LAKELAND INDUSTRIES INC

Previous wording

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

Lakeland Fire + Safety manufactures and sells a comprehensive line of fire services and industrial protective clothing and accessories for the industrial and first responder markets. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a strategic global network of selective fire safety and industrial distributors and wholesale partners. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, transportation, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly and to industrial distributors, depending on the particular country and market. In addition to the United States, sales are made into more than 50 foreign countries, the majority of which were into China, the European Economic Community ("EEC"), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Uruguay, Middle East, Southeast Asia, Australia, Hong Kong and New Zealand.

Current wording

Lakeland Industries, Inc. and Subsidiaries, doing business as “Lakeland Fire + Safety” (“Lakeland,” the “Company,” “we,” “our” or “us”), manufacture and sell a comprehensive line of fire services and industrial protective clothing and accessories for the industrial and first responder markets. 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 authorized distribution partners. Our authorized distributors supply end users across various industries, including integrated oil, chemical/petrochemical, automobile, transportation, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical and high-tech electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. We also supply federal, state and local governmental agencies and departments, including 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 mix of end-users directly and to industrial distributors, depending on the particular country and market. In addition to the United 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.

Previous wording

We had net sales of $167.2 million in FY25 and $124.7 million in FY24.

Current wording

We had net sales of $192.6 million in FY26 and $167.2 million in FY25.

Previous wording

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 our access to a labor pool that is less expensive than that available in the United States and permits us to purchase certain raw materials at a lower cost than they are available domestically. During FY25, the Company was impacted by tariff costs on certain products imported from China. Beginning in 2025 the 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, certain trading partners that are the subject of such new and expanded tariffs have announced that they are contemplating retaliatory tariffs to be imposed on U.S. exports. 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.

Current wording

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 provide access to a labor pool that is less expensive than that available in the U.S. and permits us to purchase certain raw materials at a lower cost than are available domestically. During FY25 and continuing into FY26, the Company was impacted by tariff costs on certain products imported from China. In addition, U.S. trade policy has undergone significant shifts under the Trump administration, including the imposition of new and expanded tariffs on key trading partners such as China, Vietnam, Canada, Mexico, and the European Union. These developments, along with potential retaliatory tariffs, have created increased uncertainty and cost 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.

Previous wording

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

Current wording

Our net sales attributable to customers outside the U.S. were $111.0 million and $106.8 million for the fiscal years ended January 31, 2026 and 2025, respectively.

Previous wording

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

Current wording

On December 16, 2024, the Company acquired U.S. based Veridian Limited for cash consideration of approximately $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 and is headquartered in Des Moines, Iowa.

Previous wording

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. 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.

Current wording

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. 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 is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia.

Previous wording

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. Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees. Jolly 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.

Current wording

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. 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. 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.

Previous wording

The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation. During FY25, 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.

Current wording

The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, tariffs and transportation. During 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.

Previous wording

Our business in Russia accounted for approximately 2.4% and 3.0% of our consolidated net revenues for the years ended January 31, 2025 and 2024, respectively. Our assets in Russia were approximately 2.4% and 2.6% of our consolidated assets at January 31, 2025 and 2024, respectively. The net book value of our assets in Russia on January 31, 2025 was approximately $5.2 million, of which $1.4 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.

Current wording

Our business in Russia accounted for approximately 2.1% and 2.4% of our consolidated net revenues for the years ended January 31, 2026 and 2025, respectively. Our assets in Russia were approximately 2.6% and 2.4% of our consolidated assets at January 31, 2026 and 2025, respectively. The net book value of our assets in Russia on January 31, 2026 was approximately $5.6 million, of which $1.0 million is cash. We currently have not recognized any impairment charges related to the assets of our Russian business.

Previous wording

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 recorded approximately ($0.8) million and $3.4 million in inventory adjustments in FY25 and FY24, 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.

Current wording

Inventories. 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 had inventory reserves of $4.7 million and $3.5 million as of January 31, 2026 and 2025, respectively.

Previous wording

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 FY25 and FY24, we recorded a change in our valuation allowance of less than $50,000 and approximately $3.1 million, respectively.

Current wording

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 FY26 and FY25, we recorded a change in our valuation allowance of $9.2 million and less than $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.

Previous wording

*Business combinations.*In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the 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 use and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, discount rates, attrition rates and working capital changes. Tangible long-lived assets are valued using a combination of the cost and market valuation approaches.

Current wording

Valuation of Intangible Assets Acquired in Business Combinations. Assigning fair values to intangible assets acquired in a business combination 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 and tangible long-lived assets. Acquired intangible 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 prospective financial information, including revenues and EBITDA, discount rates, and customer attrition rates. Tangible long-lived assets are valued using a combination of the cost and market valuation approaches.

Previous wording

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 sales volumes and prices, costs to produce, tax rates, capital spending, discount rates, and working capital changes. 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.

Current wording

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 prospective financial information and discount 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.

Previous wording

Net Sales. Net sales increased to $167.2 million for the year ended January 31, 2025 compared to $124.7 million for the year ended January 31, 2024, an increase of $42.5 million. Sales in the U.S. increased $5.2 million or 9.4%, primarily due to increased sales of fire services gear and improvements in direct container sales. Sales to the European market increased by $25.8 million or 158.2%. The key driver was the acquisitions of Jolly and LHD, which accounted for $27.0 million of the increase offset by weakness in the industrial markets. Canada sales increased by $0.9 million or 9.6% due to improvements in the industrial markets. Latin America sales increased $5.1 million or 31.7% due to continued strong sales in Argentina due to the strengthening of their economy. Sales into the Mexican market increased by $1.0 million or 25.0%, driven by improved sales of fire services and woven products. Sales in our other foreign markets increased by $4.4 million or 44.4% primarily due to the acquisition of Pacific in November 2023. Overall, our Fire Services line was a key driver of our revenue growth in FY25, increasing $36.5 million or 137.7%. The execution of our acquisition strategy and the acquisitions of Pacific in November 2023 and Jolly, LHD and Veridian in FY25 accounted for $33.1 million of the increase. The significant increase in Fire Services was complemented by an $8.0 million increase in our Wovens, Disposables and Chemical products, partially offset by a $1.2 million decline in our High Visibility products.

Current wording

Overall, our Fire Services line was a key driver of our revenue growth in FY26, increasing $30.6 million or 48.6%. The execution of our acquisition strategy and the acquisitions of Jolly, LHD and Veridian in FY25 and Arizona PPE and California PPE in FY26 accounted for $28.6 million of the increase. The increase in Fire Services was complemented by a $1.5 million increase in our High Performance products, partially offset by a $5.3 million decline in our Woven products and a $0.9 million decline in our Disposable products.

Previous wording

Gross Profit*.* Gross profit increased $17.5 million, or 34.2%, to $68.7 million for the year ended January 31, 2025, from $51.2 million for the year ended January 31, 2024. Gross profit as a percentage of net sales was consistent at 41.1% for the years ended January 31, 2025 and 2024.

Current wording

Gross Profit. Gross profit decreased $5.4 million, or 7.8%, to $63.3 million for the year ended January 31, 2026, from $68.7 million for the year ended January 31, 2025. Gross profit as a percentage of net sales was 32.9% for the year ended January 31, 2026 compared to 41.1% for the year ended January 31, 2025. The decrease in gross profit is primarily attributable to increases in personnel, freight, tariffs and materials costs over the prior year.

Previous wording

Operating Expense*.* Operating expenses increased 49.1% from $45.2 million for the year ended January 31, 2024 to $67.4 million 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 primarily due to the acquisition of Pacific in November 2023 and the acquisitions of Jolly, LHD and Veridian in FY2025 accounting for $9.8 million of the increase. Approximately $10.0 million of the increase was due to a) foreign currency remeasurement expense of $2.3 million driven by the continued devaluation of the Argentine peso, b) restructuring costs of $2.2 million, c) costs associated with the Monterrey, Mexico facility of $1.3 million, d) acquisition-related expenses of $3.7 million, and e) litigation costs for PFAS of $0.7 million. The remainder of the increase is from selling and administrative expenses incurred to support the growth of the Company and increased sales levels.

Current wording

Operating Expense. Operating expenses increased 14.2% from $67.4 million for the year ended January 31, 2025 to $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 increased in part due to the acquisitions of Jolly, LHD and Veridian in FY25 and Arizona PPE and California PPE in FY26. Integration and acquisition costs accounted for $6.2 million of the increase in FY26. Additionally, the increase in operating expenses year-over-year was primarily driven by increases in personnel costs, equity compensation, acquisition-related costs, professional fees, freight and other selling and administrative expenses incurred to support the growth of the Company and increased sales levels, partially offset by a decrease in legal costs.

Previous wording

Goodwill Impairment. The Company recognized a goodwill impairment charge of $3.0 million representing the entire amount of goodwill related to the Pacific reporting unit in the Other Foreign geographic segment and an impairment charge of $7.5 million representing 83% of the goodwill related to the Eagle reporting unit in the Europe geographic segment, during the year ended January 31, 2025.

Current wording

Goodwill Impairment. For 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 within the Other Foreign geographic segment, and $7.5 million related to the Eagle reporting unit within the Europe geographic segment, representing 83% of the associated goodwill.

Previous wording

Operating Income (Loss). Operating loss was ($9.3) million for the year ended January 31, 2025, as compared to operating income of $6.0 million for the year ended January 31, 2024, due to the impacts detailed above. Operating margin decreased to (5.5%) for the year ended January 31, 2025, compared to 4.8% for the year ended January 31, 2024.

Current wording

Operating Loss. Operating loss was ($15.5) million for the year ended January 31, 2026, as compared to an operating loss of ($9.3) million for the year ended January 31, 2025, due to the impacts detailed above. Operating margin decreased to (8.1%) for the year ended January 31, 2026, compared to (5.5%) for the year ended January 31, 2025.

Previous wording

Impairment of Equity Method Investment*.*The Company’s investment in Bodytrak has generated losses since its initial acquisition and has required repeated rounds of financing to maintain operations. In February 2025, Bodytrak entered insolvency proceedings in the United Kingdom. Through January 31, 2025, the Company has recognized a total of $1.5 million in losses from its investment in Bodytrak. As of January 31, 2025, the Company recorded an impairment loss of $7.6 million for the remaining recorded value of the equity method and convertible notes investments.

Current wording

Impairment of Equity Method Investment. The Company’s investment in Bodytrak has generated losses since its initial funding and required repeated rounds of financing to maintain operations. In February 2025, Bodytrak entered insolvency proceedings in the United Kingdom. Through January 31, 2025, the Company has recognized a total of $1.5 million in losses from its investment in Bodytrak. As of January 31, 2025, the Company recorded an impairment loss of $7.6 million for the remaining recorded value of the equity method and convertible notes investments.

Previous wording

Interest Expense*.* Interest expense was $1.7 million and less than $0.1 million for the years ended January 31, 2025 and 2024, respectively. The increase in interest expense is due to the increase in borrowing on the Company’s line of credit to fund its acquisition strategy.

Current wording

Interest Expense. Interest expense was $2.1 million and $1.7 million for the years ended January 31, 2026 and 2025, respectively. The increase in interest expense is due to the increase in borrowing on the Company’s line of credit to fund its acquisition strategy.

Previous wording

Income Tax Benefit*.* Income tax benefit consists of federal, state and foreign income taxes. Income tax benefit was $0.3 million, which did not include any amount associated with the GILTI component of the Tax Act of 2017 for the year ended January 31, 2025, as compared to an income tax expense of $3.9 million and included $0.8 million associated with the GILTI component of the Tax Act of 2017 for the year ended January 31, 2024. All international subsidiaries impacted the GILTI component of income tax expense.

Current wording

Income Tax Expense (Benefit). Income tax expense (benefit) consists of federal, state and foreign income taxes. Income tax expense was $7.6 million for the year ended January 31, 2026, as compared to an income tax benefit of $0.3 million for the year ended January 31, 2025. The primary drivers in the change between the periods was the decrease in consolidated pre-tax loss, changes in the jurisdictional mix of income and the establishment of a full valuation allowance against our U.S. deferred tax assets during the year ended January 31, 2026.

Previous wording

Net Income (Loss). Net loss was ($18.1) million for the year ended January 31, 2025 compared to net income of $5.4 million for the year ended January 31, 2024 for the reasons discussed above.

Current wording

Net Loss. Net loss was ($25.3) million for the year ended January 31, 2026 compared to net loss was ($18.1) million for the year ended January 31, 2025 for the reasons discussed above.

Previous wording

Net sales and net loss were $46.6 million and ($18.4) million, respectively, for Q4 FY25, as compared to sales of $31.2 million and net loss of ($1.0) million, for Q4 FY24.

Current wording

Net sales and net loss were $45.8 million and ($6.2) million, respectively, for Q4 FY26, as compared to sales of $46.6 million and net loss of ($18.4) million, for Q4 FY25.

Previous wording

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

Current wording

At January 31, 2026, cash and cash equivalents were approximately $12.5 million and working capital was approximately $96.2 million. Cash and cash equivalents decreased $5.0 million and working capital decreased $5.4 million from January 31, 2025.

Previous wording

Of the Company’s total cash and cash equivalents of $17.5 million as of January 31, 2025, cash held in Latin America of $2.2 million, cash held in Hong Kong of $0.2 million, cash held in the UK of $2.8 million, cash held in Vietnam of $0.4 million, cash held in India of $0.4 million and cash held in Canada of $0.4 million would not be subject to additional US 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”). The Company monitors its financial depositories by their credit rating, which varies by country. In addition, cash balances in banks in the United States are insured by the FDIC subject to certain limitations. There was approximately $1.3 million included in U.S. bank accounts and approximately $16.2 million in foreign bank accounts as of January 31, 2025, of which $16.7 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.”

Current wording

Of the Company’s total cash and cash equivalents of $12.5 million as of January 31, 2026, cash held in Latin America of $1.2 million, cash held in Hong Kong of $0.5 million, cash held in the UK of $1.5 million, cash held in Vietnam of $0.6 million, cash held in India of $0.2 million and cash held in Canada of $0.3 million would not be subject to additional U.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 Company monitors its financial depositories by their credit rating, which varies by country. In addition, cash balances in banks in the U.S. are insured by the FDIC subject to certain limitations. There was approximately $1.5 million included in U.S. bank accounts and approximately $11.0 million in foreign bank accounts as of January 31, 2026, of which $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.”

Previous wording

The Company strategically employs an intercompany dividend plan subject to subsidiary profitability, cash requirements and withholding taxes. During FY23 the Company changed its’ permanent reinvestment assertions for its Chinese operations due to the increased volatility of the Chinese yuan and an updated evaluation of investment strategies. During FY25 two of the Company’s subsidiaries in China declared and paid dividends of an aggregate of $4.8 million.

Current wording

The Company strategically employs an intercompany dividend plan subject to subsidiary profitability, cash requirements and withholding taxes. The Company changed its permanent reinvestment assertions for its Chinese operations due to the increased volatility of the Chinese Yuan and an updated evaluation of investment strategies. No intercompany dividends were paid to the U.S. from international subsidiaries during FY26.

Previous wording

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 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 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 which was used to pay down the credit facility.

Current wording

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 liabilities, 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 $19.7 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.

Previous wording

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

Current wording

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”), 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. 5, the “Loan Agreement Amendments”; and the Original Loan Agreement, as amended by the Loan Agreement Amendments, the “Amended Loan Agreement”).

Previous wording

The Amended Loan Agreement provides the Company with a secured revolving credit facility of up to $60.0 million of borrowings from December 12, 2024 through January 31, 2026 and of up to $50.0 million of borrowings from February 1, 2026 through January 31, 2027 (in each case, such limits remain subject to a reduction to no less than $40.0 million from the net proceeds of equity issuances if the Company raises capital during such periods). The revolving credit facility includes a $10.0 million letter of credit sub-facility. On January 24, 2025, as required by the Amended Loan Agreement, the Company used certain net proceeds of its equity issuance to reduce the principal amount outstanding under the Amended Loan Agreement. As a result thereof, the maximum principal amount under the revolving credit facility was reduced to $40 million. The credit facility matures on December 12, 2029.

Current wording

The Amended Loan Agreement provides the Company with a secured revolving credit facility of up to $40.0 million of borrowings (giving effect to the reduction of such limit following the application of the net proceeds from the Company's January 2025 equity issuance). The revolving credit facility includes a $10.0 million letter of credit sub-facility. The credit facility matures on December 12, 2029.

Previous wording

The Company made certain representations and warranties to the Lender in the Amended Loan Agreement that are customary for credit arrangements of this type. The Company also agreed to maintain, as of the end of each fiscal quarter a minimum “basic fixed charge coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.20x and a “funded debt to EBITDA ratio” (as defined in the Amended Loan Agreement) not to exceed 3.5x (with step-downs to 3.25x and 3.0x on February 1, 2026 and February 1, 2027, respectively), in each case for the trailing 12-month period ending with the applicable quarterly reporting period. In addition, the Company has agreed to maintain a springing “asset coverage ratio” (as defined in the Amended Loan Agreement) of at least 1.10x, but only to the extent that the maximum funded debt to EBITDA ratio exceeds 3.25x at any reporting period. The Company was in compliance with all of its debt covenants as of January 31, 2025.

Current wording

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.

Previous wording

The Company also agreed to certain negative covenants under the Amended Loan Agreement that are customary for credit arrangements of this type, including restrictions regarding the ability of the Company and/or its subsidiaries to conduct business, grant liens, make certain investments, make substantial changes in the present executive or management personnel, and incur additional indebtedness, which negative covenants are subject to certain exceptions. Moreover, the Amended Loan Agreement contains restrictions on the Company’s ability to enter into mergers and other business combination transactions and to purchase or acquire other businesses or their assets, although the Company may purchase a business or its assets without the consent of the Lender if the aggregate amount of consideration paid for by the Company is less than $26,000,000 for any individual acquisition or $36,000,000 on a cumulative basis for all such acquisitions or purchases subsequent to the date of Amendment No. 5. The Amended Loan Agreement also authorizes the Company to enter into additional lines of credit or incur liabilities in connection with the acquisitions of foreign subsidiaries in foreign countries where the Lender lacks a physical presence (such amounts not to exceed $10.0 million in the aggregate).

Current wording

The Company also agreed to certain negative covenants under the Amended Loan Agreement that are customary for credit arrangements of this type, including restrictions regarding the ability of the Company and/or its subsidiaries to conduct business, grant liens, make certain investments, and incur additional indebtedness, which negative covenants are subject to certain exceptions. Moreover, the Amended Loan Agreement contains restrictions on the Company’s ability to enter into mergers and other business combination transactions and to purchase or acquire other businesses or their assets, although the Company may purchase a business or its assets without the consent of the Lender if the aggregate amount of consideration paid for by the Company is less than $26.0 million for any individual acquisition or $36.0 million on a cumulative basis for all such acquisitions or purchases subsequent to the date of Amendment No. 5. The Amended Loan Agreement also authorizes the Company to enter into additional lines of credit or incur liabilities in connection with the acquisitions of foreign subsidiaries in foreign countries where the Lender lacks a physical presence (such amounts not to exceed $10.0 million in the aggregate).

Previous wording

In connection with the Amended Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65% of those subsidiaries that are considered “controlled foreign subsidiaries” as set forth in the Internal Revenue Code and regulations). The Company’s obligations to the Lender under the Amended Loan Agreement are also secured by a negative pledge evidenced by a Non-encumbrance Agreement covering the real property owned by the Company in Decatur, Alabama.

Current wording

In connection with the Amended Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65% of those subsidiaries that are considered “controlled foreign subsidiaries” as set forth in the Internal Revenue Code and regulations).

Previous wording

As of January 31, 2025, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $13.2 million outstanding under the revolving credit facility. The revolving credit facility carried an interest rate of 6.47% at January 31, 2025.

Current wording

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 Amended Loan Agreement. As of January 31, 2025, the Company had no borrowings outstanding on the letter of credit sub-facility and borrowings of $13.2 million outstanding under the revolving credit facility, and there was $26.8 million of additional available credit under the Amended Loan Agreement. The revolving credit facility carried an interest rate of 5.76% and 6.47% at January 31, 2026 and January 31, 2025, respectively.

Previous wording

We believe that 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 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. We were in compliance with all financial covenants of the Loan Agreement as of January 31, 2025.

Current wording

We believe that our current cash, cash equivalents, borrowing capacity under our Amended Loan Agreement and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements 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.

Previous wording

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

Current wording

On December 16, 2024, the Company acquired U.S. based Veridian Limited in an all-cash transaction valued at approximately $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 and is headquartered in Des Moines, Iowa.

Previous wording

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. 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, and $1.1 million remained unpaid subject to post-closing adjustments and customary holdback provisions. 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.

Current wording

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. 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 and is headquartered in Wesseling, Germany, with operations in Hong Kong and Australia.

Previous wording

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. Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees. Jolly 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.

Current wording

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. 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. 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.

Previous wording

The Company did not repurchase any shares in FY25 and has $5.0 million remaining under the share repurchase program at January 31, 2025.

Current wording

The Company did not repurchase any shares during FY26 or FY25 and has $5.0 million remaining under the share repurchase program at January 31, 2026.

Previous wording

Capital Expenditures. Our capital expenditures for FY25 of $1.5 million principally relate to our capital purchases for our manufacturing facilities in Vietnam and Mexico. We anticipate FY26 capital expenditures to be approximately $3.0 million to replace existing equipment in the normal course of operations, expand our fire services products manufacturing capabilities and invest in our new ERP system. We expect to fund the capital expenditures from our cash flow from operations.

Current wording

Capital Expenditures. Our capital expenditures for FY26 were $0.7 million which primarily relates to replacement equipment for our manufacturing sites and developed technology projects. Our capital expenditures for FY25 were $1.5 million which primarily related to our capital purchases for our manufacturing facilities in Vietnam and Mexico. We anticipate FY27 capital expenditures to be approximately $3.2 million to replace existing equipment in the normal course of operations and expand our fire services products manufacturing capabilities. We expect to fund the capital expenditures from our cash flow from operations. The Company may also expend funds in connection with potential acquisitions.