Inventories, Change in Accounting Estimates and Inventory Adjustments

9 Months Ended

Oct. 31, 2013

4. Inventories, Change in Accounting Estimates and Inventory Adjustments

Inventories consist of the following:

	October 31, 2013		January 31, 2013

Raw materials	$	17,059,057	$	16,361,872
Work-in-process		1,640,632		1,812,788
Finished goods		21,740,598		21,096,015
	$	40,440,287	$	39,270,675

Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or market.

In Q3 FY14, management determined the need for inventory adjustments in the USA and Brazil totaling $1,886,000 as follows:

USA-Change of Estimate

Management has followed the practice of reviewing its overhead rates on a quarterly basis. In order to properly revise overhead rates, a stabilized period of reliable historical data is needed both for sales volume and for the overhead cost pool. Due to the extended loss in volume resulting from the DuPont license termination in July 2011 and the ensuing cost reduction measures taken in the US, management determined better data was now available in Q3 FY14, at which point management revised its overhead rates relating to US inventory. As a result, inventory valuation was reduced by $353,000 overall in the US, primarily related to the disposable division. Such adjustment was only applied to inventory produced or purchased in FY14.

USA-Lower of Cost or Market

There is one discontinued product line in the US that management had been converting to a different style for one customer and reserving the cost of conversion. While this customer continues to purchase these converted styles, during Q3 FY14, management determined that this one customer would not purchase these converted items in sufficient quantity and management will have to sell the remaining stock at a deep discount. Accordingly, an additional inventory write-down of $375,000 was determined to be appropriate.

Brazil-Lower of Cost or Market

In Q3 FY14, it was determined that due to the introduction of a new fabric domestically sourced in Brazil which drove down market pricing, along with significant improvements and elimination of inefficiencies in the production process, adjustments were made to inventory totaling US $810,000.

Brazil-Obsolete
In addition, in the third quarter of fiscal 2014, the Company identified certain inventory in Brazil as obsolete. The inventory became obsolete as a result of the introduction of competing new products into the Brazilian marketplace which rendered the inventory items obsolete. As a result, the inventory was written down to scrap value. Accordingly, during the third quarter of fiscal 2014 the Company recorded a non-cash charge against inventory of US $348,000.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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