirements or nongovernmental voluntary actions in response to global climate change or other concerns regarding the sustainability of our business, which could disrupt our supply chain and impair our ability to manufacture or sell our products. If not mitigated in advance or otherwise effectively managed, this interruption could adversely impact our business, financial condition and results of operations and require additional resources to address.

Our sales are generally made based on individual purchase orders, which may later be modified or canceled by the customer rather than on long-term commitments. We have historically been required to place firm orders for fabrics and components with our suppliers before receiving an order for our products based on our forecasts of customer demands. Our sales process requires us to make multiple demand forecast assumptions, each of which may introduce errors in our estimates, causing excess inventory to accrue or a lack of manufacturing capacity when needed. If we overestimate customer demand, as we have done in recent years, we may allocate resources to manufacturing products that we may not be able to sell when we expect to or at all. As a result, we experienced in fiscal year 2024 a buildup of excess inventory, with corresponding negative impacts on our financial results. We may experience similar results if we overestimate customer demand in the future. Conversely, if we underestimate customer demand or if insufficient manufacturing capacity is available, we would lose sales opportunities and market share and damage our customer relationships. On occasion, we have been unable to adequately respond to delivery dates required by our customers because of the lead time needed for us to obtain required materials or to send fabrics to our assembly facilities in China, Vietnam, India, and Mexico.

Three of our competitors, DuPont, Ansell, and MSA,MSA Safety, have substantially greater financial, marketing and sales resources than we do. In addition, we believe that the barriers to entry in the disposable and reusable garments and gloves markets are relatively low. We cannot assure you that our present competitors or competitors that choose to enter the marketplace in the future will not exert significant competitive pressures.

Our performance is substantially dependent on the continued services and performance of our senior management and certain other key personnel, including James M. Jenkins, our President and Chief Executive Officer and Executive Chairman; RogerJ. D.Calven Shannon,Swinea, our Chief Financial Officer and Secretary; Helena An, our Chief Operating Officer, Laurel A. Yartz, our Chief Human Resources Officer; Barry G. Phillips, our Chief Revenue Officer – Fire; and Cameron S. Stokes our Chief Commercial Officer – Global Industrials.Industrials; and Kevin Rae, our Executive Vice President of Europe, Middle East and Africa Fire Sales. The loss of services of any of our executive officers or other key employees could have a material adverse effect on our business, financial condition, and results of operations. In addition, any future expansion of our business will depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled managerial, marketing, customer service and manufacturing personnel, and our inability to do so could have a material adverse effect on our business, financial condition and results of operations.

We employ various measures to prevent, detect, address and mitigate cybersecurity threats (including access controls, vulnerability assessments, training for employees with electronic access to confidential information, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems). However, our security measures may be inadequate to prevent security breaches, and our business operations and reputation could be materially adversely affected by these events and any resulting federal and state fines and penalties, legal claims or proceedings. There are also significant costs associated with a data breach, including investigation costs, remediation and mitigation costs, notification and monitoring costs, attorneys’ fees, and the potential for reputational harm and lost revenues due to a loss of confidence. We cannot predict the costs to comply with these laws or the costs associated with a potential data breach, which could have a material adverse effect on our business, results of operations, financial position and cash flows, and our business reputation. As cyber threats continue to evolve, we may be required to expend significant capital and other resources to protect against the threat of security breaches or to mitigate and alleviate problems caused by security incidents. WhileTo theredate, we have been nonot identified any cybersecurity incidents, in the last three yearsthreats, that have materially affected our business strategy, results of operations or financial conditioncondition. to date,However, there can be no assurance that such risks will not have a material adverse effect in the future.

As a global organization that accesses and processes personal data in the course of its business, we are subject to U.S. and international data privacy, security and data breach notification laws, as well as contractual requirements that may govern the collection, use, disclosure and protection of personal and other sensitive data.

For example, in the United States,U.S., individual state statutes establish mandatory data breach notification requirements as well as more general privacy and security requirements. All 50 states, the District of Columbia and U.S. territories have adopted data breach notification laws that impose, in varying degrees, an obligation to notify affected persons and/or state regulators in the event of a data breach or compromise, including when their personal information has or may have been accessed by an unauthorized person. These laws apply according to the residence of the impacted individual. Some state breach notification laws may also impose physical and electronic security requirements regarding the safeguarding of personal information. In addition, various state privacy laws grant individuals various rights with respect to personal information and may require significant expense and resources to comply with these laws. ForWhile example,most of these state privacy laws are exclusively enforced by their state attorneys general, the California Consumer Privacy Act (“CCPA”) (as amended by the California Privacy Rights Act) is one of a few state privacy laws that includeincludes a limited private rightsright of action thatregarding maysecurity exposepractices in the event of a data breach, thus exposing us to potential private litigation regardingthat ourcould privacyresult and security practices andin significant damages awards or settlements in civil litigation. Finally, in addition to comprehensive state privacy laws, there are multiple other more specific and potentially applicable federal state privacy laws around the U.S. that regulate specific kinds of data, from biometric and health data to website analytics and online advertising and more, each of which present, to the extent applicable, the potential for statutory penalties, regulatory enforcement action, or, in some cases, private litigation.

Outside the United States,U.S., as our company continues to grow internationally through acquisitions as well as expanded business operations, we may be subject to established and continuously evolving international laws and regulations regarding individual rights around personal information and the cross-border transfers thereof. For example, Regulation (EU) 2016/679 (General Data Protection Regulation) (“GDPR”) and its counterpart in the United Kingdom, the Personal Information Protection Law of the People's Republic of China, adopted August 20, 2021, effective November 1, 2021 (“PIPL”), the Personal Information Protection and Electronic Documents Act in Canada (“PIPEDA”), and other such international privacy laws around the world, as well as their implementing regulations, contain data breach notification requirements, outline certain obligations and restrictions around the collection, processing, and cross-border transfers of personal information, and may also grant individuals certain consumer rights over their personal information. In addition, the recently effective DOJ Bulk Transfer Rule prohibits or restricts the cross-border bulk transfer of government-related data or bulk sensitive U.S. personal data to persons and countries of concern. Given our organization’s international locations and global distribution networks, compliance with the varying data privacy requirements in effect across the United StatesU.S. and around the world, particularly as they continue to evolve in many countries, may necessitate expenditures and changes in our business models. Failure to comply with these requirements can subject us to legal, regulatory, and reputational risks, as well as the financial risks that can accompany regulatory investigations, enforcement actions and private litigation.

If we are unable to integrate or successfully manage businesses that we have recently acquired or may acquire in the future, we may not realize anticipated cost savings, improved manufacturing efficiencies and increased revenue, which may result in material adverse short and long-term effects on our consolidated operating results, financial condition and liquidity. Even if we are able to integrate the operations of our acquired businesses into our operations, we may not realize the full benefits of the cost savings, revenue enhancements or other benefits that we may have expected at the time of acquisition. In addition, even if we achieve the expected benefits, we may not be able to achieve them within the anticipated time frame, and such benefits may be offset by costs incurred in integrating the acquired companies and increases in other expenses. For example, as disclosed in Item 9A of this Annual Report, we are in the process of remediating a material weakness in our internal control over financial reporting related to the need to enhance information technology general controls ("ITGCs") over the completeness and accuracy of the Company’s foreign reporting packages. These reporting packages serve as the basis for multiple controls, including a key management review control designed to detect material misstatements in the Company’s consolidated financial statements. We can give no assurance that additional material weaknesses will not arise in the future.

Acquisitions involve a number of special risks in addition to those mentioned above, including the diversion of management’s attention to the assimilation of the operations and personnel of the acquired companies, the potential loss of key employees of acquired companies, potential exposure to unknown liabilities, unfavorable accounting treatment, adverse effects on our reported operating results and the amortization or write-down of acquired intangible assets. We cannot assure you that any acquisition by us will or will not occur, that if an acquisition does occur, it will not materially and adversely affect our results of operations or that any such acquisition will be successful in enhancing our business. To the extent that we are unable to manage growth efficiently and effectively or are unable to attract and retain additional qualified management personnel, our business, financial condition and results of operations could be materially and adversely affected.

Our system of internal and disclosure controls and procedures was designed to provide reasonable assurance of achieving its objectives. However, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected. As a result, there can be no assurance that our system of internal and disclosure controls and procedures will be successful in preventing all errors, theft and fraud or in informing management of all material information in a timely manner. For example, as disclosed in Item 9A of this annualAnnual report,Report, we are in the process of remediating a material weakness related to inconsistencies in enterprise-wideour controlsinternal control over financial reporting resultingrelated fromto ourthe acquisitionneed ofto severalenhance subsidiaries"ITGCs" over the pastcompleteness twoand years.accuracy of the Company’s foreign reporting packages. These reporting packages serve as the basis for multiple controls, including a key management review control designed to detect material misstatements in the Company’s consolidated financial statements. We can give no assurance that additional material weaknesses will not arise in the future.

We are implementing a new enterprise resource planning system, and challenges with the planning or implementation of the system or further delays may impact our internal control over financial reporting, business and operations.

We arehave undertakingcommenced a multi-year process of implementing a complex new SAP enterprise resource planning system (“ERP”), which is a major undertaking that will replace most of our existing operating and financial systems. An ERP system is used to maintain financial records, enhance data security and operational functionality and resiliency, and provide timely information to management related to the operation of a business. The SAP ERP implementation will require the integration of the new ERP with existing information systems and business processes. OurThis ERP planningprocess has required,required and the ongoing planning and future implementation of the new ERP will continue to require,require the investment of significant capital and human resources, requiring the attention of members of our management team. Any deficiencies in the design, or delays or issues encountered in the implementation, of the new SAP ERP could result in significantly greater capital expenditures and employee time and attention than currently contemplated and could adversely affect our ability to operate our business, including effective management of our invoicing and accounts receivable and collections processes, file timely reports with the SEC or otherwise affect the proper and efficient operation of our controls. IfWe have already experienced some delays in the system as implemented, or after necessary investments, does not result in our ability to maintain accurate books and records, our financial condition, resultsimplementation of operations, and cash flows could be materially adversely impacted. Additionally, conversion from our old system to the new ERP maysystem alsoand causean inefficienciesassociated untilincrease in cost, and there is no guarantee that other delays will not take place. In addition, we replaced the ERP is stabilized and mature. The implementationimplementer of our newERP ERPsystem and will requireonboard a new proceduresimplementer andin manythe newfirst controlshalf overof financialfiscal reporting.2027. IfFurther wechanges arein unablescope, to adequately plan, implement and maintain procedures and controls relating to our ERP, our ability to produce timely and accurate financial statementstimeline or comply with applicable regulationscost could behave impaireda andmaterial impactadverse theeffect effectiveness ofon our internal control over financial reporting. All of the above could result in harm to our reputation or our customers, as well as expose us to regulatory actions or claims, any of which could materially impact our business, results of operations, financial condition and stock price.operation.

As disclosed in Part II - Item 9A. Controls and Procedures, management has identified a material weakness in our internal control over financial reporting relating to controls over the completeness and accuracy of the Company’s foreign reporting packages which are the basis preparationof ofmultiple controls, including a key management review control designed to detect a material misstatement in our consolidated financial statements. As a result, management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of January 31, 2025.2026. The material weakness did not result in any material misstatements to the Company’s consolidated financial statements, and the Company is currently working to remediate the material weakness. However, there can be no assurance that these remediation efforts will be successful. In addition, these remediation efforts will place a burden on management and may result in additional expenses.

Lakeland Industries, Inc. and Subsidiaries, doing business as “Lakeland Fire + Safety” manufactures(“Lakeland,” the “Company,” “we,” “our” or “us”), manufacture and sellssell a comprehensive line of fire services and industrial protective clothing and accessories for the industrial and first responder markets. In addition, we provide decontamination, repair and rental services that complement our fire services portfolio. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a strategic and selective global network of selectiveauthorized fire safety and industrial distributors and wholesaledistribution partners. Our authorized distributors supply end users,users suchacross asvarious industries, including integrated oil, chemical/petrochemical, automobile, transportation, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical,pharmaceutical and high technologyhigh-tech electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. InWe addition, wealso supply federal, state and local governmental agencies and departments, such asincluding fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixturemix of end usersend-users directly and to industrial distributors, depending on the particular country and market. In addition to the United States,States (U.S.), sales are made into more than 50 foreign countries, the majority of which were into China, the European Economic Community ("EEC"), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Uruguay, Middle East, Southeast Asia, Australia, Hong Kong and New Zealand.

We have operated facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor-intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow ourprovide access to a labor pool that is less expensive than that available in the United StatesU.S. and permits us to purchase certain raw materials at a lower cost than they are available domestically. During FY25,FY25 and continuing into FY26, the Company was impacted by tariff costs on certain products imported from China. BeginningIn in 2025 theaddition, U.S. trade policy has undergone significant shifts under the Trump administration, which has emphasized the use of tariffs as a strategic tool. Recent developments have generated widespread uncertainty, including the United States’ imposition of new and expanded tariffs on key trading partners such as China, Vietnam, Canada, Mexico, and the European Union. Furthermore,These certaindevelopments, tradingalong partnerswith thatpotential areretaliatory thetariffs, subjecthave ofcreated suchincreased newuncertainty and expandedcost tariffs have announced that they are contemplating retaliatory tariffs to be imposed on U.S. exports.pressures. In prior years, the Company has been able to pass along a portion of costs resulting from tariffs to its customers, but there is no guarantee that we will be able to successfully do so in the future. We added manufacturing operations in Vietnam and India in fiscal 2019 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. Manufacturing expansion is not only necessary to control rising costs, but also for Lakeland to achieve its growth objectives. We added three U.S. based manufacturing locations through our acquisition of Veridian Limited in December 2024. These facilities currently produce Veridian’s brand of fire turnout gear and gloves, but they are in the process of being certified to produce Lakeland turnout gear for the U.S. market. They are also capable of producing Lakeland’s woven and high-performance garments.

Our net sales attributable to customers outside the United StatesU.S. were $106.8$111.0 million and $69.4$106.8 million for the fiscal years ended January 31, 20252026 and 2024,2025, respectively.

On December 16, 2024, the Company acquired U.S. based Veridian Limited for cash consideration of approximately $26.1$26.3 million subject to post-closing adjustments and customary holdback provisions. Founded in 1992, Veridian is a leading provider of firefighter protective apparel, including fire and rescue garments, gloves and boots, with an annual revenue of approximately $21 million. Veridian has approximately 150 employeesboots and is headquartered in Des Moines, Iowa.

On July 1, 2024, the Company acquired the fire and rescue business of LHD Group Deutschland GmbH and its subsidiaries in Hong Kong and Australia (collectively, "LHD") in an all-cash transaction subject to post-closing adjustments and customary holdback provisions.transaction. Total consideration was $14.8 million, net of $1.5 million cash acquired, of which $15.5 million was paid to retire LHD’s debt, and $0.8 million was paid to the seller at closing. LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment cleaning, repair, and maintenance. LHD has 111 employees worldwide and is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia.

On February 5, 2024, the Company acquired Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly") in an all-cash transaction valued at approximately $9.0 million subject to post-closing adjustments and customary holdback provisions.million. Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees.Romania. Jolly provides a differentiated product portfolio through its continued investment in research and development and the use of modern materials and cutting-edge technologies in the production of its footwear.

The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, tariffs and transportation. During FY25,FY26, we have experienced continued inflationary pressure and higher costs because of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business. The increase in the cost of raw materials and finished goods is due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a limited basis. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results.

Our business in Russia accounted for approximately 2.4%2.1% and 3.0%2.4% of our consolidated net revenues for the years ended January 31, 20252026 and 2024,2025, respectively. Our assets in Russia were approximately 2.4%2.6% and 2.6%2.4% of our consolidated assets at January 31, 20252026 and 2024,2025, respectively. The net book value of our assets in Russia on January 31, 20252026 was approximately $5.2$5.6 million, of which $1.4$1.0 million is cash. We currently have not recognized any impairment charges related to the assets of our Russian business. However, the extent, severity, duration and outcome of the conflict between Russia and Ukraine and related sanctions could potentially impact the value of our assets in Russia as the conflict continues. Our Russian business is part of our Other Foreign segment.

Critical Accounting Policies and Estimates

Inventories. Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out or moving average basis) or net realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable inventory and write down such inventory to estimated net realizable value based upon assumptions about future sales and supply on hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company recordedhad approximatelyinventory ($0.8)reserves of $4.7 million and $3.4$3.5 million inas inventoryof adjustmentsJanuary in31, FY252026 and FY24,2025, respectively. The inventory adjustments in FY24 included $2.3 million in adjustments for certain products that the Company decided to discontinue or no longer support from a sales and marketing perspective.

Income Taxes. The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it may not be able to realize all or part of its deferred tax assets 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. In FY25FY26 and FY24,FY25, we recorded a change in our valuation allowance of $9.2 million and less than $50,000 and approximately $3.1$0.1 million, respectively. Changes in our future operating results, estimates of sources of future taxable income and tax laws may impact our ability to realize all or a portion of our deferred tax assets, resulting in the need for additional valuation allowances that could be material.

Business combinations. In accordance with the accounting guidance for business combinations, the Company uses the acquisition methodValuation of accountingIntangible Assets Acquired in Business Combinations. Assigning fair values to allocate the purchase price of an acquired business to theintangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in usea andbusiness oftencombination requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets,assets and tangible long-lived assets, and contingent consideration.assets. Acquired intangible assets, excluding goodwill,assets are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecastedprospective salesfinancial volumesinformation, including revenues and prices, royalty rates, costs to produce, tax rates,EBITDA, discount rates, and customer attrition rates and working capital changes.rates. Tangible long-lived assets are valued using a combination of the cost and market valuation approaches.

Goodwill and Other Intangible Assets. All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. Goodwill is not amortized but evaluated for impairment at least annually or whenever events or changes in circumstance indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may perform either a qualitative assessment of potential impairment or proceed directly to a quantitative assessment of potential impairment. If the Company chooses not to perform a qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to conclude that no impairment has occurred qualitatively, then the Company will perform a quantitative assessment. Quantitative testing involves comparing the estimated fair value of each reporting unit to its carrying value. We estimate reporting unit fair value using a weighted average of fair values determined by discounted cash flow ("DCF") and market approach methodologies, as we believe both are important indicators of fair value. A number of assumptions and estimates are involved in the application of the DCF model, including salesprospective volumesfinancial information and prices, costs to produce, tax rates, capital spending, discount rates, and working capital changes.rates. Cash flow forecasts are generally based on approved business unit operating plans for the early years and historical relationships in later years. The market approach methodology measures value through an analysis of peer companies. The analysis entails measuring the multiples of EBITDA at which peer companies are trading. If we are unable to achieve our estimates of future cash flows or market or business conditions result in changes to our significant assumptions, we may recognize additional impairment charges and such charges could be material.

Gross Profit. Gross profit increaseddecreased $17.5$5.4 million, or 34.2%,7.8%, to $63.3 million for the year ended January 31, 2026, from $68.7 million for the year ended January 31, 2025, from $51.2 million for the year ended January 31, 2024.2025. Gross profit as a percentage of net sales was consistent32.9% atfor the year ended January 31, 2026 compared to 41.1% for the yearsyear ended January 31, 20252025. The decrease in gross profit is primarily attributable to increases in personnel, freight, tariffs and 2024.materials costs over the prior year.

Operating Expense. Operating expenses increased 49.1%14.2% from $45.2$67.4 million for the year ended January 31, 20242025 to $67.4$77.0 million for the year ended January 31, 2026. Operating expenses as a percentage of net sales were 40.0% for the year ended January 31, 2026, as compared to 40.3% for the year ended January 31, 2025. Operating expenses as a percentage of net sales were 40.3% for the year ended January 31, 2025, as compared to 36.3% for the year ended January 31, 2024. Operating expenses increased primarilyin part due to the acquisition of Pacific in November 2023 and the acquisitions of Jolly, LHD and Veridian in FY2025FY25 accountingand Arizona PPE and California PPE in FY26. Integration and acquisition costs accounted for $9.8 million of the increase. Approximately $10.0$6.2 million of the increase in FY26. Additionally, the increase in operating expenses year-over-year was due to a) foreign currency remeasurement expense of $2.3 millionprimarily driven by theincreases continuedin devaluationpersonnel ofcosts, theequity Argentine peso, b) restructuring costs of $2.2 million, c) costs associated with the Monterrey, Mexico facility of $1.3 million, d)compensation, acquisition-related expensescosts, ofprofessional $3.7fees, million,freight and e) litigation costs for PFAS of $0.7 million. The remainder of the increase is fromother selling and administrative expenses incurred to support the growth of the Company and increased sales levels.levels, partially offset by a decrease in legal costs.

Goodwill Impairment. TheFor the year ended January 31, 2026, the Company recognized a goodwill impairment charge of $2.6 million representing approximately 45% of the goodwill associated with the LHD reporting unit within the Europe geographic segment. For the year ended January 31, 2025, the Company recognized goodwill impairment charges of $3.0 million representing the entire amount of goodwill related to the Pacific reporting unit inwithin the Other Foreign geographic segmentsegment, and an impairment charge of $7.5 million representing 83% of the goodwill related to the Eagle reporting unit inwithin the Europe geographic segment, duringrepresenting 83% of the yearassociated ended January 31, 2025.goodwill.

OtherGain Income.on Sale-Leaseback Transaction. On NovemberAugust 27, 2023,2025, the Company soldcompleted itsthe officesale andof the Decatur, Alabama warehouse facility in Brantford, Ontariofacilities to an unrelated party for $4.9$6.1 million. The sale resulted in a pre-tax gain, after selling expenses,and asset disposal costs, of approximately $3.8$4.3 million. Going forward, the Company is utilizing third party logistics providers for customer fulfillmentmillion in Canada.FY26.

NetOperating IncomeLoss. (Loss). NetOperating loss was ($18.1$15.5) million for the year ended January 31, 20252026, as compared to netan incomeoperating loss of $5.4($9.3) million for the year ended January 31, 20242025, due to the impacts detailed above. Operating margin decreased to (8.1%) for the reasonsyear discussedended above.January 31, 2026, compared to (5.5%) for the year ended January 31, 2025.

At January 31, 2025,2026, cash and cash equivalents were approximately $17.5$12.5 million and working capital was approximately $101.6$96.2 million. Cash and cash equivalents decreased $7.7$5.0 million and working capital increaseddecreased $18.4$5.4 million from January 31, 2024 reflecting the impact of the Company’s acquisition strategy with the purchase of Jolly, LHD and Veridian in FY25.2025.

Of the Company’s total cash and cash equivalents of $17.5$12.5 million as of January 31, 2025,2026, cash held in Latin America of $2.2$1.2 million, cash held in Hong Kong of $0.2$0.5 million, cash held in the UK of $2.8$1.5 million, cash held in Vietnam of $0.4$0.6 million, cash held in India of $0.4$0.2 million and cash held in Canada of $0.4$0.3 million would not be subject to additional USU.S. income tax in the event such cash was repatriated due to the change in the U.S. tax law as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).Act. The Company monitors its financial depositories by their credit rating, which varies by country. In addition, cash balances in banks in the United StatesU.S. are insured by the FDIC subject to certain limitations. There was approximately $1.3$1.5 million included in U.S. bank accounts and approximately $16.2$11.0 million in foreign bank accounts as of January 31, 2025,2026, of which $16.7$11.7 million was uninsured. These balances could be impacted if one or more financial institutions with which the Company deposits its funds fails or is subject to other adverse conditions in the financial or credit markets. To date, the Company has experienced no loss of principal or lack of access to invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be affected if the financial institutions that hold the Company’s cash and cash equivalents fail. See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K under the caption “Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition or results of operations.”

The Company strategically employs an intercompany dividend plan subject to subsidiary profitability, cash requirements and withholding taxes. During FY23 theThe Company changed its’its permanent reinvestment assertions for its Chinese operations due to the increased volatility of the Chinese yuanYuan and an updated evaluation of investment strategies. DuringNo FY25intercompany twodividends ofwere paid to the Company’sU.S. from international subsidiaries induring China declared and paid dividends of an aggregate of $4.8 million.FY26.

Net cash used in operating activities of $15.9 million for the year ended January 31, 2025 was primarily due to an increase in net inventories of $14.2 million, an increase in accounts receivable of $2.6 million, reductions in accrued expenses and other liabilitiesliabilities, as well as operating lease liabilities, of $5.4 million offset by an increase in accounts payable of $6.0 million. The growth in inventory is to support anticipated sales growth in the first half of FY26. Net non-cash income items were $19.9$19.7 million due to the write-off of the Company’s total investment in Bodytrak of $7.6 million, the impairment of Pacific’s goodwill of $3.0 million and the partial impairment of Eagle’s goodwill of $7.5 million. Net cash used in investing activities of $47.7 million for the year ended January 31, 2025 includes the acquisitions of Jolly, LHD and Veridian. Net cash provided by financing activities was $56.6 million driven by the borrowings under our credit facility of $59.4 million to fund the acquisitions. The Company successfully completed an underwritten offering of our common stock and raised net proceeds of $42.6 million in January 2025, which was used to pay down the credit facility.

On June 25, 2020, the Company entered into a Loan Agreement (the “Original Loan Agreement”) with Bank of America, N.A. (“Lender”), as amended by Amendment No. 1 to the Loan Agreement, dated June 18, 2021 (“Amendment No. 1”), Amendment No. 2 to the Loan Agreement, dated March 3, 2023 (“Amendment No. 2”), Amendment No. 3 to the Loan Agreement, dated November 30, 2023 (“Amendment No. 3”), Amendment No. 4 to the Loan Agreement, dated March 28, 2024 (“Amendment No. 4”), and Amendment No. 5 to the Loan Agreement, dated December 12, 2024 (“Amendment No. 5”), and Amendment No. 6 to the Loan Agreement, dated July 7, 2025 (“Amendment No. 6” and, collectively with Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, and Amendment No. 4,5, the “Loan Agreement Amendments”; and the Original Loan Agreement, as amended by the Loan Agreement Amendments, the “Amended Loan Agreement”).

Our net sales attributable to customers outside the U.S. were $27.3$28.7 million and $26.0$30.4 million for the three months ended AprilJuly 30,31, 2026 and 2025, respectively, and $56.0 million and $56.4 million for the six months ended July 31, 2026 and 2025, respectively.

Since early 2025, the executive branch of the U.S. government has pursued a policy of imposing tariffs on imports from many foreign countries, including countries where the Company has manufacturing facilities, such as China, India, and Vietnam, among others. In response, China and other countries announced retaliatory tariffs against certain U.S. imports. These tariffs have been, and may continue to be, announced, amended, paused, reinstated and rescinded with little or no advance notice. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”), and the U.S. Court of International Trade (“CIT”) subsequently ordered U.S. Customs and Border Protection to process refunds of tariffs paid under the IEEPA. While we have submitted claims for refunds related to certain eligible tariffs paid, the ultimate availability, timing, and amount of any potential refunds of such tariffs remain uncertain and are subject to further legal, regulatory, and administrative developments. NoDuring the six months ended July 31, 2026, the Company received approximately $2.1 million of refunds related to previously paid IEEPA tariffs. The tariff refundrefunds receivables have beenwere recorded in the accompanying condensed consolidated financial statements as ofa April 30, 2026. However, after April 30, 2026, we began receiving refunds, but the amount receivedreduction to datecost isof notgoods material.sold.

After the Supreme Court’s ruling on the IEEPA tariffs, the Trump Administration immediately imposed new global tariffs pursuant to Section 122 of the Trade Act of 1974, which allows for tariffs of up to 15% for a period of up to 150 days, and indicated its intention to consider other legal options for imposing tariffs. However, in May 2026, the CIT held that the tariffs imposed under Section 122 were unlawful. This ruling has been appealed and is subject to ongoing litigation. Subsequently, the Trump Administration imposed new tariffs on imports from more than 80 countries at varying rates under a number of different statutory provisions, including Section 301 of the Trade Act of 1974 and Section 338 of the Tariff Act of 1930.

We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations. For the threesix months ended AprilJuly 30,31, 2026, sales in Russia accounted for approximately 2.3%2.1% of our consolidated sales, and sales into Ukraine were not significant. We do not have any capital assets in Russia.

We are continually monitoring the potential financial impact of the U.S. and Israel coordinated military operation against Iran on our operations. Our sales in the Middle East were not significant during the threesix months ended AprilJuly 30,31, 2026. However, ongoing supply chain disruptions or increased freight costs resulting from the reduction in shipping volume through the Strait of Hormuz could have material adverse effects on our business.

Three Months ended AprilJuly 30,31, 2026, Compared to the Three Months Ended AprilJuly 30,31, 2025

Gross Profit. Gross profit for the three months ended AprilJuly 30,31, 2026 was $14.9$18.5 million, a decrease of $0.8$0.3 million, or 4.9%,1.5%, compared to $15.6$18.8 million for the three months ended AprilJuly 30,31, 2025. Gross profit as a percentage of net sales decreasedincreased to 31.4%37.0% for the three months ended AprilJuly 30,31, 2026, from 33.5%35.8% for the three months ended AprilJuly 30,31, 2025, primarily due to increased$2.1 million in tariff refunds received related to previously paid import duties, as well as lower labor, rent and certification costs partially offset by lower production and material costs. These impacts were partially offset by increased rent, new tariffs and freight costs.

Operating Expenses. Operating expenses decreasedincreased by $1.2$1.3 million, or 6.0%,7.0%, from $20.3$19.3 million for the three months ended AprilJuly 30,31, 2025 to $19.1$20.6 million for the three months ended AprilJuly 30,31, 2026. The decreaseincrease was primarily due to lowercurrency freightfluctuations, costs,tradeshow, advertising and amortization expenses, partially offset by decreases in stock based compensation, incentive compensation and professional fees, partially offset by an increase in stock based compensation and amortization expense.fees. Operating expenses as a percentage of net sales were 40.3%41.2% for the three months ended AprilJuly 30,31, 2026, downup from 43.4%36.7% for the three months ended AprilJuly 30,31, 2025, primarily due to the factors noted above.

Operating Income (Loss).Loss. Operating incomeloss was $2.3$(1.1) million for the threesix months ended AprilJuly 30,31, 2026, compared to an operating loss of $(4.68.7) million for the threesix months ended AprilJuly 30,31, 2025, due to the impacts detailed above. Operating margins were 4.8%(1.1)% for the threesix months ended AprilJuly 30,31, 2026, as compared to (9.98.7)% for the threesix months ended AprilJuly 30,31, 2025.

Income Tax Expense (Benefit). Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $1.3$2.6 million for the threesix months ended AprilJuly 30,31, 2026, compared to a benefit of $1.2$6.4 million for the threesix months ended AprilJuly 30,31, 2025. The Company's effective tax rate was a tax expense of 127.0% for the firstsix quartermonths ended July 31, 2026 and a tax benefit of FY2667.1% wasfor 78.5%the six months ended July 31, 2025 which differs from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against the Company’s U.S. operations.

Net Income (Loss). Income. Net incomeloss was $0.4$(4.6) million for the threesix months ended AprilJuly 30,31, 2026, compared to a net loss of $(3.93.1) million for the threesix months ended AprilJuly 30,31, 2025.

At AprilJuly 30,31, 2026, cash and cash equivalents were approximately $17.4$17.9 million, and working capital was approximately $92.8$90.8 million. Cash and cash equivalents increased $4.9$5.4 million, and working capital decreased $3.4$5.4 millionmillion, from January 31, 2026 due to the balance sheet fluctuations described below.

Of the Company’s total cash and cash equivalents of $17.4$17.9 million as of AprilJuly 30,31, 2026, cash held in Latin America of $1.0$1.2 million, cash held in the UK of $1.3$1.1 million, cash held in Russia and Kazakhstan of $1.8$2.8 million, cash held in the EEC of $3.9 million, cash held in India of $0.6 million, cash held in Vietnam of $0.2$1.2 million, and cash held in Hong Kong of $0.4 million would not be subject to additional U.S. tax in the event such cash was repatriated due to the change in the U.S. tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). When the Company repatriates cash from China, of the $3.0 million balance at AprilJuly 30,31, 2026, an additional 10% withholding tax may be incurred in that country. The Company expects to repatriate cash from China during FY 27 and in anticipation of doing so, has accrued withholding tax expense of $0.3 million as of AprilJuly 30,31, 2026.

Cash provided by operations was $5.8$5.4 million. Net incomeloss of $0.4$(4.6) million for the six months ended July 31, 2026 was adjusted for non-cash charges of $4.5$(1.2) million, primarily related to the gaingains on sale of inventory and intellectual property associated with our high performance and high visibility product lines and lease termination and settlement of the Monterrey, Mexico facility, partially offset by the goodwill impairment of the LHD reporting unit. There was an increase in operating assets and liabilities of $9.6$11.2 million primarily related to changes in inventory, deferred revenue, inventoryrevenue and otheraccounts assets.payable. Net cash provided by investing activities was $10.0$3.6 million, primarily due to the proceeds from the sale of the high-visibility and high-performance workwear styles partially offset by purchases of capital equipment. Net cash used in financing activities was $5.2$3.5 million due to $14.0$30.3 million borrowed under our credit facility to fund working capital increases offset by the repayment of debt facilities of $19.1$33.9 million and $0.2 million in shares returned to pay income taxes on shares vested under our equity compensation program.

On April 13, 2026, the Company and the Lender entered into a limited waiver (the “Limited Waiver”), pursuant to which the Lender waived the Company’s non-compliance as of January 31, 2026 with respect to two financial covenants under the Amended Loan Agreement. The $40.0 million aggregate commitment amount of the Amended Loan Agreement, maturity date of December 12, 2029, and applicable interest rate of the Amended Loan Agreement remained unchanged. The Company was in compliance with all of its debt covenants as of AprilJuly 30,31, 2026.

The Company made certain representations and warranties to the Lender in the Amended Loan Agreement that are customary for credit arrangements of this type. The Company also agreed to maintain, as of the end of each fiscal quarter a minimum “basic fixed charge coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.20x and a “funded debt to EBITDA ratio” (as defined in the Amended Loan Agreement) not to exceed 3.5x (with step-downs to 3.25x and 3.0x on February 1, 2026 and February 1, 2027, respectively), in each case for the trailing 12-month period ending with the applicable quarterly reporting period. In addition, the Company has agreed to maintain a springing “asset coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.10x, but only to the extent that the maximum funded debt to EBITDA ratio exceeds 3.25x at any reporting period. The Company was in compliance with all of its debt covenants as of AprilJuly 30,31, 2026.

As of AprilJuly 30,31, 2026, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $23.8$24.9 million outstanding under the revolving credit facility, and there was $16.2$15.1 million of additional available credit under the Loan Agreement. As of January 31, 2026, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $28.5 million outstanding under the revolving credit facility, and there was $11.5 million of additional available credit under the Loan Agreement. The interest rate on outstanding borrowings was 5.74%5.26% at AprilJuly 30,31, 2026 and 5.76% at January 31, 2026.

No shares were repurchased in the threesix months ended AprilJuly 30,31, 20262026, leaving $5.0 million remaining under the share repurchase program at AprilJuly 30,31, 2026. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

Capital Expenditures. Our capital expenditures were $1.4 million for the threesix months ended AprilJuly 30,31, 2026 which primarily relates to replacement equipment for our manufacturing sites and developedequipment technologyfor projects.our greenfield ISPs. We expect to fund the capital expenditures from our cash flows from operations. The Company may also expend funds in connection with potential acquisitions.

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 2026 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 2026 Form 10-K. There have been no significant changes in the application of our critical accounting policies and estimates during the threesix months ended AprilJuly 30,31, 2026.