UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - K (Mark one) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended, January 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commission File Number: 0 - 15535 LAKELAND INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 13-3115216 - -------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) 711-2 Koehler Ave., Ronkonkoma, NY 11779 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) (516) 981-9700 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 Par Value - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S - K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10 - K or any amendment to this Form 10 - K ____. The aggregate market value of the Common Stock outstanding and held by nonaffiliates (as defined in Rule 405 under the Securities Exchange Act of 1934) of the Registrant, based upon the average high and low bid price of the Common Stock on NASDAQ on April 17, 1998 was approximately $14,163,091 (based on 1,531,145 shares held by nonaffiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 29, 1998 was 2,610,472. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended January 31, 1998 are incorporated by reference in Items 5 - 7 of Part II and certain portions of the Registrant's Definitive Proxy Statement, for the Annual Meeting of Stockholders to be held June 17, 1998, are incorporated by reference in Items 10 - 13 of Part III of this Annual Report on Form 10-K. CAUTIONARY STATEMENTS This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact included in this report, including, without limitation, the statements under the headings "Business," and "Properties," "Market for Registrant's Common Stock and Related Stockholder Matters," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position and liquidity, the Company's strategic alternatives, future capital needs, development and capital expenditures (including the amount and nature thereof), future net revenues, business strategies, and other plans and objectives of management of the Company for future operations and activities. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, and factors in the Company's other filings with the Securities and Exchange Commission (the "Commission"), general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Readers are cautioned that these statements are not guarantees of future performance, and the actual results or developments may differ materially from those projected in the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. PART I ITEM 1. BUSINESS Lakeland Industries, Inc. (the"Company") believes that it is one of the leading manufacturers of a comprehensive line of safety garments and accessories for the industrial safety and protective clothing industries in the United States. The Company's major product areas include disposable / limited use protective industrial garments, specialty safety and industrial work gloves, reusable woven industrial and medical apparel, fire and heat protective clothing along with protective systems for personnel, and suits for use by toxic waste clean up teams. Products are manufactured both domestically and internationally by the Company and by contract manufacturers. Products are sold by Company personnel and 42 independent sales representatives, primarily to a network of 500 safety and mill supply distributors. The Company's protective garments are used primarily for: (i) safety and hazard protection, to protect the wearer from contaminants or irritants, such as, chemicals, pesticides, fertilizers, paint, grease, and dust and from limited exposure to hazardous waste and toxic chemicals including acids, asbestos, lead, and hydro-carbon's (PCB's) (ii) clean room environments, for the prevention of human contamination of manufacturing processes in clean room environments, (iii) hand and arm protection, to protect the wearer's hand and arms from lacerations, heat and chemical irritants without sacrificing manual dexterity or comfort, (iv) heat and fire protection, to protect municipal fire fighters, military, airport and industrial fire fighting teams and for maintenance of "hot" equipment, such as, coke ovens, kilns, glass furnaces, refinery installations, and smelting plants, (v) protection from viral and bacterial microbiologicals, to protect the wearer from contagious diseases, such as AIDS and hepatitis, at hospitals, clinics and emergency rescue sites, and (vi) protection from highly concentrated and powerful chemical and biological toxins, to protect the wearer from toxic wastes at Super Fund sites, accidental toxic chemical spills or biological discharges, the handling of chemical or biological warfare weapons and the cleaning and maintenance of chemical, petro-chemical and nuclear facilities. These products are manufactured, distributed and sold through six divisions and three wholly owned subsidiaries. The Company was incorporated in New York in 1982 and later reincorporated in Delaware in 1986. A new subsidiary, Fireland Industries, Inc. was formed during fiscal 1994 to hold the land and building then owned in Ohio and to act as Trustee and Sponsor of the Fireland Industries, Inc. Pension Plan. During fiscal 1998, the name of this subsidiary was changed to Laidlaw, Adams & Peck, Inc. In December 1997, the Company replaced its $8 million dollar bank line of credit with a two year $10 million credit facility. Background and Market The market for disposable industrial garments has increased substantially in the past 20 years. In 1970, Congress enacted the Occupational Safety and Health Act ("OSHA"), which requires employers to supply protective clothing in certain work environments. At about the same time, DuPont developed Tyvek TM which, for the first time, allowed for the economical production of lightweight, disposable protective clothing. The attraction of disposable garments grew in the late 1970's with the increases in both labor and material costs of producing cloth garments and the promulgation of federal, state and local regulations requiring that employees wear protective clothing to protect against exposure to certain contaminants, such as asbestos and P.C.B.s. The use of disposable garments avoids the continuing costs of laundering and decontaminating woven cloth work garments and reduces the overhead costs associated with handling, transporting and replacing such garments. As manufacturers have become aware of the advantages of disposable clothing, the demand for such garments has increased. This has allowed for greater production volume and, in turn, has reduced the cost of manufacturing disposable industrial garments. With the acquisition of the assets and certain liabilities of Fyrepel Products, Inc., the Company entered, via Fireland, into the field of manufacturing and selling fire and heat protective garments. Fyrepel Products, Inc. conducted business in this field for 40 years, and the Company acquired its assets as well as the right to use its trade name. During fiscal 1992, the Company re-evaluated the product lines manufactured at this facility in order to reduce the operating losses that occurred in prior fiscal years. Orders that would not assure an acceptable return were not booked, causing a decrease in overall sales, but an improved bottom line. The Company continued to market Fyrepel's product line and furnishes these products but utilized domestic or international independent manufacturing contractors while internal manufacturing was phased out. Chemland was formed in December 1986 to purchase the assets and certain liabilities of Siena Industries, Inc. Chemland manufactures protective garments for use in hazardous chemical environments. All of its products are sold through the Company's distributor network. The Company believes that this market will grow due to the extensive government legislation which mandates the clean up of toxic waste sites and the elimination of hazardous materials from the environment as promulgated under prior Congressional Super Fund Acts and the Super Fund Reform Act of 1998 presently awaiting passage. The Environmental Protection Agency ("EPA") designated OSHA to be responsible for the health and safety of workers in and around areas of hazardous materials and contaminated waste. OSHA responded by formulating an all encompassing compendium of safety regulations that prescribe operating standards for all aspects of OSHA projects. Almost 2 million people are affected by OSHA Standards today. Various states have also enacted worker safety laws which are equal to or go beyond OSHA standards and requirements, as it affects the Company's products. In 1990, additional standards proposed and developed by the National Fire Protection Association ("NFPA") and the American Society for Testing and Materials ("ASTM") were accepted by OSHA. NFPA Standard 1991 set performance requirements for total-encapsulating vapor-proof chemical suits and includes rigid chemical and flame resistance tests and a permeability test against 17 challenge chemicals. The basic OSHA Standards call for 4 levels of protection, A through D, and specify in detail the equipment and clothing required to adequately protect the wearer at corresponding danger levels. A summary of these four levels follows: NFPA 1991/Level A calls for total encapsulation in a vapor-proof chemical suit with self-contained breathing apparatus ("SCBA") and appropriate accessories. Level B calls for SCBA or positive pressure supplied respirator with escape SCBA, plus hooded chemical resistant clothing (overalls, and long sleeved jacket; coveralls; one or two piece chemical-splash suit; or disposable chemical-resistant overalls). Level C requires hooded chemical-resistant clothing (overalls; two-piece chemical-splash suit; disposable chemical-resistant overalls). Level D is basically a work and/or training situation requiring minimal coverall protection. Products General Prior to acquiring Fyrepel Products, Inc. and Siena Industries, Inc. in December 1986, the Company's product line consisted principally of two product groups: disposable / limited use or woven protective industrial garments and specialty safety and industrial work gloves. With the formation of Fireland and Chemland, the Company entered the field of fire, heat and chemical protective garments. The Company also manufactures and sells gloves made from Kevlar TM and Spectra TM, both high-strength fibers. These gloves provide the wearer with a high degree of protection against cuts and lacerations in a glove that is both lightweight and flexible. The Company anticipates strong demand for these gloves in the manufacturing and food service industries. Disposable / Limited Use Garments The Company manufactures a complete line of limited use protective garments. These garments are offered in coveralls, lab-coats, shirts, pants, hoods, aprons, sleeves and smocks. The Company offers these garments in a number of sizes and styles to fit the end users' needs. Limited-use garments can also be coated or laminated to increase splash protection against many inorganic acids, bases, and other liquid chemicals. Limited use garments are made from several non-woven fabrics including Tyvek (TM), Tyvek(R)QC, Tyvek/Saranex 23-P, Barricade, Tychem 9400, Tychem 10,000, Pyrolon FR, proprietary patented fabrics and Polypropylene materials and derivatives. The Company incorporates many seaming techniques depending on the level of hold-out needed in the end use application. Seam types utilized include standard serge seam, bound seam, and heat sealed seam. During fiscal 1995, the Company continued to market the Pyrolon(TM) disposable flame retardant garments. Pyrolon garments meet the stringent requirements of NFPA 701. This material offers multiple benefits; replacing traditional bulky layers of clothing, reducing overall weight and reducing both inventory and storage and replacement costs. The Company's limited use garments range in price from $.06 for limited use shoe covers to approximately $12.00 for Tyvek/Saranex 23-P laminated hood and booted coverall. The Company's largest selling item, a standard white limited-use Tyvek coverall, costs the end user approximately $2.75 to $3.25 per garment. By comparison, similar re-usable cloth coveralls range in price from $10.00 to $35.00, exclusive of significant laundering, maintenance and slippage expenses. Industrial and Medical Cloth Garments The Company also manufactures and markets a line of reusable and launderable woven cloth protective apparel which supplement the disposable / limited use garments, giving the Company access to the broader industrial and health care related markets. Cloth re-usable garments are more appropriate in certain situations because of their heavier weight and greater durability which gives the Company the flexibility to supply and satisfy a wider range of safety and customer needs. The Company also designs and manufactures: o special apparel for the auto industry's paint systems, o hospital garments for protection against blood borne pathogens, o clean room apparel as used in the most sophisticated semiconductor manufacturing facilities, and o jackets and bib overalls for use by emergency medical teams around the country. Safety and Industrial Gloves The Company manufactures and sells specialty safety gloves and sleeves made from Kevlar TM. The Company is one of four companies licensed to sell 100% Kevlar TM gloves. Kevlar TM is a cut and heat resistant, high-strength, lightweight, flexible and durable material produced by DuPont. Kevlar TM, on an equivalent weight basis, is five times stronger than steel and has increasingly been used in manufacturing such diverse products as airplane fuselage components and bullet-resistant vests. Gloves made of Kevlar TM offer a better overall level of protection, lower the injury rate and are more cost effective than work gloves made from such traditional material as leather, canvas and coated gloves. Kevlar TM gloves can withstand temperatures of up to 400 degrees F and are sufficiently cut-resistant to allow workers to safely handle sharp or jagged unfinished sheet metal. Kevlar TM gloves are used primarily in the automotive and metal fabrication industries. The Company also markets approximately 30 different types of commodity industrial work gloves to a small extent made from such materials as cotton, polyester, terry cloth and nylon. Sales of these commodity gloves are used to augment the Company's product line. Kevlar TM gloves and sleeves represent a large portion of the Company's glove production and therefore a majority of the Company's dollar volume of glove and sleeve sales. The Company has been manufacturing and selling knit gloves and sleeves made of Spectra TM since 1989. The Company expects the continued demand for these enhanced gloves to increase as users become familiar with the cut resistance and versatility of these gloves. New markets are continuously being explored for these gloves whose sales account for less than 10% of the Company' dollar volume of glove and sleeve sales. The Company phased out its importation of gloves for distribution into retail sales channels during 1989 to concentrate on the more profitable manufactured gloves. The Company is devoting an increasing portion of its manufacturing capacity to the production of Kevlar TM and Spectra TM gloves, which carry a higher profit margin than commodity gloves. In order to maintain a full line of gloves, however, the Company intends to continue to produce commodity gloves and to import such additional commodity gloves as are necessary to meet demand for its glove products. The Company believes that there are adequate and reliable foreign manufacturers available to meet the Company's import requirements of commodity gloves, if needed. Fire and Heat Protective Apparel and Protective Systems for Personnel The Company's products protect individuals that must work in hostile environments and the Company has been the creator, innovator and inventor of protective systems for hazardous occupations for the last 12 years. The brand name FYREPEL TM is recognized nationally and internationally. The Company has completed an intensive redesign and engineering study to address the ergonomic needs of stressful occupations. The Company's products include: Fire entry suit - for total flame entry for industries dealing with volatile and highly flammable products. Kiln Entry suit - to protect kiln maintenance workers from extreme heat. Proximity suits - designed for performance in high heat areas to give protection where exposure to hot liquids, steam or hot vapors is possible. Approach suits - for personnel engaged in maintenance, repair and operational tasks where temperatures do not exceed 200F degrees ambient, with a radiant heat exposure up to 2,000F degrees. The Company also manufactures Fire Fighters Protective Clothing for domestic and foreign fire departments and developed the popular Sterling Heights style (short coat and bib pants) bunker gear. Crash Rescue has been a major market for the Company, which was the first to produce and supply military and civilian markets with protection worn at airports, petrochemical plants and in the marine industry. Each of the fire suits range in cost to the end user from $450 for a standard fire department turn-out gear to $2,000 for the fire entry suit. The Company anticipates continuing growth and emphasis in the industrial fire market and the international markets. With greater emphasis being placed on the globalization of the industrial manufacturing capacity, it is expected that the Company's products will receive more attention and will be in grater demand worldwide. Chemical Protective Garments The Company manufactures heavy duty fully encapsulated chemical suits which are made of Viton TM, butyl rubber, polyvinylchloride ("PVC") TyChem TM and Teflon TM. These suits are worn to protect the user from exposure to hazardous chemicals. Hazardous material teams or individuals use chemical suits for toxic cleanups, chemical spills, or in industrial and electronic plants. The Company also makes a line of lighter weight chemical suits using such materials as Saranex-coated Tyvek TM and Barricade TM, both DuPont products. The Company's line of chemical suits range in cost from $12 for the Saranex-coated Tyvek suits to $3,400 for the Teflon suits. The chemical suits can be used in conjunction with a fire protective shell manufactured by the Company which will protect the user from both chemical and fire hazards. The Company has also introduced two NFPA approved garments: Forcefield TM - A lightweight hazmat suit, totally encapsulized providing greater mobility, visibility, dependability and versatility in dealing safely and effectively with most types of chemical hazards. This product meets NFPA 1991 standards for a fully certified chemical protective suit. When combined with an Aluminized PBI/Kevlar over cover, it provides NFPA 1991 / Level A protection; Interceptor TM - Model A meets all OSHA Level A requirements as a vapor-proof suit. Model 1 meets and exceeds NFPA 1991 requirements of certification for vapor-proof suit when used with an Aluminized PBI / Kevlar over cover. The Company also manufactures and sells a Level B worksuit called Checkmate TM. This suit is lightweight, tough, versatile, durable and cost effective and can be used for: splash protection, basic clean up, toxic waste dumps and post fire monitoring of toxic residue. Manufacturing Disposable / Limited Use Garments The Company manufactures its disposable / limited use garments primarily at its Decatur, Alabama facility. The fabric is first cut into required patterns at the Company's own plant. The cut fabric and any necessary accessories, such as zippers or elastic, are then obtained from the Company's plant by the Company's wholly owned contract assembly facilities or independent sewing contractors. The assembly facilities and independent contractors sew and package the finished garments at their own facilities and return them to the Company's plant, normally within one to nine weeks for immediate shipment to the customer. The Company presently utilizes over 30 independent sewing contractors under agreements that are terminable at will by either party. These contractors employ approximately 500 people full-time (both domestically and internationally) and operate and maintain their own industrial sewing machines. The Company believes that it is the only customer of the majority of its independent sewing contractors and considers its relations with such contractors to be excellent. In the year ended January 31, 1998, no independent sewing contractors accounted for more than 10% of the Company's production of disposable/limited use garments. The Company believes that it can obtain adequate alternative production capacity should any of its independent contractors become unavailable. The Company believes that its manufacturing system permits it considerable flexibility. Furthermore, by employing additional sewing contractors, the Company can increase production without substantial additional capital expenditures. While the Company has not experienced reduced demand for its disposable / limited use garments, management believes that by its use of its Company owned facilities complemented by the use of independent sewing contractors, the Company is capable of reducing or alternately increasing its production capacity without incurring large on-going costs typical of many manufacturing operations. This allows the Company to react quickly to changing unit demand for its products. Industrial and Medical Woven Garments The Company manufactures and sells woven cloth garments at its facility in Missouri. After the Company receives fabrics from suppliers, principally blends of polyester and cotton, the Company cuts and sews the fabrics at its own facilities to meet customer purchase orders. Some of the items manufactured at this facility are static-free clean room garments, coveralls, lab coats, shirts, pants, jackets, protective covers for industrial robots and garments for emergency response paramedic teams. Fire and Heat Protective Apparel Prior to 1992, the Company solely manufactured fire and heat protective garments at its Newark, Ohio facility, which facility was subsequently sold. Independent manufacturing contractors have been utilized subsequently. The Company receives fabric from its suppliers and sends it to the contractor who cuts the fabric, assembles the suits, boxes the finished product and delivers it pursuant to customer purchase orders or to a Company warehouse. The fire and heat protective suits are manufactured to the purchaser's specifications and delivered upon completion. Chemical Protective Garments The Company manufactures chemical protective clothing at its facility in Somerville, Alabama. After the Company obtains such materials as Saranex-coated Tyvek TM, Barricade TM, TyChem TM, Viton TM, butyl rubber and PVC, it designs, cuts, glues and/or sews the materials to meet customer purchase orders. Forcefield TM suits (a Teflon level A sophisticated chemical suit) the Interceptor TM line of suits, and Checkmate TM suits used by hazardous materials response teams have been developed internally to provide chemical protection at the highest level of barrier available today and are patented products. Safety and Industrial Work Gloves The Company also manufactures gloves at its Somerville, Alabama facility. Computerized robotic knitters are used to weave gloves from both natural and synthetic materials, including Kevlar TM and Spectra TM, on an automatic basis. These robotic knitters are generally in operation 20 hours a day, 5-1/2 days a week. The Company's robotic knitters allow flexibility in production as they can be easily reprogrammed in minutes to produce gloves and sleeves in different sizes, styles, weights, weaves or combinations of materials. Additionally, these robotic knitters can produce gloves and sleeves separately or as a one-piece garment. Gloves and sleeves can also be knitted in different weights and combinations of yarns, such as Kevlar TM mixed with cotton or polyester. Additional processing is sometimes provided by independent sewing contractors. Glove dotting for grip enhancement is also done internally. Quality Control To assure quality, Company employees monitor the sewing of disposable / limited use garments at the facilities of the independent sewing contractors and also inspect the garments upon delivery to the Company's facilities. Finished product that is below standard is returned to the contractor for reworking. The Company has rarely been required to return product to its independent sewing contractors. The Company also actively participates in the Industrial Safety Equipment Association's (ISEA) frequent independent quality inspection programs. The Company conducts quality control inspections of its industrial gloves, cloth, fire and chemical garments throughout the manufacturing process. The Company's Decatur, Alabama plant was ISO 9002 certified during fiscal year 1998. Marketing The Company markets and sells its products through a minimum of 42 independent manufacturers' representatives. The Company believes that these representatives constitute one of the largest and most sophisticated independent sales force in its industry. These independent representatives call on over 500 safety and industrial distributors nationwide and promote and sell the Company's products to safety and industrial distributors and provide product information. The distributors buy the Company's products and maintain inventory at the local level in order to assure quick response time and the ability to serve accounts properly. During the year ended January 31, 1998, no one distributor accounted for more than 5% of sales. Fire, heat and chemical suits were sold through the sales force which was previously used by Fyrepel Products, Inc. and Siena Industries, Inc. Starting in fiscal 1989, the Company increased sales of these products by having them sold through the Company's entire sales network. Due to increasingly technical nature of the sale, in 1992 the Fyrepel division ceased using independent sales representatives, utilizing in house personnel only. Products are sold through the Company's network of distributors to the steel, aluminum, nuclear, chemical and petro chemical, fiberglass, agricultural, pharmaceutical, aerospace, electronics, semi conductor, food processing, glass, power generation and automotive industries, ammunition plants, and fire departments, the U.S. Defense Department and numerous other governmental and quasi-governmental agencies. Highland, the glove division, uses independent sales representatives, exclusively. The Company's marketing plan is to maximize the efficiency of its established distribution network by direct promotion at the end-user level. Advertising is primarily through trade publications. Promotional activities include sales catalogs, mailings to end users and a nationwide publicity program. The Company exhibits at both regional and national trade shows and was represented at the National Safety Congress in Chicago, IL (Fall of 1997) and will be represented at the American Industrial Hygienists Convention (Spring of 1998). The Company also markets its products through its web-site on the Internet at /http://www.lakeland.com. Suppliers and Materials The Company does not have long-term, formal agreements with unaffiliated suppliers of non-woven fabric raw materials used by the Company in the production of its disposable garments. Tyvek TM, Tychem TM and Kevlar TM, however, are purchased from DuPont under licensing agreements; Polypropylene is available from thirty or more major mills; flame retardant fabrics are also available from a number of both domestic and international mills. The accessories used in the production of the Company's disposable garments such as zippers, snaps and elastics are obtained from unaffiliated suppliers. The Company has not experienced difficulty in obtaining its requirements for these commodity component items. The Company has not experienced difficulty in obtaining materials, including cotton, polyester and nylon, used in Highland's production of commodity gloves. Kevlar TM, used in the production of the Company's specialty safety gloves, is obtained from independent mills that purchase the fiber from DuPont. The Company has not experienced difficulty in obtaining its requirements for its raw materials, fabrics or components on any of the above described products. The Company obtains the Spectra yarn used in its Dextra Guard gloves from mills that purchase the fiber from Allied Signal Company, Inc. ("Allied"). The Company believes that Allied will be able to meet the Company's needs for Spectra. In manufacturing its fire and heat protective suits, the Company uses glass fabric, aluminized glass, Nomex TM, aluminized Nomex TM, Kevlar TM, aluminized Kevlar TM, polybenzimidazole (PBI) as well as combinations utilizing neoprene coatings. The chemical protective suits are made of Viton TM, butyl rubber, PVC (available from multiple sources), proprietary and Company patented laminates and Teflon TM, Saranex TM Tyvek QC TM, TyChem TM and Barricade TM from DuPont. The Company also has not experienced difficulty obtaining any of the aforementioned materials. Competition Competition in the market for all of the Company's products is intense. The Company competes with a large number of domestic and foreign companies, public and private, some of which are larger and have substantially greater financial resources. Competition within the industry is on the basis of price, quality, timely delivery, consistency of product, and support services to distributors and end users. Beginning in the third quarter of fiscal 1990, intense competition in the disposable garment business drove margins on non- Tyvek TM garments down. This competition and the concomitant sales price erosion continued through fiscal 1993. However, small price increases on the core Tyvek disposable line in February of 1993, 1994, 1996 and 1998 have and should continue to result in gross margin increases. Management continued to take steps to reduce the Company's manufacturing costs and overhead in order to improve operating results in fiscal 1998. The Company continues to focus its efforts on increasing the sales and profitability of all products, and to redeploy its capital toward higher margin proprietary products. Seasonality Historically, more disposable garments are sold in spring and summer due to moderate weather and construction starts. The highest level of activity is in the spring months. This does not materially affect the total sales of the Company. The fourth quarters of fiscal years 1990 and 1991 yielded the lowest sales volume of each fiscal year. However, during fiscal 1992 and 1993 the third quarter and second quarter, respectively, yielded the lowest sales volume. Since fiscal 1994, the third quarter has been the only seasonally weak quarter. Patents and Trademarks At this time, there are no patents or trademarks which are significant to the Company's operations; however, the Company has one exclusive licensing arrangement covering seven patents in the Company's name, two Company developed patents, five additional patents in the application and approval process with the U.S. Patent and Trademark office, and has one non-exclusive agreement with DuPont regarding patented materials used in the manufacture of chemical suits. Employees As of April 15, 1998, the Company had approximately 766 full-time employees (both domestically and internationally) and meets its manpower requirements at one division through an employee leasing agreement with Madison Manpower and Mobile Storage, Inc., the president and principal stockholder of which is also an officer of the Company. The Company has experienced a low turnover rate among its employees. The Company believes its employee relations to be excellent. ITEM 2. PROPERTIES The Company leases three domestic manufacturing facilities, three foreign manufacturing facilities, one foreign sales office, one Canadian warehouse facility and a corporate office headquarters. The Company's 90,308 square foot facility in Decatur, Alabama, is used in the production of disposable / limited use garments. The Alabama facility is leased entirely by the Company from a partnership consisting primarily of certain stockholders of the Company, pursuant to two lease agreements expiring on August 31, 1999. Chemland and Highland lease 12,000 sq. ft. of manufacturing space, each, on a month to month basis in Somerville, Alabama. This Somerville facility is owned by an officer of the Company. The Company leases 44,000 square feet of manufacturing space in St. Joseph, Missouri used in the manufacturing of woven cloth garments and other cloth products. This lease expires on October 31, 1999. The Company's Mexican subsidiary leases two manufacturing facilities totaling 33,816 square feet under one lease expiring on December 31, 2000 and the second smaller facility is leased on a month to month basis. The Company also leases a 39,816 square foot manufacturing facility in China. This lease agreement is with a partnership of American and Chinese individuals (which include certain officers, employees and directors of the Company) who own the buildings and leases the property for 50 years. The partnership in turn leases the buildings to the Chinese division of the Company as a sales, distribution and manufacturing facility. Currently, the lease is on a month to month basis at an annual rental of $36,288. A formal lease is expected upon completion of the building. A small 2,000 sq. ft. sales office is also leased (from a third party) at an annual rental of $8,000. The Company leases a 5,600 square foot warehouse in Canada under a lease expiring on November 30, 2001. The Company leases 4,362 square feet of office space in Ronkonkoma, New York, in which its corporate, executive and sales offices are located. This lease expires on June 30, 1999. For the year ended January 31, 1998, the Company paid total rent on property and all leased equipment of approximately $669,514 on a net basis. The Company believes that these facilities are adequate for its present operations. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved as plaintiffs in certain receivable collection actions and claims arising in the ordinary course of business, none of which are of a material nature. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to Page 4 ("Market for the Registrant's Common Stock and Related Stockholder Matters") of the Registrant's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 6. SELECTED FINANCIAL DATA Reference is made to Page 2 ("Selected Financial Data") of the Registrant's 1998 Annual Report to Shareholders filed as an exhibit hereto filed as an Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Reference is made to Page 3 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") of the Registrant's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements are incorporated herein by reference to Pages 5 to 23 of the Registrant's Annual Report to Shareholders for the year ended January 31, 1998: Report of Independent Certified Public Accountants Consolidated Balance Sheets - January 31, 1998 and 1997 Consolidated Statements of Income for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996 Notes to consolidated financial statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information under the caption "Election of Directors" in the Company's Proxy Statement relating to the 1998 Annual Meeting of Stockholders ("Proxy Statement"), which information is included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) The following table sets forth the names and ages of all executive officers of the Company, and all positions and offices within the Company presently held by such executive officers. None of the directors, executive officers or nominees for director has any family relationship with any other director, executive officer or nominee for director of the Company. Name Age Position Held ---- --- ------------- Raymond J. Smith 59 Chairman of the Board, President and Director Christopher J. Ryan 46 Executive Vice President - Finance & Secretary and Director Harvey Pride, Jr. 51 Vice President - Manufacturing James M. McCormick 50 Vice President and Treasurer Mr. Smith, a co-founder of the Company, has been Chairman of the Board and President since its incorporation. Prior to 1982, he was employed for 16 years by Disposables, Inc., a manufacturer of disposable garments, first as sales manager, then as Executive Vice President and subsequently as President and Director. Mr. Christopher J. Ryan has served as Executive Vice President- Finance and director since May, 1986 and Secretary since April 1991. From October 1989 until February 1991 Mr. Ryan was employed by Sands Brothers & Co. Ltd. and Rodman & Renshaw, Inc., both investment banking firms. Prior to that, he was an independent consultant with Laidlaw Holding Co., Inc., an investment banking firm, from January 1989 until September 1989. From February, 1987 to January, 1989 he was employed as the Managing Director of Corporate Finance for Brean Murray, Foster Securities, Inc. Mr. Pride has been Vice President of the Company since May 1986. He was Vice President of Ryland (the Company's former subsidiary) from May 1982 to June 1986, and President of Ryland until its merger into Lakeland on January 31, 1990. Mr. McCormick has been Vice President and Treasurer since May 1986. Between January 1986 and May 1986 he was the Company's Controller. ITEM 11. EXECUTIVE COMPENSATION See information under the caption "Compensation of Executive Officers" in the Company's Proxy Statement, which information is included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information under the caption "Voting Securities and Stock Ownership of Officers, Directors and Principal Stockholders" in the Company's Proxy Statement, which information is included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement, which information is incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K a) Index to Consolidated Financial Statements and Schedules: 1. Financial Statements: The following Consolidated Financial Statements of the Registrant are incorporated herein by reference to the Registrant's Annual Report to Shareholders for the year ended January 31, 1998, as noted in Item 8 hereof: Report of Independent Certified Public Accounts Consolidated Balance Sheets - January 31, 1998 and 1997 Consolidated Statements of Income for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended January 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996 Notes to consolidated financial statements 2. Financial Statement Schedules The following consolidated financial statement schedule is included in Part IV of this report: Schedule II - Valuation and qualifying accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8 - K. No report on Form 8 - K has been filed for the Quarter ended January 31, 1998. (c) Exhibits: 3 (a) Restated Certificate of Incorporation* 3 (b) By-Laws, as amended* 10 (a) Lease agreements between POMS Holding Co., as lessor, and the Company, as lessee, dated January 1, 1995 10 (b) Lease agreement between Central Life Assurance Company, as lessor, and the Company, as lessee, dated September 10, 1987. (Incorporated by reference to the Company's Form 10 - K for the year ended January 31, 1988). 10 (c) The Company's Stock Option Plan* 10 (d) Asset Purchase Agreement, dated as of December 26, 1986, by and among the Company, Fireland, Fyrepel Products, Inc. and John H. Weaver, James R. Gauerke and Vernon W. Lenz** 10 (e) Asset Purchase Agreement, dated as of December 26, 1986, by and among the Company, Chemland, Siena Industries, Inc. and John H. Weaver, James R. Gauerke, Eugene R. Weir, John E. Oberfield and Frank Randles** 10 (f) Asset Purchase Agreement, dated September 30, 1987 by and among the Company and Walter H. Mayer & Co. (Incorporated by reference to the report on Form 8 - K filed by the Company on October 14, 1987.) 10 (g) Employment agreement between the Company and Raymond J. Smith, dated January 23, 1998 10 (h) Employment agreement between the Company and Harvey Pride, Jr., dated January 31, 1998 10 (i) Lease between Lakeland Industries, Inc. and JBJ Realty, dated April 11, 1994 10 (j) Asset Purchase Agreement, dated November 19, 1990 by and among the Company, Mayer and WHM Acquisition Corp. (Incorporated by reference to the report on Form 10 - Q for the quarter ended October 31, 1990, filed by the Company on December 14, 1990). 10 (k) Employment agreement between the Company and Christopher J. Ryan, dated February 14, 1997. 10 (l) Loan agreement dated December 12, 1997 between the Company and Merrill Lynch. 10 (m) Consulting and License Agreements between the Company and W. Novis Smith dated December 10, 1991. 10 (n) Agreement dated June 17, 1993 between the Company and Madison Manpower and Mobile Storage, Inc. 11 Consent of Grant Thornton LLP dated April 29, 1998*** 13 Annual Report to Shareholders for the year ended January 31, 1998 20 Proxy Statement of the Registrant for Annual Meeting of Stockholders - June 17, 1998 22 Subsidiaries of the Company (wholly-owned): Lakeland Protective Wear, Inc. Lakeland de Mexico S.A. de C.V. Laidlaw, Adams & Peck, Inc. 27 Financial Data Schedules All other exhibits are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. - ------------ * Incorporated by reference to Registration Statement on Form S - 18 on file with the Securities and Exchange Commission No.33-7512-NY. ** Incorporated by reference to report on Form 8 - K filed by the Company on January 9, 1987. *** Incorporated by reference to Registration Statement on Form S-8 on file with the Securities & Exchange Commission No. 33-92564 - NY. The Exhibits listed above (with the exception of the Annual Report to Shareholders) have been filed separately with the Securities and Exchange Commission in conjunction with this Annual Report on Form 10-K. On request, Lakeland Industries, Inc. will furnish to each of its shareholders a copy of any such Exhibit for a fee equal to Lakeland's cost in furnishing such Exhibit. Requests should be addressed to the Office of the Secretary, Lakeland Industries, Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779. _________________ SIGNATURES _________________ Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 30, 1998 LAKELAND INDUSTRIES, INC. By: /s/Raymond J. Smith ------------------- Raymond J. Smith, Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Name Title Date - ---- ----- ---- /s/Raymond J. Smith Chairman of the Board, April 30, 1998 - ------------------- President and Director Raymond J. Smith (Principal Executive Officer) /s/Christopher J. Ryan Executive V. P.- Finance April 30, 1998 - ---------------------- & Secretary and Director Christopher J. Ryan /s/James M. McCormick Vice President and Treasurer April 30, 1998 - --------------------- (Principal Financial and James M. McCormick Accounting Officer) /s/Eric O. Hallman Director April 30, 1998 - ------------------ Eric O. Hallman /s/John J. Collins, Jr. Director April 30, 1998 - ----------------------- John J. Collins, Jr. /s/Walter J. Raleigh Director April 30, 1998 - -------------------- Walter J. Raleigh Lakeland Industries, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions --------------------------- Balance at Charged to Charged to Balance at beginning costs and other end of of period expenses accounts Deductions period --------- -------- -------- ---------- ------ Year ended January 31, 1998 Allowance for doubtful accounts (a) $150,000 $69,421 $ 16,421 (b) $203,000 Year ended January 31, 1997 Allowance for doubtful accounts (a) $262,765 $ 7,439 $120,204 (b) $150,000 Year ended January 31, 1996 Allowance for doubtful accounts (a) $375,597 $32,069 $144,901 (b) $262,765 (a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance.