UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




FORM
10-Q




(Mark
one)


x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
quarterly period endedJuly
31,
2010




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)
                
                (IRS
      Employer Identification
Number)




701
      Koehler Avenue, Suite 7, Ronkonkoma, New York
                  11779(Address
      of principal executive offices)
                  (Zip
      Code)


(631)
981-9700


(Registrant's
telephone number, including area code)


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes ̈    No
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.


Yes  ̈   No  x




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 whether the registrant is a large accelerated filer, an
accelerated filer, a non accelerated filer or a smaller reporting company. See
the definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12-b-2 of the Exchange Act. (Check
one.):




Large
      accelerated filer  ̈
                  Accelerated
      filer oNon
      accelerated filer    ̈ (Do not check if
      a smaller reporting company)
                  Smaller
      reporting company x


Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12-b-2 of the Exchange
Act).


Yes ̈   No
x




As of
July 31, 2010, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $38,911,451 based on the closing price
of the common stock as reported on the National Association of Securities
Dealers Automated Quotation System National Market System.




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes ̈   No
x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.




Class
                  
                  Outstanding at September 13,
      2010Common
      Stock, $0.01 par value per share
                  
                  5,441,215
      shares







LAKELAND
INDUSTRIES, INC.


AND
SUBSIDIARIES





FORM
10-Q




The
following information of the Registrant and its subsidiaries is submitted
herewith:





PagePART
      I - FINANCIAL INFORMATION:Item
      1.
                Financial
      Statements:Introduction
                3Condensed
      Consolidated Balance Sheets - July 31, 2010 and January 31,
      2010
                4Condensed
      Consolidated Statements of Operations – Three and Six MonthsEnded
      July 31, 2010 and 2009
                5Condensed
      Consolidated Statement of Stockholders' Equity – Six Months EndedJuly
      31, 2010
                6Condensed
      Consolidated Statements of Cash Flows – Six Months Ended July 31, 2010 and
      2009
                7Notes
      to Condensed Consolidated Financial Statements
                8Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                17Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                23Item
      4.
                Controls
      and Procedures
                23PART
      II - OTHER INFORMATION:Item
      6.
                Exhibits
                24Signature
      Page
                25







LAKELAND
INDUSTRIES, INC.


AND
SUBSIDIARIES





PART
      I -
            FINANCIAL
      INFORMATION


Item
      1.
            Financial
      Statements:





Introduction





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




This 10-Q
may contain certain forward-looking statements.  When used in this 10-Q or
in any other presentation, statements which are not historical in nature,
including the words “anticipate,” “estimate,” “should,” “expect,” “believe,”
“intend,” “project” and similar expressions are intended to identify
forward-looking statements.  They also include statements containing a
projection of sales, earnings or losses, capital expenditures, dividends,
capital structure or other financial terms.





The
forward-looking statements in this 10-Q are based upon our management’s beliefs,
assumptions and expectations of our future operations and economic performance,
taking into account the information currently available to us.  These
statements are not statements of fact.  Forward-looking statements involve
risks and uncertainties, some of which are not currently known to us that may
cause our actual results, performance or financial condition to be materially
different from the expectations of future results, performance or financial
condition we express or imply in any forward-looking statements.  Some of
the important factors that could cause our actual results, performance or
financial condition to differ materially from expectations are:





·
            Our
      ability to obtain fabrics and components from suppliers and manufacturers
      at competitive prices or prices that vary from quarter to
      quarter;


·
            Risks
      associated with our international manufacturing and start-up sales
      operations;


·
            Potential
      fluctuations in foreign currency exchange
rates;


·
            Our
      ability to respond to rapid technological
  change;


·
            Our
      ability to identify and complete acquisitions or future
      expansion;


·
            Our
      ability to manage our growth;


·
            Our
      ability to recruit and retain skilled employees, including our senior
      management;


·
            Our
      ability to accurately estimate customer
demand;


·
            Competition
      from other companies, including some with greater
    resources;


·
            Risks
      associated with sales to foreign
buyers;


·
            Restrictions
      on our financial and operating flexibility as a result of covenants in our
      credit facilities;


·
            Our
      ability to obtain additional funding to expand or operate our business as
      planned;


·
            The
      impact of a decline in federal funding for preparations for terrorist
      incidents;


·
            The
      impact of potential product liability
claims;


·
            Liabilities
      under environmental laws and
regulations;


·
            Fluctuations
      in the price of our common stock;


·
            Variations
      in our quarterly results of
operations;


·
            The
      cost of compliance with the Sarbanes-Oxley Act of 2002 and rules and
      regulations relating to corporate governance and public
      disclosure;


·
            The
      significant influence of our directors and executive officer on our
      company and on matters subject to a vote of our
    stockholders;


·
            The
      limited liquidity of our common
stock;


·
            The
      other factors referenced in this 10-Q, including, without limitation, in
      the sections entitled “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations,” and
  “Business.”





We
believe these forward-looking statements are reasonable; however, you should not
place undue reliance on any forward-looking statements, which are based on
current expectations.  Furthermore, forward-looking statements speak only
as of the date they are made.  We undertake no obligation to publicly
update or revise any forward-looking statements after the date of this 10-Q,
whether as a result of new information, future events or otherwise.  In
light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this Form 10-Q might not occur.  We qualify any and all of our
forward-looking statements entirely by these cautionary
factors.


3


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


July 31, 2010
                
                
                January 31, 2010(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                6,607,517
                
                
                $
                5,093,380Accounts
      receivable, net of allowance for doubtful accounts of $158,200at July 31,
      2010 and $200,200 at January 31, 2010
                
                
                16,318,767
                
                
                
                15,809,010Inventories,
      net of reserves of $808,000 at July 31, 2010 and $868,000at January 31,
      2010
                
                
                33,559,980
                
                
                
                38,575,890Deferred
      income taxes
                
                
                1,473,387
                
                
                
                1,261,250Prepaid
      income and VAT tax
                
                
                3,361,534
                
                
                
                1,731,628Other
      current assets
                
                
                1,507,271
                
                
                
                2,355,506Total
      current assets
                
                
                62,828,456
                
                
                
                64,826,664Property
      and equipment, net
                
                
                13,572,050
                
                
                
                13,742,454Intangibles
      and other assets, net
                
                
                7,893,850
                
                
                
                5,622,120Goodwill
                
                
                6,089,720
                
                
                
                5,829,143Total
      assets
                
                $
                90,384,076
                
                
                $
                90,020,381LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                6,664,501
                
                
                $
                3,882,730Accrued
      compensation and benefits
                
                
                1,546,134
                
                
                
                1,288,796Other
      accrued expenses
                
                
                644,133
                
                
                
                1,138,303Borrowings
      under revolving credit facility
                
                
                2,961,596
                
                
                
                9,517,567Other
      short-term borrowing
                
                
                589,312
                
                
                
                —Current
      maturity of long-term debt
                
                
                97,442
                
                
                
                93,601Total
      current liabilities
                
                
                12,503,118
                
                
                
                15,920,997Construction
      loan payable, net of current maturity
                
                
                1,599,679
                
                
                
                1,583,419VAT
      taxes payable long term
                
                
                3,308,964
                
                
                
                —Other
      liabilities
                
                
                98,345
                
                
                
                92,176Total
      liabilities
                
                
                17,510,106
                
                
                
                17,596,592Commitments
      and ContingenciesStockholders'
      equity:Preferred
      stock, $.01 par; authorized 1,500,000 shares (none issued)
                
                
                —
                
                
                
                —Common
      stock $.01 par; authorized 10,000,000 shares; issued and outstanding
      5,566,537 and 5,564,732 shares at July 31, 2010 and January 31, 2010,
      respectively
                
                
                55,665
                
                
                
                55,647Less
      treasury stock, at cost, 125,322 shares at July 31, 2010 and January 31,
      2010
                
                
                (1,353,247
                )
                
                
                (1,353,247
                )Additional
      paid-in capital
                
                
                50,098,557
                
                
                
                49,622,632Retained
      earnings
                
                
                24,447,550
                
                
                
                25,221,050Other
      comprehensive loss
                
                
                (374,555
                )
                
                
                (1,122,293
                )Total
      stockholders' equity
                
                
                72,873,970
                
                
                
                72,423,789Total
      liabilities and stockholders’ equity
                
                $
                90,384,076
                
                
                $
                90,020,381





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


4


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





THREE MONTHS ENDED
                
                
                SIX MONTHS ENDEDJuly 31,
                
                
                July 31,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      sales
                
                $
                24,551,397
                
                
                $
                23,048,759
                
                
                $
                49,914,115
                
                
                $
                47,024,654Cost
      of goods sold
                
                
                16,279,703
                
                
                
                16,811,889
                
                
                
                35,238,541
                
                
                
                34,777,346Gross
      profit
                
                
                8,271,694
                
                
                
                6,236,870
                
                
                
                14,675,574
                
                
                
                12,247,308Operating
      expenses
                
                
                7,431,288
                
                
                
                6,023,378
                
                
                
                13,544,798
                
                
                
                11,355,311Operating
      profit
                
                
                840,406
                
                
                
                213,492
                
                
                
                1,130,776
                
                
                
                891,997VAT
      tax charge Brazil
                
                
                —
                
                
                
                —
                
                
                
                (1,583,247
                )
                
                
                —Interest
      and other income, net
                
                
                22,229
                
                
                
                14,138
                
                
                
                35,003
                
                
                
                54,252Interest
      expense
                
                
                92,244
                
                
                
                226,770
                
                
                
                178,273
                
                
                
                420,249Income
      (loss) before income taxes
                
                
                770,391
                
                
                
                860
                
                
                
                (595,741
                )
                
                
                526,000Provision
      (benefit) for income taxes
                
                
                197,959
                
                
                
                (7,007
                )
                
                
                177,759
                
                
                
                420,814Net  income
      (loss)
                
                $
                572,432
                
                
                $
                7,867
                
                
                $
                (773,500
                )
                
                $
                105,186Net
      income (loss) per common share:Basic
                
                $
                0.11
                
                
                $
                0.00
                
                
                $
                (0.14
                )
                
                $
                0.02Diluted
                
                $
                0.10
                
                
                $
                0.00
                
                
                $
                (0.14
                )
                
                $
                0.02Weighted
      average common shares outstanding:Basic
                
                
                5,440,411
                
                
                
                5,415,391
                
                
                
                5,439,921
                
                
                
                5,410,938Diluted
                
                
                5,533,196
                
                
                
                5,436,309
                
                
                
                5,526,626
                
                
                
                5,452,560





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


5


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(UNAUDITED)


Six
months ended July 31, 2010




Common Stock
                      
                      
                      Treasury Stock
                      
                      
                      Additional
                        Paid-in
                      
                      
                      Retained
                      
                      
                      Accumulated
                        Other
                        ComprehensiveShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Earnings
                      
                      
                      Income (Loss)
                      
                      
                      TotalBalance January 31,
      2010
                      
                      
                      5,564,732
                      
                      
                      $
                      55,647
                      
                      
                      
                      (125,322
                      )
                      
                      $
                      (1,353,247
                      )
                      
                      $
                      49,622,632
                      
                      
                      $
                      25,221,050
                      
                      
                      $
                      (1,122,293
                      )
                      
                      $
                      72,423,789Net
      loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (773,500
                      )
                      
                      
                      —
                      
                      
                      
                      (773,500
                      )Other
      Comprehensive Income
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      747,738
                      
                      
                      
                      747,738Stock-Based
      Compensation:
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Restricted
      Stock
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      487,777
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      487,777Shares
      issued from Restricted Stock Plan
                      
                      
                      1,805
                      
                      
                      
                      18
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (18
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Return
      of shares in lieu of payroll tax withholding
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (11,834
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (11,834
                      )Balance
      July 31, 2010
                      
                      
                      5,566,537
                      
                      
                      $
                      55,665
                      
                      
                      
                      (125,322
                      )
                      
                      $
                      (1,353,247
                      )
                      
                      $
                      50,098,557
                      
                      
                      $
                      24,447,550
                      
                      
                      $
                      (374,555
                      )
                      
                      $
                      72,873,970Total
      Comprehensive Income:Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (773,500
                      )Foreign
      Exchange Translation Adjustments:Qualytextil,
      SA, Brazil
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      828,810Canada
      Real Estate
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,556UK
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (108,510
                      )China
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      4,972Canada
      operating
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      19,910
                      
                      
                      
                      747,738Total
      Comprehensive loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (25,762
                      )





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


6


LAKELAND
INDUSTRIES, INC.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





SIX MONTHS ENDEDJuly 31,2010
                
                
                2009Cash
      Flows from Operating Activities:Net
      income (loss)
                
                $
                (773,500
                )
                
                $
                105,186Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Stock-based
      compensation
                
                
                487,777
                
                
                
                138,649Provision
      for doubtful accounts
                
                
                (41,970
                )
                
                
                (73,333
                )Provision
      for inventory obsolescence
                
                
                (59,998
                )
                
                
                198,486Depreciation
      and amortization
                
                
                1,008,059
                
                
                
                820,735Deferred
      income tax
                
                
                (212,137
                )
                
                
                698,689Changes
      in operating assets and liabilities:Increase
      in accounts receivable
                
                
                (467,787
                )
                
                
                (1,297,434
                )Decrease
      in inventories
                
                
                5,075,908
                
                
                
                7,686,688Increase
      in other assets
                
                
                (3,938,216
                )
                
                
                (2,401,822
                )Increase
      in accounts payable, accrued expenses and other
liabilities
                
                
                3,624,370
                
                
                
                3,027,601Net
      cash provided by operating activities
                
                
                4,702,506
                
                
                
                8,903,445Cash
      Flows from Investing Activities:Purchases
      of property and equipment
                
                
                (490,042
                )
                
                
                (681,405
                )Net
      cash used in investing activities
                
                
                (490,041
                )
                
                
                (681,405
                )Cash
      Flows from Financing Activities:Purchases
      of stock under stock repurchase program
                
                
                —
                
                
                
                (97,787
                )Director
      options granted at fair market value
                
                
                —
                
                
                
                47,068Proceeds
      from exercise of director stock options
                
                
                —
                
                
                
                23,562Net
      payments under loan agreements
                
                
                (6,007,291
                )
                
                
                (6,456,271
                )Increase
      in VAT taxes payable long term
                
                
                3,308,964
                
                
                
                —Net
      cash used by financing activities
                
                
                (2,698,327
                )
                
                
                (6,483,428
                )Net
      increase in cash
                
                
                1,514,137
                
                
                
                1,738,612Cash
      and cash equivalents at beginning of period
                
                
                5,093,380
                
                
                
                2,755,441Cash
      and cash equivalents at end of period
                
                $
                6,607,517
                
                
                $
                4,494,053




The
accompanying notes are an integral part of these condensed consolidated
financial statements.


7


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1. 
    Business


Lakeland
Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation,
organized in April 1982, manufactures and sells a comprehensive line of safety
garments and accessories for the industrial protective clothing and homeland
security markets. The principal market for our products is the United States. No
customer accounted for more than 10% of net sales during the six-month periods
ended July 31, 2010 and 2009.





2. 
    Basis of Presentation


The
condensed consolidated financial statements included herein have been prepared
by us, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments (consisting of only normal
and recurring adjustments) which are, in the opinion of management, necessary to
present fairly the condensed consolidated financial information required
therein.  Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) have been condensed or omitted
pursuant to such rules and regulations. While we believe that the disclosures
are adequate to make the information presented not misleading, it is suggested
that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission for
the year ended January 31, 2010.





The
results of operations for the six-month period ended July 31, 2010 is not
necessarily indicative of the results to be expected for the full
year.





3. 
    Principles of Consolidation


The
accompanying condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.





4. 
    Inventories


Inventories
consist of the following:


July 31, 2010
                  
                  
                  January 31, 2010Raw
      materials
                  
                  $
                  16,611,292
                  
                  
                  $
                  18,727,993Work-in-process
                  
                  
                  3,369,557
                  
                  
                  
                  2,444,693Finished
      goods
                  
                  
                  13,579,131
                  
                  
                  
                  17,403,204$
                  33,559,980
                  
                  
                  $
                  38,575,890





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.





5. 
    Earnings Per Share


Basic
earnings per share are based on the weighted average number of common shares
outstanding without consideration of common stock equivalents. Diluted earnings
per share are based on the weighted average number of common and common stock
equivalents. The diluted earnings per share calculation takes into account the
shares that may be issued upon exercise of stock options, reduced by the shares
that may be repurchased with the funds received from the exercise, based on the
average price during the period.


8


The
following table sets forth the computation of basic and diluted earnings per
share at July 31, 2010 and 2009.




Three
      Months Ended
                          
                          
                          Six
      Months EndedJuly
      31,
                          
                          
                          July
      31,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009NumeratorNet
      Income (Loss)
                          
                          $
                          572,432
                          
                          
                          $
                          7,867
                          
                          
                          $
                          (773,500
                          )
                          
                          $
                          105,186DenominatorDenominator
      for basic earnings per share (Weighted-average shares which reflect
      125,322 weighted average common shares in the treasury as a result of the
      stock repurchase program for the quarter ended July 31, 2010 and 2009, and
      125,322 and 121,159 for the six months ended July 31, 2010 and 2009,
      respectively)
                          
                          
                          5,440,411
                          
                          
                          
                          5,415,391
                          
                          
                          
                          5,439,921
                          
                          
                          
                          5,410,938Effect
      of dilutive securities from restricted stock plan and from dilutive effect
      of stock options
                          
                          
                          92,785
                          
                          
                          
                          20,918
                          
                          
                          
                          86,705
                          
                          
                          
                          36,482Denominator
      for diluted earnings per share (adjusted weighted average
      shares)
                          
                          
                          5,533,196
                          
                          
                          
                          5,436,309
                          
                          
                          
                          5,526,626
                          
                          
                          
                          5,452,560Basic
      earnings (loss) per share
                          
                          $
                          0.11
                          
                          
                          $
                          0.00
                          
                          
                          $
                          (0.14
                          )
                          
                          $
                          0.02Diluted
      earnings (loss) per share
                          
                          $
                          0.10
                          
                          
                          $
                          0.00
                          
                          
                          $
                          (0.14
                          )
                          
                          $
                          0.02





6. 
    Revolving Credit Facility


At July
31, 2010, the balance outstanding under our one-year revolving credit facility
amounted to $3.0 million. In January 2010, the Company entered into a new
one-year $23.5 million revolving credit facility with TD Bank, N.A. The credit
facility contains financial covenants, including, but not limited to, fixed
charge ratio, funded debt to EBIDTA ratio, inventory and accounts receivable
collateral coverage ratio, with respect to which the Company was in compliance
at July 31, 2010, except for minimum EBITDA which the bank has waived. The
weighted average interest rate for the six-month period ended July 31, 2010 was
1.95%.





7. 
    Major Supplier


We
purchased 9% of our raw materials from one supplier during the six-month period
ended July 31, 2010. In the past, we purchased approximately 75% of our raw
material from this suppler. We carried higher inventory levels throughout FY10
and limited our material purchases in Q1 of FY11. We expect this relationship to
continue for the foreseeable future. If required, similar raw materials could be
purchased from other sources; however, our competitive position in the
marketplace could be adversely affected.





8. 
    Employee Stock Compensation


The
Company’s Director’s Plan permits the grant of share options and shares to its
Directors for up to 60,000 shares of common stock as stock compensation. 
All stock options under this Plan are granted at the fair market value of the
common stock at the grant date.  This date is fixed only once a year upon a
Board Member’s re-election to the Board at the Annual Shareholders’ meeting
which is the third Wednesday in June pursuant to the Director’s Plan and our
Company By-Laws.  Directors’ stock options vest ratably over a six-month
period and generally expire six years from the grant date.


9


The
following table represents our stock options granted, exercised and forfeited
during the first six months of fiscal 2011.





Stock Options
                          
                          Number
                            ofShares
                          
                          
                          Weighted Average
                            Exercise Price per
                            Share
                          
                          Weighted Average
                            Remaining
                            Contractual Term
                          
                          Aggregate
                            Intrinsic
                            ValueOutstanding at January 31,
      2010
                          
                          
                          24,300
                          
                          
                          $
                          12.11
                          
                          2.34
      years
                          
                          $
                          11,200Outstanding
      at July 31, 2010
                          
                          
                          24,300
                          
                          
                          $
                          12.11
                          
                          2.22
      years
                          
                          $
                          17,030Exercisable
      at  July 31, 2010
                          
                          
                          24,300
                          
                          
                          $
                          12.11
                          
                          2.22
      years
                          
                          $
                          17,030





Restricted
Stock Plan and Performance Equity Plan





On June
21, 2006, the shareholders of the Company approved a restricted stock plan (the
“2006 Equity Incentive Plan”).  A total of 253,000 shares of restricted
stock were authorized under this plan. On June 17, 2009, the shareholders of the
Company authorized 253,000 shares under the restricted stock plan (the “2009
Equity Incentive Plan”).  Under the restricted stock plan, eligible
employees and directors are awarded performance-based restricted shares of the
Company common stock.  The amount recorded as expense for the
performance-based grants of restricted stock are based upon an estimate made at
the end of each reporting period as to the most probable outcome of this plan at
the end of the three-year performance period (e.g., baseline, maximum or
zero).  In addition to the grants with vesting based solely on performance,
certain awards pursuant to the plan have a time-based vesting requirement, under
which awards vest from two to three years after grant issuance, subject to
continuous employment and certain other conditions.  Restricted stock has
no voting rights until fully vested and issued, and the underlying shares are
not considered to be issued and outstanding until vested.




Under the
2009 Equity Incentive Plan, the Company has granted up to a maximum of 213,061
restricted stock awards as of July 31, 2010. All of these restricted stock
awards are non vested at July 31, 2010 (152,849 shares at “baseline”) and have a
weighted average grant date fair value of $8.00. Under the 2006 Equity Incentive
Plan, there are also outstanding as of July 31, 2010 unvested grants of 1,866
shares under the stock purchase match program and 19,223 shares under the bonus
in stock program. The Company recognizes expense related to performance-based
awards over the requisite service period using the straight-line attribution
method based on the outcome that is probable.




As of
July 31, 2010, unrecognized stock based compensation expense related to
restricted stock awards totaled $1,257,841, consisting of $9,987 remaining under
the 2006 Equity Incentive Plan and $1,247,854 under the 2009 Equity Incentive
Plan, before income taxes, based on the maximum performance award level, less
what has been charged to expense on a cumulative basis through July 31, 2010,
which has been set at baseline.  The cost of these non vested awards is
expected to be recognized over a weighted-average period of three years. 
The board has estimated its current performance level to be at the baseline
level, and expenses have been recorded accordingly.  The performance based
awards are not considered stock equivalents for EPS purposes.





Stock-Based
Compensation





The
Company recognized total stock based compensation costs of $487,777 and $138,649
for the six months ended July 31, 2010 and 2009, respectively, of which $30,523
and $113,966 results from the 2006 Equity Incentive Plan and $457,254 and $0
result from the 2009 Equity Incentive Plan for the six months ended July 31,
2010 and 2009, respectively, and $0 and $24,683, respectively, from the Director
Option Plan.  These amounts are reflected in selling, general and
administrative expenses.  The total income tax benefit recognized for stock
based compensation arrangements was $175,600 and $49,913 for the six months
ended July 31, 2010 and 2009, respectively.





Effective
July 31, 2010, the Company’s Board of Directors elected to change the expected
performance level to baseline for the Company’s 2009 Equity Incentive Plan. This
resulted in a cumulative charge of $457,000 ($292,000 net of taxes) or $0.05 per
share.


10


9. 
    Manufacturing Segment Data





Domestic
and international sales are as follows in millions of dollars:





Three Months Ended
                  
                  
                  Six Months EndedJuly 31,
                  
                  
                  July 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Domestic
                  
                  $
                  13.9
                  
                  
                  
                  56.5
                  %
                  
                  $
                  14.4
                  
                  
                  
                  62.5
                  %
                  
                  $
                  29.3
                  
                  
                  
                  58.7
                  %
                  
                  $
                  31.6
                  
                  
                  
                  67.2
                  %International
                  
                  
                  10.7
                  
                  
                  
                  43.5
                  %
                  
                  
                  8.6
                  
                  
                  
                  37.5
                  %
                  
                  
                  20.6
                  
                  
                  
                  41.3
                  %
                  
                  
                  15.4
                  
                  
                  
                  32.8
                  %Total
                  
                  $
                  24.6
                  
                  
                  
                  100.0
                  %
                  
                  $
                  23.0
                  
                  
                  
                  100.0
                  %
                  
                  $
                  49.9
                  
                  
                  
                  100.0
                  %
                  
                  $
                  47.0
                  
                  
                  
                  100.0
                  %





We manage
our operations by evaluating each of our geographic locations. Our North
American operations include our facilities in Decatur, Alabama (primarily the
distribution to customers of the bulk of our products and the manufacture of our
chemical, glove and disposable products), Celaya, Mexico (primarily disposable,
glove and chemical suit production) and St. Joseph, Missouri and Sinking
Springs, Pennsylvania (primarily woven products production). We also maintain
manufacturing facilities in China (primarily disposable and chemical suit
production) and a glove manufacturing facility in New Delhi, India. We have a
manufacturing facility in Salvador, Bahia, Brazil. Our China facilities and our
Decatur, Alabama facility produce the majority of the Company’s products.
The accounting policies of these operating entities are the same as those
described in Note 1 to our  Annual Report on Form 10-K for the year
ended January 31, 2010. We evaluate the performance of these entities based on
operating profit which is defined as income before income taxes, interest
expense and other income and expenses. We have sales forces in Canada, Europe,
Chile and China which sell and distribute products shipped from the United
States, Mexico or China and a sales force in Brazil. The table below represents
information about reported manufacturing segments for the six-month periods
noted therein:





Three Months Ended July
                      31,
                      (in millions of dollars)
                    
                    
                    Six Months Ended
                      July 31,
                      (in millions of dollars)2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      Sales:North
      America and other foreign
                    
                    $
                    18.4
                    
                    
                    $
                    18.5
                    
                    
                    $
                    38.9
                    
                    
                    $
                    39.2Brazil
                    
                    
                    2.9
                    
                    
                    
                    3.2
                    
                    
                    
                    5.9
                    
                    
                    
                    5.8China
                    
                    
                    8.6
                    
                    
                    
                    4.8
                    
                    
                    
                    15.0
                    
                    
                    
                    9.4India
                    
                    
                    0.4
                    
                    
                    
                    0.2
                    
                    
                    
                    0.9
                    
                    
                    
                    0.3Less
      intersegment sales
                    
                    
                    (5.7
                    )
                    
                    
                    (3.7
                    )
                    
                    
                    (10.8
                    )
                    
                    
                    (7.7
                    )Consolidated
      sales
                    
                    $
                    24.6
                    
                    
                    $
                    23.0
                    
                    
                    $
                    49.9
                    
                    
                    $
                    47.0Operating
      Profit:North
      America and other foreign
                    
                    $
                    .37
                    
                    
                    $
                    (.15
                    )
                    
                    $
                    .01
                    
                    
                    $
                    .04Brazil
                    
                    
                    (.20
                    )
                    
                    
                    (.16
                    )
                    
                    
                    (.15
                    )
                    
                    
                    (.07
                    )China
                    
                    
                    1.2
                    
                    
                    
                    .70
                    
                    
                    
                    1.9
                    
                    
                    
                    1.47India
                    
                    
                    (.17
                    )
                    
                    
                    (.25
                    )
                    
                    
                    (.37
                    )
                    
                    
                    (1.49
                    )Less
      inter-segment profit
                    
                    
                    (.36
                    )
                    
                    
                    .07
                    
                    
                    
                    (.29
                    )
                    
                    
                    .94Consolidated
      operating profit
                    
                    $
                    0.84
                    
                    
                    $
                    .21
                    
                    
                    $
                    1.1
                    
                    
                    $
                    .89Identifiable
      Assets (at Balance Sheet date):North
      America and other foreign
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    46.9
                    
                    
                    $
                    66.5Brazil
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    21.3
                    
                    
                    
                    18.5China
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    17.4
                    
                    
                    
                    14.0India
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4.8
                    
                    
                    
                    0.7Consolidated
      assets
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    90.4
                    
                    
                    $
                    99.7Depreciation  and
      Amortization Expense:North
      America and other foreign
                    
                    $
                    .22
                    
                    
                    $
                    .21
                    
                    
                    $
                    .44
                    
                    
                    $
                    .41Brazil
                    
                    
                    .09
                    
                    
                    
                    .03
                    
                    
                    
                    .17
                    
                    
                    
                    .05China
                    
                    
                    .09
                    
                    
                    
                    .08
                    
                    
                    
                    .17
                    
                    
                    
                    .16India
                    
                    
                    .11
                    
                    
                    
                    .10
                    
                    
                    
                    .22
                    
                    
                    
                    .20Consolidated
      depreciation expense
                    
                    $
                    .51
                    
                    
                    $
                    .42
                    
                    
                    $
                    1.0
                    
                    
                    $
                    .82




11


10. 
Income Tax Audit / Change in Accounting Estimate





The
Company adheres to the guidance issued by the Financial Accounting Standards
Board (“FASB”) dealing with accounting for uncertainty in income taxes. This
guidance prescribes recognition thresholds that must be met before a tax
position is recognized in the financial statements and provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Under guidance, an entity may only recognize
or continue to recognize tax positions that meet a "more likely than not"
threshold.





There was
no activity in our unrecognized tax benefits, and the uncertain income tax
liability at July 31, 2010 was $0.




The
Company’s policy is to recognize interest and penalties related to income tax
issues as components of income tax expense.




The
Company is subject to U.S. federal income tax, as well as income tax in multiple
U.S. state and local jurisdictions and a number of foreign jurisdictions. 
The Company’s federal income tax returns for the fiscal years ended January 31,
2003, 2004, 2005 and 2007 have been audited by the Internal Revenue Service
(“IRS”).




An audit
of the fiscal year ended January 2007 has been completed by the IRS. The Company
has received a final “No Change Letter” from the IRS for FY07.




Our three
major foreign tax jurisdictions are China, Canada and Brazil. According to China
tax regulatory framework, there is no statute of limitation on fraud or any
criminal activities to deceive tax authorities. However, the general
practice is going back five years, and general practice for records maintenance
is 15 years.  Our China subsidiaries were audited during the tax year 2007
for the tax years 2006, 2005 and 2004. Those audits are associated with ordinary
course of business. China tax authorities did not perform tax audits associated
with ordinary course of business during tax years 2008 and 2009 or during the
current year as of current filing date.   China tax authorities
performed a fraud audit, but the scope was limited to the fraud activities found
in late FY09. This audit covered tax years from 2003 through 2008. We have
reached a settlement with the Chinese Government in January 2009. China tax
authorities have performed limited reviews on all China subsidiaries as of tax
years 2008 and 2009, with no significant issues noted. As a result, we can
reasonably conclude that we do not anticipate any foreseeable future
liabilities.




Lakeland
Protective Wear, Inc., our Canadian subsidiary, follows Canada tax regulatory
framework recording its tax expense and tax deferred assets or liabilities. The
Company has never been audited by the Canada tax authority. As of this statement
filing date, we believe the Company’s tax situation is reasonably stated, and we
do not anticipate future tax liability.




Qualytextil,
S.A. has never been audited under Brazilian Federal tax authorities but, by law
in Brazil, they are allowed to audit the five most recent years. We do not
anticipate significant tax liability upon any future income tax audits in
Brazil.




Effective
in the year ended January 31, 2010, management changed its estimates for the
deferred tax asset to be realized upon the final restructuring of its Indian
operations. Accordingly, management has recorded an allowance of $407,102
against the ultimate realization of the remaining $407,102 included in Deferred
Income Taxes on the accompanying balance sheet, to yield a net value of zero for
this item.





11. 
 Related Party Transactions





In July
2005, as part of the acquisition of Mifflin Valley, Inc. (merged into Lakeland
Industries, Inc. on September 1, 2006) the Company entered into a five-year
lease with Michael Gallen (an employee) to lease an 18,520 sq. ft. manufacturing
facility in Shillington, Pennsylvania for $55,560 annually or a per square foot
rental of $3.00 with an annual increase of 3.5%.  This amount was obtained
prior to the acquisition from an independent appraisal of the fair market rental
value per square foot.  This lease expired July 31, 2010 and has not been
renewed. The Company’s operations have been moved to a nearby space. In
addition, the Company, commencing January 1, 2006, is renting 12,000 sq. ft. of
warehouse space in a second location in Pennsylvania from this employee, on a
month-by-month basis, for the monthly amount of $3,350 or $3.35 per square foot
annually.  Mifflin Valley, Inc. utilizes the services of Gallen Insurance
(an affiliate of Michael and Donna Gallen) to provide certain insurance in
Pennsylvania.


12


On March
1, 1999, the Company entered into a one-year (renewable for four additional
one-year terms) lease agreement with Harvey Pride, Jr., a former officer of the
Company, for a 2,400 sq. ft. customer service office for $18,000 annually
located next to the existing Decatur, Alabama facility mentioned above. 
This lease was renewed on April 1, 2009 through March 31, 2011 with a 5% yearly
increase in rental rate.




The
Company believes that all rents paid to Harvey Pride, Jr. by the Company are
comparable to what would be charged by an unrelated party, as six different rent
fairness appraisals were performed in 1999, 2002 and 2004. In June 2010, the
Company purchased this facility from Mr. Pride for $250,000, based on an
independent appraisal.




12.
Derivative Instruments and Foreign Currency Exposure





The
Company has foreign currency exposure, principally through sales in Canada,
Brazil, China and the UK, and production in Mexico and China. Management has
commenced a hedging program to partially offset this risk by purchasing forward
contracts to sell the Canadian Dollar, Chilean Peso and the Euro.  Such
contracts are largely timed to expire with the last day of the fiscal quarter,
with a new contract purchased on the first day of the following quarter, to
match the operating cycle of the Company. Management has decided not to hedge
its long position in the Chinese Yuan or the Brazilian Real.





The
Company accounts for its foreign exchange derivative instruments under guidance
issued by the FASB addressing accounting for derivative instruments and hedging
activities. This guidance requires recognition of all derivatives as either
assets or liabilities at fair value and may result in additional volatility in
both current period earnings and other comprehensive income as a result of
recording recognized and unrecognized gains and losses from changes in the fair
value of derivative instruments.





13.VAT Tax Issue in
Brazil




Asserted
      Claims




From
early in 2004 to April 2009, Lakeland Brasil, S.A. (“Qualytextil”, “QT”)
imported its raw materials through the port of Recife (in the state of
Pernambuco, neighboring the state of Bahia where the QT plant is located). QT
paid an import broker in Recife the proper taxes and then trucked the goods to
Salvador, Bahia, Brazil. QT obtained a legal opinion at the time and relied on
this in good faith.




In
October 2009, QT received an audit notice from Bahia claiming the taxes paid to
Recife/Pernambuco should have been paid to Bahia in the amount of R$4.8 million
and assessed fines and interest of an additional R$5.9 million for a total of
R$10.7 million (approximately US$2.6 million, $3.2 million and $5.8 million,
respectively)




Previously,
our attorney had advised us that it was likely we would prevail; however, there
has been a recent adverse ruling in the Supreme Court.




“Bahia
has announced an amnesty for this tax whereby if the taxes claimed are paid by
the end of the month of May 2010, the interest and penalties will be forgiven.
According to fiscal regulation of Brazil, this amnesty payment will be partially
recouped as credits against future taxes due. Since the amounts were paid as tax
on import of goods, Bahia will allow this amnesty payment to be recouped as
credits against future taxes due.”




Of these
claims, our attorney informs us that R$1.0 million (US$0.5 million) will be
successfully defended based on lapse of statute of limitations and R$0.3 million
(US$0.2 million) based on state auditor misunderstanding. A small amount of
R$0.2 million (US$0.1 million) will be paid by amnesty defended by another
attorney. This amount is already included in the total amnesty program (R$3.5
million) (US$1.9 million).




The total
taxes paid into the amnesty program on May 31st was
R$3.5 million.




13


Amounts
from Preacquisition Period; Escrow




The
asserted tax claims of R$4.8 million (R$10.7 million with penalty and interest)
all relate to imports during the period 2004-2006, prior to the QT acquisition
by the Company in May 2008. At the closing, there were several escrow funds
established to protect Lakeland from contingencies such as discussed herein. The
available escrow funds have a current balance totaling R$2.8 million (US$1.5
million). One seller has released his escrow with a balance of R$1.0 million
(US$0.55 million). Lakeland will file a claim against the remaining funds in
escrow at the appropriate time.




Future
Accounting for Funds




Following
payment into the amnesty program, the taxes will be partially recouped via
credits against future taxes due. There is expected to be the following
costs:




(R$ millions)
                  
                  
                  (US$ millions )1)
                  Loss
      of “desenvolve”(a)
                  
                  $
                  1.5
                  
                  
                  $
                  0.82)
                  Interest
      costs
                  
                  
                  0.4
                  
                  
                  
                  0.23)
                  Legal
      fees
                  
                  
                  0.5
                  
                  
                  
                  0.3TOTAL
                  
                  $
                  2.4
                  
                  
                  $
                  1.3





These
costs will be assessed against the credits and should serve to recoup these
costs or lost incentives back to QT Lakeland from the escrow but are considered
opportunity costs or future costs and have not been charged to expense
currently.




Additional
Exposure Unasserted Claims




There is
additional exposure for the periods: 2007-2009 in the amount of R$6.0 million
(US$3.3 million). Of this amount, R$3.9 million (US$2.1 million) relates to the
2007/2008 period.




Notice of
audit for the 2007/2008 period has just been received by QT. The Company intends
to wait for audit results and then defend and wait for the next amnesty period.
Company counsel advises the Company that in his opinion the next amnesty will
come before the end of the judicial process. There has been a long history in
Bahia of the state declaring such amnesty periods every two to three years going
back 25 years. The litigation process begins as an administrative proceeding,
two instances, and after a period of time must be switched to a formal court
judicial proceeding. At the commencement of the formal court proceedings, the
Company will have to remit a “judicial deposit” covering the exposure from
2007/2008 in taxes of approximately R$3.9 million (US$2.1 million) plus assessed
fines and interest bringing the judicial deposit needed to approximately R$7.3
million (US$4.1 million). Estimated time period to Judicial Court deposit is
1.5-2 years. This does not necessarily have to be all cash. The Court will
accept a pledge of the real estate (approximately R$3 million) (US$1.6 million),
and management believes it will be able to obtain a bank guaranty from Brazilian
banks for up to R$5 million (US$2.7 million) for a relatively nominal fee of
approximately 3% to 4% per year. Notice for audit for 2009 has not been
received, and the Company intends to follow the same process related to that
year.




(a)“Desenvolve” is an
incentive remaining from Brazil’s hyperinflationary days about 10 years ago. It
is based on the net ICMS (VAT) tax payable. (QT pays ICMS to suppliers on raw
materials, bills and collects ICMS from customers, takes credit for ICMS paid to
suppliers and remits the difference. The net amount payable is payable 30%
immediately and 70% for up to five years.The “desenvolve” is an incentive to
pay the 70% quickly, like a cash discount. If the full amount is paid
immediately, there is an 80% discount of the 70% (or 56% of the
total).


14


At the
next amnesty period:
  ·
              If before judicial
      process-still administration proceeding - the Company would pay
      just the taxes with no penalty or interest. This would then be recouped
      via credits against future taxes on future imports. As before, the Company
      would lose desenvolve and interest.
 ·
              If after judicial
      process commences-the amount of the judicial deposit previously
      remitted would be reclassified to the taxes at issue, and the excess
      submitted to cover fines and interest would be refunded to QT. As above,
      the taxes would be recouped via credits against future taxes on future
      imports but losing desenvolve and
interest.
 ·
              The
      desenvolve is scheduled to expire on February 2013 and will be partially
      phased out starting February 2011. Based on the anticipated timing of the
      next amnesty, there may be little amounts of lost desenvolve since it
      would largely expire on its own terms in any
  case.
  Cash
Commitments
  As a
result of the process described above, the Company expects to make or has made
the following payments:
  Date
                              
                              Description
                              
                              R$ Amount
                              
                              US$ AmountMay
      31, 2010
                              
                              Payment
      into amnesty program
                              
                              $3.5
      million(1)
                              
                              $1.9
      millionNovember
      2011
                              
                              Judicial
      deposit
                              
                              7.3
      million(2)
                              
                              4.1
      millionNovember
      2012
                              
                              Convert
      Judicial deposit into amnesty program
                              
                              6.0
      million(3)
                              
                              3.3
      millionNovember
      2012
                              
                              Refund
      from excess judicial deposit
                              
                              $(1.3) million
                              
                              $(0.8) million
 (1)Projected
to be repaid in full via credits against future imports, by March
2011.
 (2)Judicial
deposit does not have to be all cash. Management believes Brazilian banks will
provide several million Reals as a guaranty for the fee of 3%-4% per
year.
 (3)Projected
to be repaid in full via credits against future imports, by September
2014.
  Statement
of Operations Treatment
  There is
a R$2.9 million (US$1.6 million) charge to expense as a result of this issue,
determined as follows:
  MillionsR$
                      
                      
                      US$Total
      to be paid not available for credit:Asserted
      claims
                      
                      $
                      1.4
                      
                      
                      $
                      0.8Unasserted
      claims
                      
                      
                      2.5
                      
                      
                      
                      1.33.9
                      
                      
                      
                      2.1Escrow
      funds released
                      
                      
                      (1.0
                      )
                      
                      
                      (0.5
                      )Charge
      to expense
                      
                      
                      2.9
                      
                      
                      
                      1.6Escrow
      funds available:Total
      escrow funds
                      
                      
                      2.8
                      
                      
                      
                      1.6Escrow
      released in May
                      
                      
                      (1.0
                      )
                      
                      
                      (0.5
                      )Remaining
      funds in escrow
                      
                      
                      1.8
                      
                      
                      
                      1.1
  There is
an additional exposure for 2007-2009 in the amount of approximately $3.3
million. Lakeland intends to apply for amnesty and make any necessary payments
upon the forthcoming amnesty periods imposed by the local Brazilian authorities.
Of this $3.3 million exposure, $1.9 million is eligible for future credit. The
$1.4 million balance is subject to indemnification from the Seller, and the
Company intends to pursue this claim.
  15
  Possible
Recourse Actions
  The
Company’s counsel is reviewing potential actions against sellers under
indemnification proceedings, including possible claims on post acquisition
exposure resulting from misrepresentations.
  The
Company is also evaluating potential action for recourse against other parties
involved in the original transactions.
  When the
Company receives the remaining funds from escrow, this will be recorded as a
gain at such time. Any further indemnifications from the sellers and potential
other parties will also be recorded as a gain at such time as
received.
  The
Company also plans to assert indemnification rights under its Share Purchase
Agreement with the sellers and has other legal avenues for recoupment of these
monies against both the Sellers and negligent third parties. Such recoupment, if
successful, will be reported as profits over future periods when and if
collected.
  Balance
Sheet Treatment
  In
accordance with GAAP, the Company has reflected the above items on its balance
sheet as follows:
  (R$ millions)
                          
                          
                          US$ millionsCurrent
      assets
                          
                          Prepaid
      taxes
                          
                          $
                          2.1
                          
                          
                          $
                          1.1Noncurrent
      assets
                          
                          Deferred
      taxes
                          
                          
                          3.5
                          
                          
                          
                          1.9Long
      term liabilities
                          
                          Taxes
      payable
                          
                          $
                          6.0
                          
                          
                          $
                          3.3
  14.
License Agreement with DuPont
  Effective
May 17, 2010, a trademark License Agreement was signed which will change the
commercial relationship between E.I. du Pont de Nemours and Company (“DuPont”)
and Lakeland with regard to the sale of Tyvek® and Tychem®.
  Historically,
pursuant to a Trademark License Agreement with DuPont, Lakeland utilized DuPont
trademark logos to market DuPont Tyvek® and Tychem® fabrics made into garments
by Lakeland. Lakeland bought its Tyvek® and Tychem® fabrics from DuPont directly
and processed these fabrics into protective garments. Pursuant to new contracts
with DuPont, Lakeland will no longer buy fabrics from DuPont to make garments
but has agreed to buy instead finished garments directly from DuPont and market
and sell DuPont garments as a wholesale distributor.
  Nonetheless,
in certain instances where Lakeland makes customized garments not made by
DuPont, DuPont will continue to sell Tyvek® and Tychem® fabrics to Lakeland.
These new agreements are transition agreements until Lakeland sells the
remainder of its Tyvek® and Tychem® raw material and finished goods inventories,
estimated to be by this fiscal year end. Thereafter, DuPont and Lakeland intend
to sign a multi-year agreement which would be similar to the above arrangement
with potential modifications between the parties based upon experience during
this interim period.
  15.
Stock-out Conditions and Backlog
  The
Company has been working to reduce or eliminate its inventory of Tyvek® and
Tychem® in anticipation of the above-referenced License Agreement. Throughout
the quarter ended July 31, 2010 and subsequent thereto, the Company has
experienced significant “stock-out” conditions until newly ordered finished
goods arrive from DuPont. As a result, the Company’s backlog for domestic
disposables is $7.2 million as of July 31, 2010.
  16
  16.
Brazil Management and Share Purchase Agreement
  On May
19, 2010, the president and V.P. of Operations (the “two terminated sellers”) of
Qualytextil, S.A. (“QT”), Lakeland’s Brazil subsidiary, were terminated for
cause as a result of numerous documented breaches of their Management Agreements
(“MA”) with QT and misrepresentations in their Share Purchase Agreement (“SPA”)
with Lakeland. As a result of these breaches and misrepresentations, Lakeland
has taken the position that it is not obligated to pay their share or 65% of any
Supplemental Purchase Price (“SPP”) due in 2011 pursuant to the SPA. These two
sellers’ shares constitute 35% and 30%, respectively, of the SPP totals, if any,
which may be due under the SPA. The CFO of QT has been promoted to President of
QT. He holds the remaining 35% of the SPA and SPP totals.
  Lakeland
and the two terminated sellers are presently attempting to negotiate a
settlement. If no settlement is reached within 30 days, the SPA provides for
arbitration to settle disputes, and Lakeland intends to assert further damages
in such arbitration proceeding. There has been a charge of US$175,000 in Q2 for
the legal and professional fees incurred in this matter.
  Item
2.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
appeared in our Form 10-K and Annual Report and in the documents that were
incorporated by reference into our Form 10-K for the year ended January 31,
2010.  This Form 10-Q may contain certain “forward-looking”
information within the meaning of the Private Securities Litigation Reform Act
of 1995.  This information involves risks and
uncertainties.  Our actual results may differ materially from the
results discussed in the forward-looking statements.
 
 Overview
 We
manufacture and sell a comprehensive line of safety garments and accessories for
the industrial protective clothing market. Our products are sold by our in-house
customer service group, our regional sales managers and independent sales
representatives to a network of over 1,000 safety and mill supply distributors.
These distributors in turn supply end user industrial customers, such as
integrated oil, chemical/petrochemical, utilities, automobile, steel, glass,
construction, smelting, munition plants, janitorial, pharmaceutical, mortuaries
and high technology electronics manufacturers, as well as scientific and medical
laboratories. In addition, we supply federal, state and local governmental
agencies and departments, such as fire and law enforcement, airport crash rescue
units, the Department of Defense, the Department of Homeland Security and the
Centers for Disease Control.
 
 We have
operated manufacturing 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 allow access to a less expensive labor pool
than is available in the United States and permit us to purchase certain raw
materials at a lower cost than they are available domestically. As we have
increasingly moved production of our products to our facilities in Mexico and
China, we have seen improvements in the profit margins for these products. We
continue to move production of our reusable woven garments and gloves to these
facilities and expect to continue this process through fiscal 2011. As a result,
we expect to see continuing profit margin improvements for these product lines
over time.
 
 Critical
Accounting Policies and Estimates
 The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, net sales and
expenses and disclosure of contingent assets and liabilities. We base estimates
on our past experience and on various other assumptions that we believe to be
reasonable under the circumstances, and we periodically evaluate these
estimates.
 
 We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
  17
 
 Revenue Recognition.The
Company derives its sales primarily from its limited use/disposable protective
clothing and secondarily from its sales of high-end chemical protective suits,
fire fighting and heat protective apparel, gloves and arm guards and reusable
woven garments. Sales are recognized when goods are shipped at which time title
and the risk of loss passes to the customer. Sales are reduced for sales returns
and allowances. Payment terms are generally net 30 days for United States sales
and net 90 days for international sales.
 
 Substantially
all the Company’s sales outside Brazil are made through distributors. There are
no significant differences across product lines or customers in different
geographical areas in the manner in which the Company’s sales are
made.
 
 Rebates
are offered to a limited number of our distributors who participate in a rebate
program. Rebates are predicated on total sales volume growth over the previous
year. The Company accrues for any such anticipated rebates on a pro-rata basis
throughout the year.
 
 Our sales
are generally final; however, requests for return of goods can be made and must
be received within 90 days from invoice date. No returns will be accepted
without a written authorization. Return products may be subject to a restocking
charge and must be shipped freight prepaid. Any special made-to-order items are
not returnable. Customer returns have historically been
insignificant.
 
 Customer
pricing is subject to change on a 30-day notice; exceptions based on meeting
competitors’ pricing are considered on a case-by-case basis.
 
 Inventories.Inventories
include freight-in, materials, labor and overhead costs and are stated at the
lower of cost (on a first-in, first-out basis) or market. Provision is made for
slow-moving, obsolete or unusable inventory.
 
 Allowance for Doubtful Accounts.We establish an allowance for doubtful accounts to provide for accounts
receivable that may not be collectible. In establishing the allowance for
doubtful accounts, we analyze the collectability of individual large or past due
accounts customer-by-customer. We establish reserves for accounts that we
determine to be doubtful of collection.
 
 Income Taxes and Valuation
Allowances.We are required to estimate our income taxes in each of the
jurisdictions in which we operate as part of preparing our consolidated
financial statements. This involves estimating the actual current tax in
addition to assessing temporary differences resulting from differing treatments
for tax and financial accounting purposes. These differences, together with net
operating loss carry forwards and tax credits, are recorded as deferred tax
assets or liabilities on our balance sheet. A judgment must then be made of the
likelihood that any deferred tax assets will be realized from future taxable
income. A valuation allowance may be required to reduce deferred tax assets to
the amount that is more likely than not to be realized. In the event we
determine that we may not be able to realize all or part of our deferred tax
asset 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 net income in the period of such
determination.
 
 Valuation of Goodwill and Other
Intangible Assets.Goodwill and indefinite lived intangible assets are
tested for impairment at least annually; however, these tests may be performed
more frequently when events or changes in circumstances indicate the carrying
amount may not be recoverable. Goodwill impairment is evaluated utilizing a
two-step process as required by U.S. GAAP.  Factors that the Company
considers important that could identify a potential impairment include:
significant underperformance relative to expected historical or projected future
operating results; significant changes in the overall business strategy; and
significant negative industry or economic trends. The Company measures any
potential impairment based market quotes, if available or on a projected
discounted cash flow method. Estimating future cash flows requires the Company’s
management to make projections that can differ materially from actual
results.
  18
  Impairment of Long-Lived
Assets.The Company
evaluates the carrying value of long-lived assets to be held and used when
events or changes in circumstances indicate the carrying value may not be
recoverable. The carrying value of a long-lived asset is considered impaired
when the total projected undiscounted cash flows from the asset are separately
identifiable and are less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived asset.
  Self-Insured Liabilities.We
have a self-insurance program for certain employee health benefits. The cost of
such benefits is recognized as expense based on claims filed in each reporting
period and an estimate of claims incurred but not reported during such period.
Our estimate of claims incurred but not reported is based upon historical
trends. If more claims are made than were estimated or if the costs of actual
claims increases, beyond what was anticipated, reserves recorded may not be
sufficient, and additional accruals may be required in future periods. We
maintain separate insurance to cover the excess liability over set single claim
amounts and aggregate annual claim amounts.
 
 Significant Balance Sheet Fluctuation
July 31, 2010 As Compared to January 31, 2010
 Cash
increased by $1.5 million as borrowings under the revolving credit facility
decreased by $6.6 million at July 31, 2010. Accounts receivable increased by
$0.5 million.  Accounts payable increased by $2.8 million mainly due
to local vendors in China as we source domestically in China, accruals of sales
rebates, larger payables in Brazil and resumption of purchases from
DuPont.
 
 As a
result of the VAT tax issue in Brazil as disclosed herein, as of July 31, 2010
we have recorded additional current assets for prepaid taxes of $1.1 million and
noncurrent deferred taxes asset and long-term liability-VAT tax payable of
US$3.3 million.
 
 At July
31, 2010, the Company had an outstanding loan balance of $3.0 million under its
facility with TD Bank, N.A. compared with $9.5 million at January
2010.  Total stockholders’ equity increased $0.5 million principally
due to the net loss for the period of $(0.8) million offset by the changes in
foreign exchange translations in other comprehensive income of $0.7 million and
the equity compensation of $0.5 million.
 
 Three
months Ended July 31, 2010 As Compared to the Three Months Ended July 31,
2009
 Net Sales.Net sales
increased $1.5 million, or 6.5%, to $24.6 million for the three months ended
July 31, 2010, from $23.0 million for the three months ended July 31,
2009.  The net increase was due to an increase of $2.1 million in
foreign sales, offset by a $0.6 million decrease in domestic sales. External
sales from China increased by $2.2 million, or 98%, driven by sales to the new
Australian distributor and domestic sales in China. Canadian sales increased by
$0.2 million, or 12.4%, UK sales increased by $0.2 million, or 16.7%, Chile
sales decreased by $0.6 million, or 68%, in part resulting from the earthquake.
US domestic sales of disposables were flat, chemical suit sales decreased by
$0.5 million, wovens decreased by $0.4 million, reflective sales were flat and
glove sales increased by $0.7 million. Sales in Brazil were down 7.6% mainly
from lack of large bid sales in Q2 this year.
 
 Gross Profit.Gross profit
increased $2.0 million, or 32.6%, to $8.3 million for the three months ended
July 31, 2010, from $6.2 million for the three months ended July 31, 2009. Gross
profit as a percentage of net sales increased to 33.7% for the three months
ended July 31, 2010, from 27.1% for the three months ended July 31, 2009. Major
factors driving the changes in gross margins were:
 
 o
              Disposables
      gross margin increased by $1.5 million this year compared with last year.
      This increase was mainly due to higher margins in Q2 resulting from the
      industry wide shortages prevailing and price
  increases.
 o
              Brazil’s
      gross margin was 46.8% this year compared with 40.6% last year. This
      increase was largely due to the sales
mix.
 o
              Continued
      gross losses of $0.1 million from India in Q2
  FY11.
 o
              Chemical
      division gross margin increased 1.1 percentage points resulting from sales
      mix
 o
              Canada
      gross margin increased 6.9 percentage points due to higher volume and
      favorable exchange rates.
 
 Operating Expenses.Operating
expenses increased $1.4 million, or 23%, to $7.4 million for the three months
ended July 31, 2010, from $6.0 million for the three months ended July 31,
2009.  As a percentage of sales, operating expenses increased to 30.3%
for the three months ended July 31, 2010 from 26.1% for the three months ended
July 31, 2009.  The $1.4 million increase in operating expenses in the
three months ended July 31, 2010 as compared to the three months ended July 31,
2009 was comprised of:
  19
  o
              $0.5
      million increase in equity compensation resulting from the 2009 restricted
      stock plan treated at the baseline performance level and the resulting
      cumulative charge.
 o
              $0.2
      million increase in professional fees resulting from the terminations in
      Brazil.
 o
              $0.2
      million increase in freight out shipping costs, in part due to higher
      volume and in part due to use of air freight in some cases resulting from
      stock-out conditions.
 o
              $0.2
      million increase in administrative payroll mainly resulting from severance
      pay from terminations in Canada and the
U.S.
 o
              $0.2
      million in increased operating costs in China were the result of the large
      increase in direct international sales made by China, are now allocated to
      SG&A costs, previously allocated to cost of goods
  sold.
 o
              $0.1
      million in increased sales commissions resulting from higher
      volume.
 o
              $0.1
      million increase in sales salaries resulting from increased sales
      personnel in Argentina, China and the wovens
  division.
 
 Operating profit. Operating
profit increased 293.6% to $0.8 million for the three months ended July 31, 2010
from $0.2 million for the three months ended July 31, 2009.  Operating
margins were 3.4% for the three months ended July 31, 2010 compared to 0.9% for
the three months ended July 31, 2009.
 
 Interest
Expenses.  Interest expenses decreased by $0.1 million for the
three months ended July 31, 2010 as compared to the three months ended July 31,
2009 due to lower borrowing levels outstanding and lower rates.
 
 Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes.  Income tax expenses increased $0.2 million, to
$0.2 million for the three months ended July 31, 2010 from $0.0 million for the
three months ended July 31, 2009.  Our effective tax rates were not
meaningful for Q2 FY10 due to the near breakeven profit and 25.8% for the three
months ended July 31, 2010. Our effective tax rate for Q2 FY11 was due to
goodwill write-offs in Brazil and tax benefits from India resulting from “check
the box” in the U.S.
 
 Net
Income.  Net income increased $0.6 to $0.6 million for the
three months ended July 31, 2010 from $0.0 million for the three months ended
July 31, 2009. The increase in net income primarily resulted from higher margins
resulting from the stock-out conditions prevailing in Q2 FY11, offset by charges
to net income of $0.3 million for the cumulative change in Restricted Stock
performance level ($0.05 per share), $0.2 million for legal fees in Brazil
resulting from the terminations ($0.03 per share), $0.2 million for severance
costs in Canada ($0.03 per share). Excluding these charges, the Company would
have reported net income of $1.3 million in the second quarter of fiscal 2011
($0.21 per share).
 
 Six
Months Ended July 31, 2010 As Compared to the Six Months Ended July 31,
2009
 Net Sales.Net sales
increased $2.9 million, or 6.1%, to $49.9 million for the six months ended July
31, 2010, from $47.0 million for the six months ended July 31,
2009.  The net increase was due to an increase of $5.2 million in
foreign sales, offset by a $2.3 million decrease in domestic sales. External
sales from China increased by $3.3 million, or 83%, driven by sales to the new
Australian distributor and domestic sales in China. Canadian sales increased by
$0.7 million, or 24%, UK sales increased by $0.6 million, or 33%, Chile sales
decreased by $0.5 million, or 46%, in part resulting from the earthquake. US
domestic sales of disposables decreased by $1.0 million, chemical suit sales
decreased by $0.8 million, wovens decreased by $0.3 million, reflective sales
decreased by $0.3 million and glove sales increased by $0.9 million. Sales in
Brazil were flat.
 
 Gross Profit.Gross profit
increased $2.4 million or, 19.8%, to $14.7 million for the six months ended July
31, 2010, from $12.2 million for the six months ended July 31, 2009. Gross
profit as a percentage of net sales increased to 29.4% for the six months ended
July 31, 2010 from 26.0% for the six months ended July 31, 2009. Major factors
driving the changes in gross margins were:
  20
 
 o
              Disposables
      gross margin increased by 4.7 percentage points this year compared with
      last year. This increase was mainly due to higher margins in Q2 resulting
      from the industry wide shortages prevailing, partially offset by higher
      priced raw materials and a very competitive pricing environment coupled
      with lower volume in Q1.
 o
              Brazil’s
      gross margin was 48.1% this year compared with 43.3% last year. This
      increase was largely due to the volume provided by a larger bid contract
      this year.
 o
              Continued
      gross losses of $0.2 million from India in
FY11.
 o
              Chemical
      division gross margin declined 2.3 percentage points resulting from lower
      volume and sales mix
 o
              Canada
      gross margin increased 6.8 percentage points due to higher volume and
      favorable exchange rates.
 
 Operating Expenses.Operating
expenses increased $2.2 million, or 19.3%, to $13.5 million for the six months
ended July 31, 2010, from $11.4 million for the six months ended July 31,
2009.  As a percentage of sales, operating expenses increased to 27.1%
for the six months ended July 31, 2010 from 24.1% for the six months ended July
31, 2009.  The $2.2 million increase in operating expenses in the six
months ended July 31, 2010 as compared to the six months ended July 31, 2009
were comprised of:
 
 o
              $0.5
      million increase in equity compensation resulting from the 2009 restricted
      stock plan treated at the baseline performance level and the resulting
      cumulative charge.
 o
              $0.4
      million in increased operating costs in China were the result of the large
      increase in direct international sales made by China, are now allocated to
      SG&A costs, previously allocated to cost of goods
  sold.
 o
              $0.4
      million increase in administrative payroll mainly resulting from $0.3
      million severance pay from terminations in Canada and the
    U.S.
 o
              $0.3
      million increase in foreign exchange costs resulting from unhedged losses
      against the Euro in China. The Company has since commenced a hedging
      program for the Euro.
 o
              $0.3
      million increase in freight out shipping costs, in part due to higher
      volume and in part due to use of air freight in some cases resulting from
      stock-out conditions.
 o
              $0.2
      million increase in professional fees resulting from the terminations in
      Brazil.
 o
              $0.2
      million increase in sales salaries resulting from increased sales
      personnel in Argentina, China and the wovens
  division.
 o
                $0.1
      million in increased sales commissions resulting from higher
      volume.o
                $(0.1)
      million miscellaneous
decreases.
 
 Operating Profit. Operating
profit increased 27% to $1.1 million for the six months ended July 31, 2010 from
$0.9 million for the six months ended July 31, 2009.  Operating
margins were 2.3% for the six months ended July 31, 2010 compared to 1.9% for
the six months ended July 31, 2009.
 
 Interest
Expenses.  Interest expenses decreased by $0.2 million for the
six months ended July 31, 2010 as compared to the six months ended July 31, 2009
due to lower borrowing levels outstanding and lower rates.
 
 Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes.  Income tax expenses decreased $0.2 million, or
58%, to $0.2 million for the six months July 31, 2010 from $0.4 million for the
six months ended July 31, 2009.  Our effective tax rates were not
meaningful for this year and 80% for the six months ended July 31, 2009. Our
effective tax rate for Q1FY10 was affected by a $350,000 allowance against
deferred taxes resulting from the India restructuring, losses in India and UK
with no tax benefit, tax benefits in Brazil resulting from government incentives
and goodwill write-offs and credits to prior year’s taxes in the US not
previously recorded. Our effective tax rate for six months FY11 was due to
goodwill write-offs in Brazil and tax benefits from India resulting from “check
the box” in the U.S and the $1.6 million charge for VAT tax expense in
Brazil.
 
 Net Income
(Loss).  Net income decreased $0.9 to a loss of $0.8 million
for the six months ended July 31, 2010 from a profit of $0.1 million for the six
months ended July 31, 2009. The decrease in net income primarily resulted from
the $1.6 million charge for VAT tax expense in Brazil. Excluding the Brazilian
VAT tax expense, the Company would have reported net income of $0.8 million in
the six months ended July 31, 2010, a 771% increase as compared to the same
period in fiscal 2010. The improved profitability before VAT tax expense
reflects an increase in sales, reduction in gross margins in disposables, a
$350,000 allowance against deferred taxes in the prior year resulting from the
India restructuring.
  21
  Liquidity
and Capital Resources
 Cash Flows.As of July 31,
2010, we had cash and cash equivalents of $6.6 million and working capital of
$50.3 million. Cash and cash equivalents increased $1.5 million, and working
capital increased $1.4 million from January 31, 2010. Our primary sources of
funds for conducting our business activities have been cash flow provided by
operations and borrowings under our credit facilities described
below.  We require liquidity and working capital primarily to fund
increases in inventories and accounts receivable associated with our net sales
and, to a lesser extent, for capital expenditures.
 
 Net cash
provided by operating activities of $4.7 million for the six months ended July
31, 2010 was due primarily to net loss from operations of $(0.8) million and a
decrease in inventories of $5.1 million, offset by an increase in accounts
receivable of $(0.5) million and an increase in deferred tax asset of $(0.2)
million, an increase in other assets of ($3.9) million, largely resulting from
the Brazil VAT tax issues, offset by an increase in payables of $3.6 million.
The increase in payables results mainly from local vendors in China as we source
domestically in China, the resumption of purchases from DuPont, accruals of
sales rebates and overall increases in Brazil. Net cash used in investing
activities of $0.5 million in the six months ended July 31, 2010 was due to
purchases of property and equipment.
 
 We
currently have one credit facility, a $23.5 million revolving credit, of which
$3.0 million of borrowings were outstanding as of July 31, 2010.  Our
credit facility requires that we comply with specified financial covenants
relating to fixed charge ratio, funded debt to EBIDTA coverage and inventory and
accounts receivable collateral coverage ratios.  These restrictive
covenants could affect our financial and operational flexibility or impede our
ability to operate or expand our business.  Default under our credit
facility would allow the lender to declare all amounts outstanding to be
immediately due and payable.  Our lender has a security interest in
substantially all of our assets to secure the debt under our credit
facility.  As of July 31, 2010, we were in compliance with all
covenants contained in our credit facility, except for minimum EBITDA which the
bank has waived.
 
 We
believe that our current cash position of $6.6 million, our cash flow from
operations, along with borrowing availability under our $23.5 million revolving
credit facility, will be sufficient to meet our currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.
 
 Capital Expenditures. Our
capital expenditures principally relate to purchases of manufacturing equipment,
computer equipment and leasehold improvements. Our facilities in China are not
encumbered by commercial bank mortgages and, thus, Chinese commercial mortgage
loans may be available with respect to these real estate assets if we need
additional liquidity. Our capital expenditures are expected to be approximately
$1.5 million for plant expansion in Brazil and capital equipment, primarily
computer equipment and apparel manufacturing equipment in fiscal
2011.
 
 Foreign Currency
Exposure.The Company has foreign currency exposure,
principally through its investment in Brazil, sales in China, Canada and the UK
and production in Mexico and China.  Management has commenced a
hedging program to offset this risk by purchasing forward contracts to sell the
Canadian Dollar, Chilean Peso and Euro.  Such contracts are largely
timed to expire with the last day of the fiscal quarter with a new contract
purchased on the first day of the following quarter to match the operating cycle
of the Company.  Management has decided not to hedge its long position
in the Chinese Yuan or Brazilian Real.
 
 Health Care
Reform.  During March 2010, a comprehensive health care reform
legislation was signed into law in the U.S. under the Patient Protection and
Affordable Care Act, as amended  by the Health Care and Education
Reconciliation Act of 2010 (the “Acts”).  Included among the major
provisions of the law is a change in tax treatment of the federal drug subsidy
paid with respect to Medicare-eligible retirees.  This change did not have
a significant impact because the Company operates its principal drug plan for
Medicare-eligible retirees as secondary to Medicare and manages Medicare Part D
reimbursement through a third-party administrator.  The effect of the Acts
on the Company’s other long-term employee benefit obligation and cost depends on
finalization of related regulatory requirements.  The Company will continue
to monitor and assess the effect of the Acts as the regulatory requirements are
finalized.
  22
  
 Item
3.               Quantitative
and Qualitative Disclosures About Market Risk
 
 There
have been no significant changes in market risk from that disclosed in our
Annual Report on Form 10-K for the fiscal year ended January 31,
2010.
 
 Item
4.               Controls
and Procedures
 We
conducted an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of July 31,
2010. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on their evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of July 31, 2010 for the
reasons discussed below, to ensure them that information relating to the Company
(including our consolidated subsidiaries) required to be included in our reports
filed or submitted under the Exchange Act are recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. Our internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.
 
 Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
 
 Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of July 31, 2010. In making this assessment, management used the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, management has concluded that the Company’s internal control
over financial reporting was effective as of July 31, 2010.
 
 A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
 
 Since the
Company now qualifies as a smaller reporting company, there is no longer an
attestation requirement for management’s assessment of internal control by the
Company’s independent auditors.
 
 Changes
in Internal Control over Financial Reporting
 
 Lakeland
Industries, Inc.’s management, with the participation of Lakeland Industries,
Inc.’s Chief Executive Officer and Chief Financial Officer, has evaluated
whether any change in the Company’s internal control over financial reporting
occurred during the second quarter of fiscal 2011.  Based on that
evaluation, management concluded that there have not been changes in Lakeland
Industries, Inc.’s internal control over financial reporting during the second
quarter of 2011 that have materially affected, or is reasonably likely to
materially affect, Lakeland Industries, Inc.’s internal control over financial
reporting.
  23
 
 PART
II. OTHER INFORMATION
  Items 1, 2, 3, and 5 are not
applicable
  Item
6. Exhibits:
  Exhibits:
 31.1
                        Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                        Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
                        Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
                        Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of
2002
  24
  _________________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.
  LAKELAND INDUSTRIES,
INC.(Registrant)Date:  September
      14, 2010
                  /s/ Christopher J. RyanChristopher
      J. Ryan,Chief
      Executive Officer, President,Secretary
      and General Counsel(Principal
      Executive Officer and Authorized Signatory)Date:
      September 14, 2010
                  /s/ Gary PokrassaGary
      Pokrassa,Chief
      Financial Officer(Principal
      Accounting Officer and Authorized
Signatory)
  25