x
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Delaware
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13-3115216
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(State
of incorporation)
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(IRS
Employer Identification Number)
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701
Koehler Avenue, Suite 7, Ronkonkoma, New York
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11779
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(Address
of principal executive offices)
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(Zip
Code)
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Large
accelerated filer o
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Accelerated
filer o
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Non-Accelerated
filer o (Do not check if
a smaller reporting company)
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Smaller
reporting company ý
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Class
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Outstanding
at June 5, 2009
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Common
Stock, $0.01 par value per share
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5,397,966
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Page
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13
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18
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18
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21
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22
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·
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Our
ability to obtain fabrics and components from suppliers and manufacturers
at competitive prices or prices that vary from quarter to
quarter;
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·
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Risks
associated with our international manufacturing and start up sales
operations;
|
|
·
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Potential
fluctuations in foreign currency exchange
rates;
|
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·
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Our
ability to respond to rapid technological
change;
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·
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Our
ability to identify and complete acquisitions or future
expansion;
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·
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Our
ability to manage our growth;
|
|
·
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Our
ability to recruit and retain skilled employees, including our senior
management;
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·
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Our
ability to accurately estimate customer
demand;
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|
·
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Competition
from other companies, including some with greater
resources;
|
|
·
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Risks
associated with sales to foreign
buyers;
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·
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Restrictions
on our financial and operating flexibility as a result of covenants in our
credit facilitates;
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|
·
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Our
ability to obtain additional funding to expand or operate our business as
planned;
|
|
·
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The
impact of a decline in federal funding for preparations for terrorist
incidents;
|
|
·
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The
impact of potential product liability
claims;
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·
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Liabilities
under environmental laws and
regulations;
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·
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Fluctuations
in the price of our common stock;
|
|
·
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Variations
in our quarterly results of
operations;
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·
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The
cost of compliance with the Sarbanes-Oxley Act of 2002 and rules and
regulations relating to corporate governance and public
disclosure;
|
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·
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The
significant influence of our directors and executive officer on our
company and on matters subject to a vote of our
stockholders;
|
|
·
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The
limited liquidity of our common
stock;
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|
·
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The
other factors referenced in this 10-Q, including, without limitation, in
the sections entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and
“Business.”
|
ASSETS
|
April
30, 2009
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January
31, 2009
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||||||
(Unaudited)
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 3,939,812 | $ | 2,755,441 | ||||
Accounts
receivable, net of allowance for doubtful accounts of
$38,900
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15,089,322 | 13,353,430 | ||||||
at
April 30, 2009 and $104,500 at January 31, 2009
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||||||||
Inventories,
net of reserves of $783,000 at April 30, 2009 and $657,000
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52,238,592 | 57,074,028 | ||||||
at
January 31, 2009
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||||||||
Deferred
income taxes
|
2,228,232 | 2,578,232 | ||||||
Prepaid
income tax
|
517,852 | 531,467 | ||||||
Other
current assets
|
1,861,018 | 2,070,825 | ||||||
Total
current assets
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75,874,828 | 78,363,423 | ||||||
Property
and equipment, net of accumulated depreciation of
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13,888,229 | 13,736,326 | ||||||
$9,391,600
at April 30, 2009 and $8,975,900 at January 31, 2009
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||||||||
Intangibles
and other assets, net
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4,487,711 | 4,405,833 | ||||||
Goodwill
|
5,109,136 | 5,109,136 | ||||||
$ | 99,359,904 | $ | 101,614,718 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 5,053,376 | $ | 3,853,890 | ||||
Other
accrued expenses
|
62,996 | 434,809 | ||||||
Loans
payable
|
575,177 | ----- | ||||||
Current
maturity of long-term debt
|
94,000 | 94,000 | ||||||
Accrued
expenses and other current liabilities
|
2,836,224 | 3,069,409 | ||||||
Total
current liabilities
|
8,621,773 | 7,452,108 | ||||||
Canadian
warehouse loan payable (net of current maturity of
$94,000)
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1,389,449 | 1,368,406 | ||||||
Borrowings
under revolving credit facility
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20,490,466 | 24,408,466 | ||||||
Other
liabilities
|
79,333 | 74,611 | ||||||
30,581,021 | 33,303,591 | |||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $.01 par; authorized 1,500,000 shares
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||||||||
(none
issued)
|
||||||||
Common
stock $.01 par; authorized 10,000,000 shares;
|
||||||||
issued
and outstanding 5,523,288 shares at April 30, 2009 and at
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||||||||
January
31, 2009, respectively
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55,233 | 55,233 | ||||||
Less
treasury stock, at cost, 125,322 shares at April 30, 2009 and 107,317
shares at January 31, 2009
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(1,353,247 | ) | (1,255,459 | ) | ||||
Additional
paid-in capital
|
49,615,061 | 49,511,896 | ||||||
Other
comprehensive (loss)
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(3,826,741 | ) | (4,191,801 | ) | ||||
Retained
earnings
|
24,288,577 | 24,191,258 | ||||||
Stockholders'
equity
|
68,778,883 | 68,311,127 | ||||||
$ | 99,359,904 | $ | 101,614,718 |
THREE
MONTHS ENDED
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||||||||
April
30,
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||||||||
2009
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2008
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|||||||
Net
sales
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$ | 23,975,894 | $ | 27,280,157 | ||||
Cost
of goods sold
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17,965,456 | 20,601,559 | ||||||
Gross
profit
|
6,010,438 | 6,678,598 | ||||||
Operating
expenses
|
5,331,933 | 5,230,484 | ||||||
Operating
profit
|
678,505 | 1,448,114 | ||||||
Interest
and other income, net
|
40,116 | 30,074 | ||||||
Interest
expense
|
(193,480 | ) | (99,520 | ) | ||||
Income
before income taxes
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525,141 | 1,378,668 | ||||||
Provision
for income taxes
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427,822 | 485,529 | ||||||
Net
income
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$ | 97,319 | $ | 893,139 | ||||
Net
income per common share:
|
||||||||
Basic
|
$ | 0.02 | $ | 0.16 | ||||
Diluted
|
$ | 0.02 | $ | 0.16 | ||||
Weighted
average common shares outstanding:
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||||||||
Basic
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5,406,291 | 5,487,260 | ||||||
Diluted
|
5,468,616 | 5,520,868 |
Common
Stock
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Additional
Paid-in
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Treasury Stock
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Retained
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Other
Comprehensive
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||||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Earnings
|
(loss)
|
Total
|
|||||||||||||||||||||||||
Balance
February 1, 2009
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5,523,288 | $ | 55,233 | $ | 49,511,896 | (107,317 | ) | $ | (1,255,459 | ) | $ | 24,191,258 | $ | (4,191,801 | ) | $ | 68,311,127 | |||||||||||||||
Net
Income
|
----- | ----- | ----- | ----- | ----- | 97,319 | ----- | 97,319 | ||||||||||||||||||||||||
Stock
Repurchase Program
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----- | ----- | ----- | (18,005 | ) | $ | (97,788 | ) | ----- | ----- | (97,788 | ) | ||||||||||||||||||||
Other
Comprehensive Income
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----- | ----- | ----- | ----- | ----- | ----- | 365,060 | 365,060 | ||||||||||||||||||||||||
Stock
Based Compensation:
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||||||||||||||||||||||||||||||||
Restricted
Stock
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----- | ----- | 76,183 | ----- | ----- | ----- | ----- | 76,183 | ||||||||||||||||||||||||
Director
options granted at fair market value
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----- | ----- | 26,982 | ----- | ----- | ----- | ----- | 26,982 | ||||||||||||||||||||||||
Balance
April 30, 2009
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5,523,288 | $ | 55,233 | $ | 49,615,061 | (125,322 | ) | $ | (1,353,247 | ) | $ | 24,288,577 | $ | (3,826,741 | ) | $ | 68,778,883 |
THREE
MONTHS ENDED
|
||||||||
April
30,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income
|
$ | 97,319 | $ | 893,139 | ||||
Adjustments
to reconcile net income to net cash provided
|
||||||||
by
operating activities:
|
||||||||
Stock
based compensation
|
80,680 | 62,041 | ||||||
Allowance
for doubtful accounts
|
(65,600 | ) | (10,000 | ) | ||||
Reserve
for inventory obsolescence
|
126,215 | (52,200 | ) | |||||
Depreciation
and amortization
|
405,408 | 383,826 | ||||||
Deferred
income tax
|
350,000 | ----- | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
in accounts receivable
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(1,670,292 | ) | (2,436,763 | ) | ||||
Decrease
in inventories
|
4,709,221 | 7,510,545 | ||||||
Decrease
(Increase) in other assets
|
164,029 | (486,320 | ) | |||||
Increase
in accounts payable, accrued expenses and other
liabilities
|
959,547 | 582,906 | ||||||
Net
cash provided by operating activities
|
5,156,527 | 6,447,174 | ||||||
Cash
Flows from Investing Activities:
|
||||||||
Purchases
of property and equipment
|
(557,311 | ) | (313,544 | ) | ||||
Net
cash used in investing activities
|
(557,311 | ) | (313,544 | ) | ||||
Cash
Flows from Financing Activities:
|
||||||||
Purchases
of stock under stock repurchase program
|
(97,788 | ) | (1,083,963 | ) | ||||
Payments
under loan agreements
|
(3,317,057 | ) | (5,476,206 | ) | ||||
Net
cash used in by financing activities
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(3,414,845 | ) | (6,560,169 | ) | ||||
Net
increase (decrease) in cash
|
1,184,371 | (426,539 | ) | |||||
Cash
and cash equivalents at beginning of period
|
2,755,441 | 3,427,672 | ||||||
Cash
and cash equivalents at end of period
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$ | 3,939,812 | $ | 3,001,133 |
|
The
condensed consolidated financial statements included herein have been
prepared by us, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments
(consisting of only normal and recurring adjustments) which are, in the
opinion of management, necessary to present fairly the consolidated
financial information required therein. Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America (“GAAP”) have been condensed or omitted pursuant to such
rules and regulations. While we believe that the disclosures are adequate
to make the information presented not misleading, it is suggested that
these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included
in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended January 31,
2009.
|
April
30,
|
January
31,
|
|||||||
2009
|
2009
|
|||||||
Raw
materials
|
$ | 24,877,933 | $ | 26,343,875 | ||||
Work-in-process
|
2,115,528 | 2,444,160 | ||||||
Finished
Goods
|
25,245,131 | 28,285,993 | ||||||
$ | 52,238,592 | $ | 57,074,028 |
Three
Months Ended
|
||||||||
April
30,
|
||||||||
2009
|
2008
|
|||||||
Numerator
|
||||||||
Net
Income
|
$ | 97,319 | $ | 893,139 | ||||
Denominator
|
||||||||
Denominator
for basic earnings per share
|
5,406,291 | 5,487,260 | ||||||
(Weighted-average
shares which reflect 116,997 and 36,028 weighted average common shares in
the treasury as a result of the stock repurchase program for 2009 and
2008, respectively)
|
||||||||
Effect
of dilutive securities from restricted stock plan and from dilutive effect
of stock options
|
62,325 | 33,608 | ||||||
Denominator
for diluted earnings per share
|
5,468,616 | 5,520,868 | ||||||
(adjusted
weighted average shares)
|
||||||||
Basic
earnings per share
|
$ | 0.02 | $ | 0.16 | ||||
Diluted
earnings per share
|
$ | 0.02 | $ | 0.16 |
|
At
April 30, 2009, the balance outstanding under our five year revolving
credit facility amounted to $20.5 million. In May 2008 the facility was
increased from $25 million to $30 million. The credit facility is
collateralized by substantially all of the assets of the Company. The
credit facility contains financial covenants, including, but not limited
to, fixed charge ratio, funded debt to EBIDTA ratio, inventory and
accounts receivable collateral coverage ratio, with respect to which the
Company was in compliance at April 30, 2009 and for the period then ended.
The weighted average interest rate for the three month period ended April
30, 2009 was 3.04%.
|
|
We
purchased 13% of our raw materials from one supplier during the
three-month period ended April 30, 2009. We normally purchase
approximately 75% of our raw material from this suppler. We carried higher
inventory levels throughout FY09 and limited our material purchases in Q1
of FY10. We expect this relationship to continue for the foreseeable
future. If required, similar raw materials could be purchased from other
sources; however, our competitive position in the marketplace could be
adversely affected.
|
Stock
Options
|
Number
of
Shares
|
Weighted
Average
Exercise
Price per
Share
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
Outstanding
at January 31, 2009
|
20,567
|
$13.42
|
2.27
years
|
$8,618
|
Outstanding
at April 30, 2009
|
25,567
|
$12.01
|
2.79
years
|
$7,772
|
Exercisable
at April 30, 2009
|
20,567
|
$13.42
|
2.02
years
|
$1,072
|
9.
|
Manufacturing
Segment Data
|
Three
Months Ended
|
||||||||||||||||
April
30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Domestic
|
$ | 17.2 | 71.8 | % | $ | 23.2 | 84.9 | % | ||||||||
International
|
6.8 | 28.2 | % | 4.1 | 15.1 | % | ||||||||||
Total
|
$ | 24.0 | 100 | % | $ | 27.3 | 100 | % |
|
We
manage our operations by evaluating each of our geographic locations. Our
North American operations include our facilities in Decatur, Alabama
(primarily the distribution to customers of the bulk of our products and
the manufacture of our chemical, glove and disposable products), Celaya,
Mexico (primarily disposable, glove and chemical suit production) St.
Joseph, Missouri and Shillington, Pennsylvania (primarily woven products
production). We also maintain three manufacturing facilities in China
(primarily disposable and chemical suit production) and a glove
manufacturing facility in New Delhi, India. Our China facilities and our
Decatur, Alabama facility produce the majority of the Company’s
products. The accounting policies of these operating entities are the same
as those described in Note 1 to our Annual Report on Form 10-K
for the year ended January 31, 2009. We evaluate the performance of these
entities based on operating profit which is defined as income before
income taxes, interest expense and other income and expenses. We
have sales forces in Canada, Europe, Chile and China which sell
and distribute products shipped from the United States, Mexico or
China. The table below represents information about reported
manufacturing segments for the three-month periods noted
therein:
|
Three
Months Ended April 30,
(in
millions of dollars)
|
||||||||
2009
|
2008
|
|||||||
Net
Sales:
|
||||||||
North
America and other foreign
|
$ | 20.6 | $ | 27.2 | ||||
Brazil
|
2.6 | ----- | ||||||
China
|
4.6 | 5.4 | ||||||
India
|
0.2 | 0.1 | ||||||
Less
inter-segment sales
|
(4.0 | ) | (5.4 | ) | ||||
Consolidated
sales
|
$ | 24.0 | $ | 27.3 | ||||
Operating
Profit:
|
||||||||
North
America and other foreign
|
$ | 0.2 | $ | 1.0 | ||||
Brazil
|
0.1 | ----- | ||||||
China
|
0.8 | 0.8 | ||||||
India
|
(0.4 | ) | (0.2 | ) | ||||
Less
inter-segment profit
|
----- | (0.2 | ) | |||||
Consolidated
profit
|
$ | 0.7 | $ | 1.4 | ||||
Identifiable
Assets (at Balance Sheet date):
|
||||||||
North
America and other foreign
|
$ | 69.7 | $ | 63.8 | ||||
Brazil
|
$ | 15.0 | ----- | |||||
China
|
14.1 | 11.4 | ||||||
India
|
0.6 | 4.4 | ||||||
Consolidated
assets
|
$ | 99.4 | $ | 79.6 | ||||
Depreciation and
Amortization Expense:
|
||||||||
North
America and other foreign
|
$ | 0.2 | $ | 0.2 | ||||
Brazil
|
0.05 | ----- | ||||||
China
|
0.1 | 0.1 | ||||||
India
|
0.05 | 0.1 | ||||||
Consolidated
depreciation expense
|
$ | 0.4 | $ | 0.4 |
10.
|
Tax
Audit / Adoption of FIN 48 / Change in Accounting
Estimate
|
11.
|
Related
Party Transactions
|
12.
|
Derivative
Instruments and Foreign Currency
Exposure
|
April
30, 2009
|
January
31, 2009
|
|||||||
Unrealized
Gains:
|
||||||||
Foreign
currency exchange contracts
|
----- | ----- | ||||||
Unrealized
(Losses):
|
||||||||
Foreign
currency exchange contracts
|
----- | ----- | ||||||
Interest
rate swaps
|
$ | (527,380 | ) | $ | (627,380 | ) |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results
of Operations
|
|
o
|
Disposables
gross margin declined by 4.5 percentage points in Q1 this year compared
with Q1 last year. This decline was mainly due to higher priced raw
materials and a very competitive pricing environment coupled with lower
volume.
|
|
o
|
Brazil
operations were included in operations for Q1 this year while they were
not included in Q1 last year operations. Brazil’s gross margin
was 46.7% for Q1 this year. This was less than previous periods due to a
large order shipped in April 2009 but bid in the summer of 2008, which had
significant purchased items impacted by the major change in foreign
exchange rates in August to October 2008. Further, the month of March had
low sales resulting in no incentives from the Brazilian government.
Management expects both these factors will be
non-recurring.
|
|
o
|
Continued
gross losses of $0.1 million from India in Q1
FY2010.
|
|
o
|
Glove
division reduction in volume coupled with inventory
write-offs.
|
|
o
|
Chemical
division gross margin increased by 8.6 percentage points resulting from
sales mix.
|
|
o
|
Canada
gross margin increased by 14.8 percentage points mainly resulting from
more favorable exchange rates and local competitive pricing
climate.
|
|
o
|
UK
and Europe margins declined 14.5 percentage points mainly resulting from
exchange rate differentials.
|
|
o
|
($0.3)
million lower freight out costs resulting from significantly lower
prevailing carrier rates and lower
volume.
|
|
o
|
($0.2)
million in reduced administrative and officer salaries resulting from cost
cut-backs, along with related reduction in payroll taxes and employee
benefits.
|
|
o
|
($0.2)
million in reduced sales commissions resulting from lower
volume.
|
|
o
|
($0.2)
million in reduced shareholder costs relating to the proxy contest in Q1
last year.
|
|
o
|
($0.1)
million reduction in foreign exchange costs resulting from the Company’s
hedging program and more favorable
rates.
|
|
o
|
($0.1)
million miscellaneous decreases.
|
|
o
|
$0.1
million in increased operating costs in China were the result of the large
increase in direct international sales made by China, are now allocated to
SG&A costs, previously allocated to cost of goods
sold.
|
|
o
|
$1.1
million of operating expenses in Brazil for the three months ended April
30,2009, not included in operations for the three months April 30,
2008.
|
Item
3.
|
Quantitative and Qualitative Disclosures About Market
Risk
|
Item
4.
|
Controls and Procedures
|
|
Management’s
Report on Internal Control over Financial
Reporting
|
Item 6.
|
Exhibits and
Reports on Form 8-K:
|
a.
|
10.2 Garment Manufacturer
& Seller Liscence Agreement between E. I. DuPont De Nemours and
Company and Lakeland Industries, Inc. dated June 6, 2009 (filed
herein)
|
|
b.
|
10.7
Fourth Modification to Note and Loan Agreement and Affirmation of Guaranty
dated February 28, 2009 between Lakeland Industries, Inc. and Wachovia
Bank, N.A. (filed herein)
|
|
c.
|
10.16
Agreement of non-residential rent between Engenharia, Comercio e Industria
Ltda and Qualytextil, S.A. dated December 22, 2008. (filed
herein)
|
|
d.
|
10.17
Particular Instrument of Rent Agreement between Ceprin Empreendimentos e
Participacoes S/A and Qualytextil, S.A. dated October 28, 2008. (filed
herein)
|
|
e.
|
31.1
Certification Pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the
Exchange Act, Signed by Chief Executive Officer (filed
herewith)
|
|
f.
|
31.2
Certification Pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the
Exchange Act, Signed by Chief Financial Officer (filed
herewith)
|
|
g.
|
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, Signed by Chief Executive
Officer (filed herewith)
|
|
h.
|
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, Signed by Chief Financial
Officer (filed herewith)
|
Reports
on Form 8-K:
|
a
-
|
On
February 12, 2009, the Company filed a Form 8-K under Item 5.02 relating
to the departure of Michael Cirenza from Lakeland’s Board of
Directors.
|
b
-
|
On
March 4, 2009, the Company filed a Form 8-K under Item 7.01, for the
purpose of furnishing a press release announcing that Lakeland will be
presenting at the Edgewater Conference in Las
Vegas.
|
c
-
|
On
April 15, 2009, the Company filed a Form 8-K under Item 2.02 for the
purpose of furnishing a press announcing the Company's FY 2009 financial
results for the reporting period ended January 31,
2009.
|
d
-
|
On
April 23, 2009, the Company filed a Form 8-K under Item 5.02 relating to
the election of Duane Albro to Lakeland’s Board of
Directors.
|
e
-
|
On
April 28, 2009, the Company filed a Form 8-K under Item 4.01 for the
purpose of furnishing a press release announcing that on April 27, 2009,
the Company Changed certifying accountants.
|
LAKELAND INDUSTRIES,
INC.
|
|
(Registrant)
|
|
Date: June
9, 2009
|
/s/ Christopher J. Ryan
|
Christopher
J. Ryan,
|
|
Chief
Executive Officer, President,
|
|
Secretary
and General Counsel
|
|
(Principal
Executive Officer and Authorized
|
|
Signatory)
|
|
Date:
June 9, 2009
|
/s/Gary Pokrassa
|
|
Gary
Pokrassa,
|
Chief
Financial Officer
|
|
(Principal
Accounting Officer and Authorized
|
|
Signatory)
|