ITEM 7. 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. In this Form 10-K, (a) "FY" means fiscal year; thus for example, FY26 refers to the fiscal year ended January 31, 2026, and (b) "Q" refers to a quarter; thus, for example, Q4 FY26 refers to the fourth quarter of the fiscal year ended January 31, 2026.

Overview

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.

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

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.

During FY26, we expanded our product portfolio, geographic reach and services capabilities as part of our strategy to build a premier global fire services brand. However, our operations were impacted by external factors such as increases in freight costs, raw material inflation and ongoing supply-chain disruptions. In addition, we have experienced uncertainty in certain markets, certification timing delays and material flow challenges. These factors have negatively impacted our production efficiency, revenue timing and gross margins. We are continuing to implement initiatives to improve operational and manufacturing efficiencies, reduce inventory levels and prioritize liquidity and debt reduction.

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 have two U.S. based manufacturing locations through our acquisition of Veridian Limited in FY25. 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. In addition, as part of our broader strategy to expand our fire services platform, we completed the acquisitions of Arizona PPE and California PPE in FY26 that enhance our service capabilities in cleaning, inspection, repair, and rental of personal protective equipment.

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.

On September 15, 2025, the Company acquired 100% of U.S.-based Arizona PPE Recon, Inc. ("Arizona PPE") for cash consideration of approximately $4.1 million, subject to post-closing adjustments and customary holdback provisions. Founded in 2016, Arizona PPE is the leading UL-certified independent services provider ("ISP") for performing advanced decontamination, inspection and repairs on firefighting garments for the Arizona market, as well as providing educational and training classes to fire departments and personnel to help them implement and adhere to NFPA 1851 guidelines.

On September 15, 2025, the Company acquired 100% of U.S.-based California PPE Recon, Inc. ("California PPE") for a combination of approximately $2.4 million in cash consideration and 227,728 unregistered shares of the Company's common stock with an estimated fair value of $3.3 million at the date of acquisition, subject to post-closing adjustments and customary holdback provisions. Founded in 2022, California PPE is a leading and rapidly expanding UL-certified ISP in the California firefighting services market, one of the largest fire markets in the U.S. It also provides advanced decontamination, repair, and inspection of firefighting personal protective equipment, along with rental services and sales of cleaning detergents, extractors, and dryers.

On January 24, 2025, the Company issued 2,093,000 shares of its common stock in an underwritten offering at a price of $20.68 after an underwriting discount. After expenses the Company received approximately $46.2 million which was used to pay down the Company's revolving credit facility.

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.

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.

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.

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.

Impact of Russia's Invasion of Ukraine on Our Business

The current conflict between Russia and Ukraine is creating substantial uncertainty about the role Russia will play in the global economy in the future. Although the length, impact, and outcome of the ongoing military conflict between Russia and Ukraine are highly unpredictable, this conflict could lead to significant market disruptions and other disruptions. The escalation or continuation of this conflict presents heightened risks and has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to information systems, heightened risks to employee safety, significant volatility of the Russian ruble, limitations on access to credit markets, increased operating costs (including fuel and other input costs), the frequency and volume of failures to settle securities transactions, inflation, potential for increased volatility in commodity, currency and other financial markets, safety risks, and restrictions on the transfer of funds to and from Russia. We cannot predict how and the extent to which the conflict will affect our customers, operations or business partners or the demand for our products and our global business. Depending on the actions we take or are required to take, the ongoing conflict could also result in loss of cash, assets or impairment charges. Additionally, we may also face negative publicity and reputational risk based on the actions we take or are required to take as a result of the conflict, which could damage our brand image or corporate reputation. We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations.

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.

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.

Our sales in Ukraine were not significant in FY26 or FY25.

Impact of Conflict in the Middle East

On February 28, 2026, the U.S. and Israel launched a coordinated military operation against Iran, and Iran responded with attacks affecting certain Persian Gulf states as well as Israel. Although discussions regarding a ceasefire in the region are ongoing, these conflicts are likely to cause regional instability that could materially adversely affect global trade, regional economies and the global economy, which could materially adversely affect our financial condition and results of operations, and it is not clear when these conflicts will end. Although we have not experienced a material impact on our operations as of the date of this Annual Report, continued or expanded conflict in the region could adversely affect global economic conditions, supply chains, transportation logistics, and customer demand, which in turn could impact our business and results of operations.

Our sales in the Middle East were not significant for FY26. However, ongoing supply chain disruptions or increased freight costs resulting from the reduction in shipping volume through the Strait of Hormuz could have material adverse effects on our business.

Critical Accounting Estimates

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.

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.

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.

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.

Refer to Note 1, "Business and Summary of Significant Accounting Policies," and Note 6, "Acquisitions," to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company's business acquisitions.

Significant Balance Sheet Fluctuation January 31, 2026, as Compared to January 31, 2025

Cash decreased by $5.0 million, primarily due to $15.8 million of cash used in operating activities and $1.2 million used in investing activities. Investing activities included $6.2 million related to the acquisitions of Arizona PPE and California PPE, partially offset by $5.7 million of net proceeds from the sale of the Decatur warehouse facilities. Capital expenditures totaled $0.7 million during the period. Net cash provided by financing activities was $12.5 million, which was primarily driven by borrowings under the Company's credit facility. Total borrowings during the period were $44.3 million, which were used to fund operations and the acquisitions noted above.

Results of Operations

The following tables set forth our external sales by our product lines and geographic regions and our historical results of continuing operations as a percentage of our net sales from operations, for the years and three-months ended January 31, 2026 and 2025.

Net Sales. Net sales increased to $192.6 million for the year ended January 31, 2026 compared to $167.2 million for the year ended January 31, 2025, an increase of $25.4 million. Sales in the U.S. increased $21.2 million or 35.1%, primarily due to increased sales of fire services gear and services due to our acquisitions of Veridian, Arizona PPE and California PPE. Sales to the European market increased by $12.1 million or 28.7%, primarily due to the acquisitions of Jolly and LHD, which accounted for $12.3 million of the increase offset by weakness in the industrial markets. These increases were partially offset by declines in certain international locations. Sales in Latin America decreased by $4.8 million, Canada decreased by $1.4 million, Other Foreign decreased by $2.0 million and Mexico decreased by $0.3 million. These decreases are primarily attributable to timing of orders and continued macroeconomic and market uncertainties.

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.

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.

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.

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.

Gain on Sale-Leaseback Transaction. On August 27, 2025, the Company completed the sale of the Decatur, Alabama warehouse facilities to an unrelated party for $6.1 million. The sale resulted in a pre-tax gain, after selling and asset disposal costs, of approximately $4.3 million in FY26.

Lease Impairment. The Company recorded a $3.6 million impairment primarily related to the right-of-use asset for the Monterrey, Mexico facility during FY26. There were no lease impairment charges recorded during FY25.

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.

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.

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.

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.

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.

Fourth Quarter Results

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.

Liquidity and Capital Resources

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.

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."

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.

Net cash used in operating activities of $15.8 million for the year ended January 31, 2026 was primarily driven by the net loss of ($25.3) million, partially offset by non-cash charges of $14.3 million, including depreciation and amortization of $5.1 million, stock-based compensation of $3.4 million, lease impairments of $3.6 million, and the partial impairment of LHD's goodwill of $2.6 million, partially offset by the gain on the disposal of the Decatur warehouse facilities of $4.3 million. Changes in operating assets and liabilities were $4.8 million, primarily due to the increases in accounts receivable of $2.7 million, other assets of $2.3 million, and decreases in accounts payable of $1.1 million and accrued expenses and other liabilities of $0.5 million, partially offset by a decrease in inventory of $1.8 million. The change in working capital during the current year was primarily due to the timing of customer collections and the ongoing inventory reduction efforts.

Net cash used in investing activities of $1.2 million for the year ended January 31, 2026 includes the acquisitions of Arizona PPE and California PPE for $6.2 million and purchases of equipment of $0.7 million, offset by the proceeds from the sale of the Decatur warehouse facilities of $5.7 million.

Net cash provided by financing activities was $12.5 million driven by the borrowings under our credit facility of $44.3 million to fund acquisitions and working capital increases, $2.0 million in other term loan borrowings, offset by dividends of $1.2 million, repayment of debt facilities and other borrowings of $32.3 million and $0.4 million in shares returned to pay income taxes on shares vested under our equity compensation program.

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.

Revolving Credit Facility

On June 25, 2020, the Company entered into a Loan Agreement (the "Original Loan Agreement") with Bank of America, N.A. ("Lender"), as amended by Amendment No. 1 to the Loan Agreement, dated June 18, 2021 ("Amendment No. 1"), Amendment No. 2 to the Loan Agreement, dated March 3, 2023 ("Amendment No. 2"), Amendment No. 3 to the Loan Agreement, dated November 30, 2023 ("Amendment No. 3"), Amendment No. 4 to the Loan Agreement, dated March 28, 2024 ("Amendment No. 4"), 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").

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.

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

Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of (i) the greater of the daily Secured Overnight Financing Rate ("SOFR") or an index floor of 1% plus (ii) the Applicable Rate (as defined in the Amended Loan Agreement). The Applicable Rate is based upon a funded debt to EBITDA ratio (discussed below) and includes four different levels constituting a SOFR margin range from 1.25% to 2.00%. All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The Amended Loan Agreement provides for a fee on any difference between the line of credit commitment and the amount of credit it actually uses, determined by the daily amount of credit outstanding during the specified period. Such fee is calculated at the Applicable Rate and is payable quarterly.

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.

As of January 31, 2026, the Company was not in compliance with its "basic fixed charge coverage ratio" and its "funded debt to EBITDA ratio" covenants. On April 13, 2026, the Company and the Lender entered into the Limited Waiver, pursuant to which the Lender waived the Company's non-compliance under the Amended Loan Agreement. A breach of the financial covenants under the Amended Loan Agreement, if not cured or waived, could result in the obligations under the Amended Loan Agreement being accelerated.

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).

The Amended Loan Agreement contains customary events of default that include, among other things (subject to any applicable cure periods and materiality qualifier), non-payment of principal, interest or fees, defaults under related agreements with the Lender, cross-defaults under agreements for other indebtedness, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments and material adverse change. Upon the occurrence of an event of default, the Lender may terminate all loan commitments, declare all outstanding indebtedness owing under the Amended Loan Agreement and related documents to be immediately due and payable, and may exercise its other rights and remedies provided for under the Amended Loan Agreement.

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).

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.

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.

Acquisitions

On September 15, 2025, the Company acquired 100% of U.S.-based Arizona PPE Recon, Inc. ("Arizona PPE") for cash consideration of approximately $4.1 million, subject to post-closing adjustments and customary holdback provisions. Founded in 2016, Arizona PPE is the leading UL-certified independent services provider ("ISP") for performing advanced decontamination, inspection and repairs on firefighting garments for the Arizona market, as well as providing educational and training classes to fire departments and personnel to help them implement and adhere to NFPA 1851 guidelines.

On September 15, 2025, the Company acquired 100% of U.S.-based California PPE Recon, Inc. ("California PPE") for a combination of approximately $2.4 million in cash consideration and $3.3 million in Company stock, subject to post-closing adjustments and customary holdback provisions. Founded in 2022, California PPE is a leading and rapidly expanding UL-certified ISP in the California firefighting services market, one of the largest fire markets in the U.S. It also provides advanced decontamination, repair, and inspection of firefighting personal protective equipment, along with rental services and sales of cleaning detergents, extractors, and dryers.

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.

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.

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.

January 2025 Equity Issuance

On January 24, 2025, the Company closed an underwritten offering of 2,093,000 shares (the "Underwritten Shares") of the Company's common stock. The public offering price of the Underwritten Shares was $22.00 per share, and the underwriters agreed to purchase the Underwritten Shares from the Company at a price of $20.68 per share. The Company's net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses, were approximately $42.6 million. We used the net proceeds of the offering to pay down the outstanding principal under our Loan Agreement.

Stock Repurchase Program. On April 7, 2022, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock which became effective upon the completion of a prior share repurchase program. On December 1, 2022, the Board of Directors authorized an increase in the share repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

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

The 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.

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.

Recently Issued and Adopted Accounting Standards and Disclosure Rules

Income Taxes

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This guidance requires a public entity to disclose in its rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and this guidance should be applied prospectively but there is the option to apply it retrospectively. The Company has prospectively adopted the provisions of this guidance in conjunction with our Form 10-K for our fiscal year ending January 31, 2026.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03 ("ASU 2024-03"), Disaggregation of Income Statement Expenses ("DISE"). ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. As revised by ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. With the exception of expanding disclosures to include more granular income statement expense categories, we do not expect the adoption of ASU 2024-03 to have a material effect on our consolidated financial statements taken as a whole.

Credit Losses

In July 2025, the FASB issued ASU No. 2025-05 ("ASU 2025-05"), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This guidance provides a practical expedient that entities may elect when estimating expected credit losses for current accounts receivable and current contract assets, allowing entities to assume that conditions as of the balance sheet date remain unchanged over the life of the asset. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

Accounting for Internal-Use Software

In September 2025, the FASB issued ASU No. 2025-06 ("ASU 2025-06"), "Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software." This ASU removes references to prescriptive and sequential software development project stages and provides updated guidance intended to simplify the capitalization and expense evaluation for internal-use software. ASU 2025-06 is effective for fiscal years beginning after December 17, 2027, and interim reporting periods within those annual reporting periods, with early adoption permitted. This ASU may be applied prospectively, retrospectively, or with a modified transition approach. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.