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LAKELAND INDUSTRIES INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

April 28, 2014

Management's Discussion and Analysis of

Financial Condition and Results of Operations You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this Form 10-K and in the documents that we incorporate by reference into this Form 10-K. This document may contain certain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Overview In FY14, we resolved many issues. FY14 started out as a difficult year with the Company being in default on its banking agreements and experiencing operating losses but, during FY14, we resolved the default with new financing, which closed on June 28, 2013. Also in FY14, operating profit increased in the US before corporate expenses from $1.11 million in FY13 to $5.22 million in FY14 and increased in China from $2.88 million in FY13 to $3.54 million in FY14. This is largely due to the improvements in sales of Lakeland branded products, recovering from the loss of the DuPont license in July 2011. Our major remaining challenge is to attempt to address and resolve remaining issues in Brazil and return Brazilian operations to profitability sometime during FY15. We have changed local management and strategy in Brazil and we believe we should be able to turn around Brazil operations in FY15, but there can be no assurance in

this regard. FY13 was a challenging year for management. The Company lost an officer contract dispute where we had substantial documentary evidence that the officer in question had breached his employment contract with Lakeland. Nonetheless, a Brazilian Arbitration Panel awarded this officer a $12.5 million judgment against Lakeland. According to our local counsel, arbitration decisions in Brazil are very difficult to successfully appeal. Subsequently, Lakeland successfully negotiated the judgment down to $8.5 million of which $6.0 million was payable over six years with no interest. As of January 31, 2014, the remaining liability associated with this arbitration judgment is $5.0 million and is payable at $250,000 a quarter over the next five years, with no interest. In addition, the Brazilian government devalued its currency by 10% in 2012, which greatly reduced our margins in Brazil on imported fabrics. Declining sales in FY13 led to quarterly losses in Brazil, which led to the necessity of writing off all goodwill, certain intangibles and deferred tax assets of Brazil. These factors led to a default on the TD Bank loan, which in turn created substantial doubt about our ability to continue as a going concern. Thus, we engaged with new lenders and considered other options, such as the sale of the Company, the sale of assets and a refinance of the TD Bank loan. In May 2013, the Company accepted a commitment letter from a bank for a Senior Credit Facility subject to certain terms and conditions and, on June 28, 2013, closed this financing as more fully described in Note 6 to the financial statements herein. We will continue pursuing all options to maximize stockholder value. We manufacture and sell a comprehensive line of safety garments and accessories for the global industrial protective clothing markets. Our products are sold by our in-house sales force and independent sales representatives to safety and mill supply distributors and end users internationally. These distributors in turn supply end user industrial customers, such as integrated oil, utilities, chemical/petrochemical, automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and high technology electronics manufacturers. In addition, we supply federal, state and local governmental agencies and departments domestically and internationally, such as municipal fire and police departments, airport crash rescue units, the military, the Department of Homeland Security and the Centers for Disease Control and state and privately owned utilities and integrated oil companies. Management believes that we have turned around the operations worldwide, outside of Brazil. Consolidated operating loss was $(359,000) in FY14 compared with $(1,030,000) in FY13. Excluding Brazil, worldwide operating profits increased to $4.1 million in FY14 compared to $0.7 million in FY13. 28 We have operated facilities in Mexico since 1995, in China since 1996, in India since 2007 (now discontinued) and in Brazil since May 2008. 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 access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. As we have increasingly moved production of our products to our facilities in Mexico and China, we have seen improvements in the profit margins for these products. Our net sales from continuing operations attributable to customers outside the United States were $44.7 million and $54.4 million in FY14 and FY13, respectively. We anticipate R&D expenses to be $200,000 in FY15 compared to $123,000 in FY14, as some of our R&D will involve equipment purchases, as well as material costs. We are gradually returning our R&D efforts to normal levels as business performance permits.



Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and disclosure of contingent assets and liabilities. We base estimates on our past experience and on various other assumptions that we believe to be reasonable under the circumstances, and we periodically evaluate these estimates.



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

Revenue Recognition. The Company derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of firefighting and heat protective apparel, high-end chemical protective suits, gloves and arm guards and reusable woven garments. Sales are recognized when goods are shipped, at which time title and the risk of loss pass to the customer. Some sales in Brazil may be sold on terms with F.O.B. destination, which are recognized when received by the customer. Sales are reduced for sales returns and allowances. Payment terms are generally net 30 days for United States sales and net 90 days for international sales. Inventories. Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or market. Inventory is written down for slow-moving, obsolete or unusable inventory.



In the year ended January 31, 2014, the Company implemented a standardized policy for calculating slow-moving inventory outside the US. Previously, the Company wrote-down the inventory value on an individual product analysis basis.

USA and China Lower of Cost or Market and Obsolete. There is one discontinued product line in the US that management had been converting to a different style for one customer and reserving the cost of conversion. While this customer continues to purchase these converted styles, management determined that this one customer would not purchase these converted items in sufficient quantity, and management will have to sell the remaining stock at a deep discount. It was further determined an additional write-down was needed for remaining Tyvek inventory and obsolete raw materials used from other discontinued product lines. Such write-downs totaled approximately $1.3 million. In FY14, management believes it has adequately written down all slow-moving and obsolete inventory to lower of cost or market.

Brazil Lower of Cost or Market and Obsolete. It was determined that due to the introduction of a new fabric domestically sourced in Brazil, which drove down market pricing, along with significant improvements and elimination of inefficiencies in the production process, adjustments were made to inventory in FY14. In addition, the Company identified certain inventory in Brazil as obsolete. The inventory became obsolete as a result of the introduction of competing new products into the Brazilian marketplace. As a result, the inventory was written down to scrap value. Further, as a result of new Brazilian management completing its review of inventory based on revised strategy and current market conditions, we took a further write-down to reflect slow-moving and obsolete inventory. Such write-downs in Brazil totaled $1,463,000 in FY14. While management does not expect any further significant write-downs of current inventory, specifically in either Brazil or the US or anywhere else we operate, no assurance can be given. 29 Allowance for Doubtful Accounts. Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: Customer creditworthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other less creditworthy accounts are reviewed individually for collectability. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Income Taxes and Valuation Allowances. We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of preparing our 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 carry forwards and tax credits, are recorded as deferred tax assets or liabilities on our balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be realized 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. Uncertain Tax Positions. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Valuation of Goodwill and Other Intangible Assets. Goodwill and indefinite lived, intangible assets are tested for impairment at least annually; however, these tests may be performed more frequently when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and other intangibles impairment is evaluated utilizing a two-step process as required by US generally accepted accounting principles ("GAAP"). Factors that the Company considers important that could identify a potential impairment include: significant underperformance relative to expected historical or projected future operating results; significant changes in the overall business strategy; and significant negative industry or economic trends. The Company measures any potential impairment on a projected discounted cash flow method. Estimating future cash flows requires the Company's management to make projections that can differ materially from actual results. Impairment of Long-Lived Assets. The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Foreign Currency Risks. The functional currency for the Brazil operation is the Brazil Real; the United Kingdom, the Euro; the trading company in China, the RenminBi; the Canada Real Estate, the Canadian dollar; and the Russia operation, the Russian Ruble and Kazakhstan Tenge. All other operations have the US dollar as its functional currency. Self-Insured Liabilities. We have a self-insurance program for certain employee health benefits. The cost of such benefits is recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but not reported during such period. Our estimate of claims incurred but not reported is based upon historical trends. If more claims are made than were estimated or if the costs of actual claims increase beyond what was anticipated, reserves recorded may not be sufficient, and additional accruals may be required in future periods. We maintain separate insurance to cover the excess liability over set single claim amounts and aggregate annual claim amounts. 30



Significant Balance Sheet Fluctuation January 31, 2014, as Compared to January 31, 2013

Balance Sheet Accounts. The decrease in cash and cash equivalents of $2.2 million is primarily the result of normal fluctuations in cash management. Inventories increased $0.6 million primarily due to a planned buildup of inventory in the US to avoid stock outs in peak times of late December through May in North America, offset by write-downs of obsolete and slow-moving items and a $4.4 million reduction in Brazil inventory resulting from heavy discounting and sales of raw material to raise cash and write-downs as described herein. The decrease in net property and equipment of $2.0 million is mainly due to the sale of the Company's plant in Qingdao China and currency fluctuations in Brazil. The increase of $1.0 million in intangibles, prepaid bank fees and other assets, net is largely due to the fees incurred in the Company's financing which closed in June 2013, which is being amortized over the terms of the loans. Assets of discontinued operations decreased $0.8 million with the sale of Plot 24 in India (discussed in more detail in Note 6) and further inventory sales. Accounts payable increased $1.5 million mainly in China due to extended payment terms negotiated with raw material suppliers. The increase of $4.7 million in the current deferred tax asset is due to the reversal of a valuation allowance for such accounts. The borrowing in Brazil was used for working capital.



Year Ended January 31, 2014, Compared to the Year Ended January 31, 2013

Results of Operations

The following table sets forth our historical results of continuing operations for the years and three-months ended January 31, 2014 and 2013, as a percentage of our net sales from continuing operations. For the Year For the Three Months Ended January 31, Ended January 31, Audited Unaudited 2014 2013 2014 2013

Net sales from continuing operations 100.00 % 100.00 % 100.00 % 100.00 % Cost of goods sold from continuing operations 72.83 % 71.27 % - - Gross profit from continuing operations 27.17 % 28.73 % 28.12 % 23.92 % Operating expenses from continuing operations 27.57 % 29.81 % 29.87 % 30.22 % Operating profit (loss) from continuing operations (0.40 )% (1.08 )% (1.75 )% (6.30 )% Interest expense, VAT tax charge, foreign exchange in Brazil, settlement of arbitration award and other income, net (2.86 )% (20.71 )% - - Income (loss) before tax from continuing operations (3.25 )% (21.80 )% 1.13 % (50.72 )% Income tax expense (benefit) from continuing operations (3.12 )% 5.29 % - - Net income (loss) from continuing operations (0.13 )% (27.09 )% (7.25 %) (75.10 )%

Net Sales*. Net sales from continuing operations decreased $3.7 million, or 3.9%, to $91.4 million for the year ended January 31, 2014, compared to $95.1 million for the year ended January 31, 2013. The net decrease was mainly due to a $9.7 million decrease in foreign sales, partially offset by a $6.0 million increase in domestic sales. The net decrease of $9.7 million in foreign sales was mainly due to a $9.6 million decrease in sales in Brazil as a result of several large bid sales in the prior year and a generally poor sales level in Brazil. UK sales increased by $1.8 million, or 18%. US disposable sales increased by $4.2 million but, excluding direct ships, decreased by $1.0 million. Fyrepel sales increased by $1.7 million, or 56%, as a result of new product introductions. Canada sales decreased by $0.3 million, mainly as a result of the weakening Canadian economy and the further loss from DuPont product sales, although Canada sales strengthened in Q4 in spite of the weak currency. Reflective sales were increased by $1.4 million as a result of new product introduction. Kazakhstan and Russia sales increased by $0.9 million as we gain market acceptance in these new markets.



*For purposes of the Management's Discussion, the reference to "Q" shall mean "Quarter." Thus "Q2" means the second quarter of the applicable fiscal year.

31 Gross Profit. Gross profit from continuing operations decreased $2.5 million, or 9.1%, to $24.8 million for the year ended January 31, 2014, from $27.3 million for the year ended January 31, 2013. Gross profit as a percentage of net sales decreased to 27.2% for the year ended January 31, 2014, from 28.7% for the year ended January 31, 2013. The major factors driving the changes in gross margins were:



Disposables gross margin increased by 7.5 percentage points in FY14 compared

with FY13. This increase was mainly due to price increases early in FY14, and

other margin improving activities, along with changes in the sales mix to

primarily Lakeland branded products this year, with only $0.3 million DuPont

products this year, while last year had $1.4 million sales of DuPont products

at a lower margin. This year's margin was lower than it otherwise would be as a

result of a $0.2 million further write-down of the inventory value for Tyvek

items remaining, a write-down of $0.4 million on a discontinued line of

finished goods, a $0.4 million write-down on discontinued raw materials and a

$0.4 million reduction in inventory valuation due to changes in overhead rates.

Brazil gross margin was (4.1%) for this year compared with 31.2% last year,

primarily due to an inventory write-down of $1.2 million due to introduction of

new fabric domestically sourced in Brazil, which drove down market pricing,

obsolete inventory, heavy discounting to promote sales and sales of raw

material below cost to raise cash for Brazil.

Glove margins decreased 6.9 percentage points primarily from inventory

write-downs of $0.6 million on discontinued product lines.

Chemical margins increased by 2.0 percentage points due to different sales mix.

Canada gross margin decreased by 3.5 percentage points primarily due to

discounting remaining Tyvek inventory and weakness in the Canadian currency in

Q4 which impacted margins.

UK margins increased by 1.0 percentage point primarily from higher volume and

sales mix.

Argentina margins decreased by 7.9 percentage points due to poor volume

resulting from lack of working capital and government controls on imports.

Operating Expenses. Operating expenses from continuing operations decreased $3.2 million, or 11.2 %, to $25.2 million for the year ended January 31, 2014, from $28.4 million for the year ended January 31, 2013. As a percentage of net sales, operating expenses decreased to 27.6% for the year ended January 31, 2014, from 29.8% for the year ended January 31, 2013. The decrease in operating expenses in the year ended January 31, 2014, as compared to the year ended January 31,

2013, included: $0.2 million increase in bank charges mainly resulting from the financing completed by the Company in June 2013. $0.2 million increase in amortization mainly resulting from the financing completed by the Company in June 2013. $(0.1) million decrease in equity compensation expense, resulting from the performance level set by the Board at zero, partially offset by increased equity compensation for three senior officers who voluntarily took a 30% reduction in their cash compensation through June 2013, paid in restricted stock.

$(0.1) million reduction in payroll taxes, mainly resulting from the three senior officers voluntarily taking a 30% reduction in cash compensation payable in restricted stock.



$(0.2) million decrease in currency fluctuation expense, mainly resulting

from gains in Argentina.



($0.4) million reduction in SGA reclassed from Cost of Goods sold mainly

resulting from the sale of the Qingdao plant.



$(1.3) million decrease in commissions, of which $0.9 million was in Brazil,

relating to higher commissions on large bid contracts



delivered in

FY13. $(1.5) million decrease in administrative salaries, of which $1.4 million was in Brazil, which includes a prior year $0.6 million accrual for the contract termination of the President of the Brazilian subsidiary and $0.8 million reduction in administrative salaries in Brazil, throughout the year, which is the result of our efforts to reduce costs. Ten employees in administration and sales were



terminated in

Brazil in FY14, and the depreciated currency resulted in lower payroll expense in Brazil. 32

Operating Profit/(Loss). Operating profit/(loss) from continuing operations increased by $0.7 million to a loss of $0.4 million from a loss of $1.0 million for the prior year. Operating profit as a percentage of net sales increased for the year ended January 31, 2014, from a loss of (1.1)% for the year ended January 31, 2013, to a loss of 0.4% in FY14, primarily due to a $550,000 charge for contract termination of the President of the Brazilian subsidiary in FY13, offset by issues in Brazil mainly due to lack of large bid contracts in FY14. Without Brazil's operating loss of $4.4 million in FY14, the Company would have had operating income of $4.1 million in FY14. In FY13, Brazil had an operating loss of $(1.6) million. Without Brazil, the Company would have had an operating profit of $0.7 million in FY13. Operating profit, excluding Brazil, therefore, increased from $0.7 million in FY13 to $4.1 million in FY14. Interest Expense. Interest expense increased by $1.3 million for the year ended January 31, 2014, compared to the year ended January 31, 2013, as a result of the financing closed in June 2013 and additional borrowings in Brazil at the higher rate prevailing in Brazil. Other Expenses - Net. The decrease in other expenses resulted mainly from the inclusion in FY13 of a $10.0 million write-down of goodwill and other intangibles in Brazil and the $7.9 million arbitration settlement with two of the former owners of the Company's subsidiary in Brazil. Income Tax Expense. Income tax expenses from continuing operations consist of federal, state and foreign income taxes. Income tax expense decreased $7.9 million to a net benefit of $(2.9) million for the year ended January 31, 2014, from $5.0 million for the year ended January 31, 2013. In FY13, our effective tax rate varied from the federal statutory rate of 34% due primarily to the $7.9 million arbitration settlement in Brazil and $10.0 million goodwill and other intangibles write-off in Brazil, which did not get a tax benefit in such prior year and, in FY14 by dividends taxable in the US of $1.7 million from the sale of the Qingdao plant and by $0.6 million from the Company's Canadian subsidiary as a result of the financing closed in June 2013, establishment of a $4.5 million valuation allowance for deferred tax assets in FY13 and the reversal thereof in FY14. Our US taxes were also impacted in FY14 due to nondeductible amortization of the $2.2 million original issue discount resulting from the warrant issued to the subordinated lender. Net Income/(Loss). Net income/(loss) from continuing operations increased $26.2 million to a loss of $(0.1) million for the year ended January 31, 2014, from a loss of $(26.3) million for the year ended January 31, 2013. The increase in net income was primarily a result of the arbitration settlement and goodwill and other intangibles impairment charge in Brazil in the prior year (see Notes 4 and 5 for full discussion) and improvements in the Company's operations in the US, UK and China, offset by deterioration in the Brazilian operations. Fourth Quarter Results



Factors affecting Q4FY14 results included:

A loss of $0.2 million on foreign exchange in Brazil.

We continue to see price increases in our Chinese manufacturing operations with

labor source availability a concern.

Lakeland Europe and Lakeland China both experienced strong Q4 sales closing

FY14 with record sales for each division.

It was determined an additional write-down was needed for remaining Tyvek

inventory and obsolete raw materials used from other discontinued product lines

based on revised sales forecast. Such write-downs totaled an additional $0.9

million in Q4. In FY14, management believes it has adequately written down all

slow-moving and obsolete inventory to lower of cost or market.

The new CEO in Brazil started in September 2013 and took an additional

inventory reserve of $0.3 million due to revisions in current sales strategy

and market conditions.

We have hired a new CFO in Brazil who started in Q1; we incurred recruiting

fees and additional severance charges of $0.1 million.

Gross profit in Q4 FY14 was 28.1% this year vs. 23.9% in Q4 FY13, mainly

resulting from the rebound in Lakeland branded products this year and growth in

external China sales 33



Liquidity and Capital Resources

Cash Flows

As of January 31, 2014, we had cash and cash equivalents of $4.6 million and working capital of $38.5 million, a decrease of $2.2 million and an increase of $2.5 million, respectively, from January 31, 2013. We have operations in many foreign jurisdictions which may place restrictions on repatriation of cash to the US. We are planning various strategies to mitigate this issue. Our primary sources of funds for conducting our business activities have been from cash flow provided by (used in) operations and borrowings under our credit facilities described below. Much of our cash is overseas, and international cash management is affected by local requirements. We require liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with our net sales and, to a lesser extent, for capital expenditures. The decrease in cash and cash equivalents is primarily the result of normal fluctuations in cash management. The $2.5 million increase in working capital was primarily due to the reversal of a $4.5 million valuation allowance for current deferred tax assets offset by net additions to reserves of $1.4 million and an increase in borrowings of $1.7 million primarily due to a seasonal buildup of inventory in the USA to avoid stock outs during the peak sales period. Net cash used by continuing operating activities of $(3.9) million for the year ended January 31, 2014, was due primarily to a $3.4 million increase in inventory, currency fluctuation in Brazil, the reversal of the valuation allowance for deferred tax assets and a $2.0 million increase in other assets, mainly prepaid fees from financing transaction. These activities were offset by a $2.5 million increase in accounts payable mostly in China due to extended payment terms negotiated with raw material suppliers and a write-down for inventory obsolescence. Net cash provided by continuing operating activities of $1.4 million for the year ended January 31, 2013, was primarily due to a net loss of $26.3 million, offset by noncash charges of $7.9 million for the arbitration award, less $1.8 million payments and fees, noncash $10.0 million goodwill and other intangibles impairment charge in Brazil and $3.8 million valuation allowance for deferred tax noncash charge, an increase in receivables of $1.5 million, a decrease in inventory of $4.6 million and increased payables of $1.8 million. Net cash used in investing activities of $0.1 million and $0.6 million in the years ended January 31, 2014 and 2013, respectively, was due to sales of one of our China factories and the cost of relocation in fiscal 2014 and the purchases and improvements to property and equipment in fiscal 2013 mainly due to capital expansions in Brazil and Mexico. For both periods the use was purchases of property and equipment, offset in FY14 with proceeds of Qingdao and offset in FY13 with India write-off. Net cash provided by financing activities in the year ended January 31, 2014, was primarily new borrowings in Brazil, the UK and

China to fund those operations. Credit Facility

We currently have one Senior credit facility: $15 million revolving credit facility which commenced June 28, 2013, of which we had $12.4 million of borrowings outstanding as of January 31, 2014, expiring on June 30, 2016, at a current per annum rate of 6.25%. Maximum availability in excess of amount outstanding at January 31, 2014, was $2.6 million. Our current credit facility requires, and any future credit facilities may also require, that we comply with specified financial covenants relating to earnings before interest, taxes, depreciation and amortization and others relating to fixed charge coverage ratio and limits on capital expenditures and investments in foreign subsidiaries. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee that we will meet the requirements of these covenants. These restrictive covenants could affect our financial and operational flexibility or impede our ability to operate or expand our business. Default under our credit facilities would allow the lenders to declare all amounts outstanding to be immediately due and payable. Our lenders, including Development Bank of Canada ("BDC"), have a security interest in substantially all of our US and Canadian assets and pledges of 65% of the equity of the Company's foreign subsidiaries, outside Canada which is 100%. If our lenders declare amounts outstanding under any credit facility to be due, the lenders could proceed against our assets. Any event of default, therefore, could have a material adverse effect on our business. This financing is described more fully in Note 6 to the Financial Statements. We believe that our current availability under our Credit Facility, coupled with our anticipated operating cash and cash management strategy, is sufficient to cover our liquidity needs for the next 12 months. Subordinated Debt Financing (Junior Lender). As described more fully in Note 6, the June 28, 2013, financing included Subordinated Debt, which contained warrants. The value of the warrants was treated as Original Issue Discount ("OID") and is being amortized over the term of the loan. Management views this to be one blended loan or transaction along with the Senior Debt at 6.25%, since the subordinated debt was a required condition of closing made by the Senior Lender. In management's view, this financing is at favorable terms considering Lakeland's then deteriorating financial conditions at the time of the closing and the year prior, as well as the alternatives available to the Company. Lakeland considered several "Unitranche" transactions with overall cost less favorable than the overall cost of the combined Senior and Junior financing closed June 28, 2013. 34 Capital Expenditures Our capital expenditures in FY14 of $828,894 principally relate to additions to building and equipment in China, manufacturing equipment, computer equipment and leasehold improvements. We anticipate FY15 capital expenditures to be approximately $1.0 million. There are no further specific plans for material capital expenditures in the fiscal year 2015.



During FY14, the AnQui City, China Weifang Lakeland factory expanded its operations substantially to accommodate the movement of the work from a leased facility, whose lease had expired. By bringing the two factories together, economies of scale were achieved.

Recent Accounting Developments

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). ASUs not listed below were determined to either not be applicable or to have a minimal impact on the consolidated financial statements.

The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under US GAAP. The new amendments will require

an organization to: Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. Cross-reference to other disclosures currently required under US GAAP for other reclassification items (that are not required under US GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The Company adopted this principle on February 1, 2013. The FASB has issued ASU No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles-Goodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. 35

The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company has adopted the effective with FY 14. There was not a material impact on its financial statements The FASB has issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company has adopted the effective with FY 13. There was not a material impact on its financial statements

The FASB has issued its US GAAP Financial Reporting Taxonomy Implementation Guide - Subsequent Events. The guide is the first in a series of XBRL Implementation Guides, which are designed to help Taxonomy users understand how certain disclosures are structured within the Taxonomy. The purpose of the Implementation Guide is to demonstrate the modeling for disclosures required about events occurring subsequent to the end of a public company's reporting period. The modeling has been completed using the elements in the Taxonomy. The examples are not intended to encompass all of the potential modeling configurations or to dictate the appearance and structure of a company's XBRL documents. In addition to the Implementation Guide, the FASB also issued Definition Components & Structure, the first style guide of the FASB US GAAP Financial Reporting Taxonomy Style Guide Series. Also available on the FASB website, the style guides provide additional insight into design criteria and are offered as a reference for users of the Taxonomy. The US GAAP Financial Reporting Taxonomy is a list of computer-readable tags in XBRL that allows companies to tag precisely the thousands of pieces of financial data that are included in typical long-form financial statements and related footnote disclosures. The tags allow computers to automatically search for, assemble and process data so it can be readily accessed and analyzed by investors, analysts, journalists and regulators. In early 2010, the Financial Accounting Foundation assumed maintenance responsibilities for the Taxonomy and, along with the FASB, assembled a team of technical staff dedicated to updating the Taxonomy for changes in US GAAP, identifying best practices in Taxonomy extensions and technical enhancements.


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Source: Edgar Glimpses


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