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 endedApril 30,
2010


OR


o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
      SECURITIESEXCHANGE
      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.Yeso 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 o 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 o




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
                    o
                    
                    Accelerated
      filer  ̈Non-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 o No x




As of
July 31, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $32,361,028 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 o 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 June 11, 2010Common Stock, $0.01 par value per share
                  
                  5,439,410










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 - April 30, 2010 and January 31,
      2010
              4Condensed
      Consolidated Statements of Operations - Three Months EndedApril
      30, 2010 and 2009
              5Condensed
      Consolidated Statement of Stockholders' Equity –Three Months EndedApril
      30, 2010
              6Condensed
      Consolidated Statements of Cash Flows –Three Months Ended April 30, 2010
      and 2009
              7Notes
      to Condensed Consolidated Financial Statements
              8Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              16Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              21Item
      4.
              Controls
      and Procedures
              21PART
      II - OTHER INFORMATION:Item
      6.
              Exhibits
              22Signature
      Page
              23









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 historical 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 facilitates;


·
            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


April 30, 2010
                    
                    
                    January 31, 2010(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    5,689,704
                    
                    
                    $
                    5,093,380Accounts
      receivable, net of allowance for doubtful accounts of $163,800 at April
      30, 2010 and $200,200 at January 31, 2010
                    
                    
                    17,277,861
                    
                    
                    
                    15,809,010Inventories,
      net of reserves of $860,000 at April 30, 2010 and $868,000 at January
      31, 2010
                    
                    
                    33,696,757
                    
                    
                    
                    38,575,890Deferred
      income taxes
                    
                    
                    1,261,250
                    
                    
                    
                    1,261,250Prepaid
      income and VAT tax
                    
                    
                    2,771,679
                    
                    
                    
                    1,731,628Escrow 
      receivable
                    
                    
                    549,887
                    
                    
                    
                    —Other
      current assets
                    
                    
                    2,966,648
                    
                    
                    
                    2,355,506Total
      current assets
                    
                    
                    64,213,786
                    
                    
                    
                    64,826,664Property
      and equipment, net
                    
                    
                    13,665,254
                    
                    
                    
                    13,742,454Deferred
      tax asset, noncurrent
                    
                    
                    1,916,961
                    
                    
                    
                    —Intangibles
      and other assets, net
                    
                    
                    6,121,225
                    
                    
                    
                    5,622,120Goodwill
                    
                    
                    6,153,572
                    
                    
                    
                    5,829,143Total
      assets
                    
                    $
                    92,070,798
                    
                    
                    $
                    90,020,381LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                    
                    $
                    5,218,164
                    
                    
                    $
                    3,882,730Accrued
      compensation and benefits
                    
                    
                    1,574,817
                    
                    
                    
                    1,288,796Other
      accrued expenses
                    
                    
                    971,456
                    
                    
                    
                    1,138,303Current
      VAT taxes payable
                    
                    
                    1,909,254
                    
                    
                    
                    —Borrowings
      under revolving credit facility
                    
                    
                    4,953,394
                    
                    
                    
                    9,517,567Current
      maturity of long-term debt
                    
                    
                    98,661
                    
                    
                    
                    93,601Total
      current liabilities
                    
                    
                    14,725,746
                    
                    
                    
                    15,920,997Construction
      loan payable, net of current maturity
                    
                    
                    1,644,348
                    
                    
                    
                    1,583,419VAT
      taxes payable long-term
                    
                    
                    3,270,110
                    
                    
                    
                    —Other
      liabilities
                    
                    
                    99,856
                    
                    
                    
                    92,176Total
      liabilities
                    
                    
                    19,740,060
                    
                    
                    
                    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 5,564,732 shares at April 30, 2010 and January 31,
      2010
                    
                    
                    55,647
                    
                    
                    
                    55,647Less
      treasury stock, at cost, 125,322 shares at April 30, 2010 and January 31,
      2010
                    
                    
                    (1,353,247
                    )
                    
                    
                    (1,353,247
                    )Additional
      paid-in capital
                    
                    
                    49,640,420
                    
                    
                    
                    49,622,632Retained
      earnings
                    
                    
                    23,875,118
                    
                    
                    
                    25,221,050Other
      comprehensive income (loss)
                    
                    
                    112,800
                    
                    
                    
                    (1,122,293
                    )Total
      stockholders' equity
                    
                    
                    72,330,738
                    
                    
                    
                    72,423,789Total
      liabilities and stockholders’ equity
                    
                    $
                    92,070,798
                    
                    
                    $
                    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
                  April 30,2010
                
                
                2009Net
      sales
                
                $
                25,362,718
                
                
                $
                23,975,894Cost
      of goods sold
                
                
                18,958,838
                
                
                
                17,965,456Gross
      profit
                
                
                6,403,880
                
                
                
                6,010,438Operating
      expenses
                
                
                6,113,510
                
                
                
                5,331,933Operating
      profit
                
                
                290,370
                
                
                
                678,505VAT
      tax charge - Brazil from prior periods
                
                
                (1,583,247
                )
                
                
                —Interest
      and other income, net
                
                
                12,774
                
                
                
                40,116Interest
      expense
                
                
                (86,029
                )
                
                
                (193,480
                )Income
      (loss) before income tax
                
                
                (1,366,132
                )
                
                
                525,141Provision
      (benefit) for income taxes
                
                
                (20,200
                )
                
                
                427,822Net
      income (loss)
                
                $
                (1,345,932
                )
                
                $
                97,319Net
      income (loss) per common share:Basic
                
                $
                (0.25
                )
                
                $
                0.02Diluted
                
                $
                (0.25
                )
                
                $
                0.02Weighted
      average common shares outstanding:Basic
                
                
                5,439,410
                
                
                
                5,406,291Diluted
                
                
                5,465,594
                
                
                
                5,468,616





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)


Three
months ended April 30, 2010





Common Stock
                  
                  
                  Treasury Stock
                  
                  
                  Additional
                    Paid-in
                    Capital
                  
                  
                  Retained
                    Earnings
                  
                  
                  Accumulated
                    Other
                    Comprehensive
                    income (loss)
                  
                  
                  TotalShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  AmountBalance
      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
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,345,932
                  )
                  
                  
                  —
                  
                  
                  
                  (1,345,932
                  )Other
      Comprehensive Income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,235,093
                  
                  
                  
                  1,235,093Stock-Based
      Compensation:Restricted
      Stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  17,788
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  17,788Balance
      April 30, 2010
                  
                  
                  5,564,732
                  
                  
                  $
                  55,647
                  
                  
                  
                  (125,322
                  )
                  
                  $
                  (1,353,247
                  )
                  
                  $
                  49,640,420
                  
                  
                  $
                  23,875,118
                  
                  
                  $
                  112,800
                  
                  
                  $
                  72,330,738Total
      Comprehensive Income:Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (1,345,932
                  )Foreign
      Exchange translation adjustmentsQualytextil,
      SA, Brazil
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,192,013Canada
      Real Estate
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,193UK
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  13,644China
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  18Canada
      operating
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  26,225
                  
                  
                  
                  1,235,093Total
      Comprehensive Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (110,839
                  )





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)





THREE MONTHS
                      ENDEDApril
      30,2010
                    
                    
                    2009Cash
      Flows from Operating Activities:Net
      income (loss)
                    
                    $
                    (1,345,932
                    )
                    
                    $
                    97,319Adjustments
      to reconcile net income to net cash provided  by operating
      activities:Stock
      based compensation
                    
                    
                    17,788
                    
                    
                    
                    80,680Provision
      for doubtful accounts
                    
                    
                    (36,458
                    )
                    
                    
                    (65,600
                    )Provision
      for inventory obsolescence
                    
                    
                    (8,157
                    )
                    
                    
                    126,215Depreciation
      and amortization
                    
                    
                    501,047
                    
                    
                    
                    405,408Deferred
      income tax
                    
                    
                    —
                    
                    
                    
                    350,000Brazil
      VAT tax expense
                    
                    
                    1,583,247
                    
                    
                    
                    —Changes
      in operating assets and liabilities:Increase
      in accounts receivable
                    
                    
                    (1,432,393
                    )
                    
                    
                    (1,670,292
                    )Decrease
      in inventories
                    
                    
                    4,887,290
                    
                    
                    
                    4,709,221Decrease
      in other assets
                    
                    
                    216,352
                    
                    
                    
                    164,029Increase
      in accounts payable, accrued expenses and other
liabilities
                    
                    
                    891,678
                    
                    
                    
                    959,547Net
      cash provided by operating activities
                    
                    
                    5,274,462
                    
                    
                    
                    5,156,527Cash
      Flows from Investing Activities:Purchases
      of property and equipment
                    
                    
                    (94,455
                    )
                    
                    
                    (557,311
                    )Net
      cash used in investing activities
                    
                    
                    (94,455
                    )
                    
                    
                    (557,311
                    )Cash
      Flows from Financing Activities:Purchases
      of stock under stock repurchase program
                    
                    
                    —
                    
                    
                    
                    (97,788
                    )Payments
      under loan agreements
                    
                    
                    (4,583,683
                    )
                    
                    
                    (3,317,057
                    )Net
      cash used by financing activities
                    
                    
                    (4,583,683
                    )
                    
                    
                    (3,414,845
                    )Net
      increase in cash
                    
                    
                    596,324
                    
                    
                    
                    1,184,371Cash
      and cash equivalents at beginning of period
                    
                    
                    5,093,380
                    
                    
                    
                    2,755,441Cash
      and cash equivalents at end of period
                    
                    $
                    5,689,704
                    
                    
                    $
                    3,939,812




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 three month periods
ended April 30, 2010 and 2009, respectively.





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 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 three-month period ended April 30, 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 inter-company
accounts and transactions have been eliminated.





4.
            Inventories:


Inventories
consist of the following:




April 30,
                  
                  
                  January 31,2010
                  
                  
                  2010Raw
      materials
                  
                  $
                  17,699,248
                  
                  
                  $
                  18,727,993Work-in-process
                  
                  
                  3,124,467
                  
                  
                  
                  2,444,693Finished
      Goods
                  
                  
                  12,873,042
                  
                  
                  
                  17,403,204$
                  33,696,757
                  
                  
                  $
                  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 April 30, 2010 and 2009.




Three
      Months EndedApril
      30,2010
                  
                  
                  2009NumeratorNet
      Income (loss)
                  
                  $
                  (1,345,932
                  )
                  
                  $
                  97,319DenominatorDenominator
      for basic earnings per share
                  
                  
                  5,439,410
                  
                  
                  
                  5,406,291(Weighted-average
      shares which reflect 125,322 and 116,997 weighted average common shares in
      the treasury as a result of the stock repurchase program for 2010 and
      2009, respectively)Effect
      of dilutive securities from restricted stock plan and from dilutive effect
      of stock options
                  
                  
                  26,184
                  
                  
                  
                  62,325Denominator
      for diluted earnings per share
                  
                  
                  5,465,594
                  
                  
                  
                  5,468,616(adjusted
      weighted average shares)Basic
      earnings (loss) per share
                  
                  $
                  (0.25
                  )
                  
                  $
                  0.02Diluted
      earnings (loss) per share
                  
                  $
                  (0.25
                  )
                  
                  $
                  0.02





6.
            Revolving
      Credit Facility


At April
30, 2010, the balance outstanding under our one year revolving credit facility
amounted to $4,953,394. 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 April 30,
2010, except for minimum EBITDA which the Bank has waived. The weighted average
interest rate for the three month period ended April 30, 2010, was
1.98%.





7.
            Major
      Supplier


We
purchased 2.2% of our raw materials from one supplier during the three-month
period ended April 30, 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 6 years from the grant
date.





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





Stock Options
                  
                  Number
                    of Shares
                  
                  
                  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 April 30, 2010
                  
                  
                  24,300
                  
                  
                  $
                  12.11
                  
                  2.09
      years
                  
                  $
                  13,250Exercisable
      at  April 30, 2010
                  
                  
                  24,300
                  
                  
                  $
                  12.11
                  
                  2.09
      years
                  
                  $
                  15,830





9




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 230,555
restricted stock awards as of April 30, 2010. All of these restricted stock
awards are non-vested at April 30, 2010 (165,725 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 April 30, 2010 unvested grants
of 2,558 shares under the stock purchase match program and 23,311 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
April 30, 2010, unrecognized stock-based compensation expense related to
restricted stock awards totaled $1,870,380, consisting of $25,942 remaining
under the 2006 Equity Incentive Plan and $1,844,438 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 April
30, 2010, which was set at zero.  Such unrecognized stock-based
compensation expense related to restricted stock awards totaled $1,325,800 at
the baseline performance level. 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 zero 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 $17,788 and $80,680
for the three months ended April 30, 2010 and 2009, respectively, of which
$17,788 and $76,183 results from the 2006 Equity Incentive Plan for the three
months ended April 30, 2010 and 2009, respectively, and $0 and $4,497,
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
$6,403 and $29,045 for the three months ended April 30, 2010 and 2009,
respectively.





9.      Manufacturing
Segment Data





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





Three Months EndedApril 30,2010
                      
                      
                      2009Domestic
                      
                      $
                      15.5
                      
                      
                      
                      60.9
                      %
                      
                      $
                      17.2
                      
                      
                      
                      71.8
                      %International
                      
                      
                      9.9
                      
                      
                      
                      39.1
                      %
                      
                      
                      6.8
                      
                      
                      
                      28.2
                      %Total
                      
                      $
                      25.4
                      
                      
                      
                      100
                      %
                      
                      $
                      24.0
                      
                      
                      
                      100
                      %





10




We manage
our operations by evaluating each of our geographic locations. Our North
American operations include our facilities in Decatur, Alabama (primarily the
distribution to customers of the bulk of our products and the manufacture of our
chemical, glove and disposable products), Celaya, Mexico (primarily disposable,
glove and chemical suit production) St. Joseph, Missouri and Shillington,
Pennsylvania (primarily woven products production). We also maintain three
manufacturing facilities in China (primarily disposable and chemical suit
production) and a glove manufacturing facility in New Delhi, India. Our China
facilities and our Decatur, Alabama facility produce the majority of the
Company’s products. The accounting policies of these operating entities are the
same as those described in Note 1 to our  Annual Report on Form 10-K
for the year ended January 31, 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. The table below represents information about
reported manufacturing segments for the three-month periods noted
therein:





Three Months Ended April 30,
                      (in millions of dollars)
                    
                    2010
                    
                    
                    2009Net
      Sales:North
      America and other foreign
                    
                    $
                    20.5
                    
                    
                    $
                    20.6Brazil
                    
                    
                    2.9
                    
                    
                    
                    2.6China
                    
                    
                    6.4
                    
                    
                    
                    4.6India
                    
                    
                    0.5
                    
                    
                    
                    0.2Less
      inter-segment sales
                    
                    
                    (4.9
                    )
                    
                    
                    (4.0
                    )Consolidated
      sales
                    
                    $
                    25.4
                    
                    
                    $
                    24.0Operating
      Profit:North
      America and other foreign
                    
                    $
                    (0.4
                    )
                    
                    $
                    0.2Brazil
                    
                    
                    0.1
                    
                    
                    
                    0.1China
                    
                    
                    0.7
                    
                    
                    
                    0.8India
                    
                    
                    (0.2
                    )
                    
                    
                    (0.4
                    )Less
      inter-segment profit
                    
                    
                    0.1
                    
                    
                    
                    ——Consolidated
      profit
                    
                    $
                    0.3
                    
                    
                    $
                    0.7Identifiable
      Assets (at Balance Sheet date):North
      America and other foreign
                    
                    $
                    46.8
                    
                    
                    $
                    69.7Brazil
                    
                    
                    21.2
                    
                    
                    
                    15.0China
                    
                    
                    15.6
                    
                    
                    
                    14.1India
                    
                    
                    4.9
                    
                    
                    
                    0.6Consolidated
      assets
                    
                    $
                    88.5
                    
                    
                    $
                    99.4Depreciation  and
      Amortization Expense:North
      America and other foreign
                    
                    $
                    0.2
                    
                    
                    $
                    0.2Brazil
                    
                    
                    0.1
                    
                    
                    
                    0.05China
                    
                    
                    0.1
                    
                    
                    
                    0.1India
                    
                    
                    0.1
                    
                    
                    
                    0.05Consolidated
      depreciation expense
                    
                    $
                    0.5
                    
                    
                    $
                    0.4





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.





11




There was
no activity in our unrecognized tax benefits and the uncertain income tax
liability at April 30, 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 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, PA 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.  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
utilizes the services of Gallen Insurance (an affiliate of Michael & Donna
Gallen) to provide certain insurance in Pennsylvania.




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 three different
rent fairness appraisals were performed in 1999, 2002 and 2004.




12




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 and Chilean Peso and subsequent to April
30, 2010, 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 2004
to April 2009, Qualytextil, S.A. (“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, in the
current reporting period there has been an 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 these taxes
have already been paid (but to the other state), Bahia will allow this amnesty
payment to be recouped as credits against future taxes due to the extent they
would equal the taxes already paid to the other state.




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.




Amounts
from Pre-acquisition 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 Lakeland 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 release 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.




13




a.
            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 2 to 3 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 5 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).




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.




14




·
            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 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.




There is
a R$2.9 million (US$1.6 million) charge to expense as a result of this issue,
determined as follows:
  P
& L Treatment
  MillionsR$
              
              
              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
              
              
              1.9
              
              
              
              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.


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
                              
                              
                              $
                              1.1Current
      assets
                              Escrow
      receivable
                              
                              
                              1.0
                              
                              
                              
                              0.5Current
      liabilities
                              Taxes
      due
                              
                              
                              3.5
                              
                              
                              
                              1.9Non-current
      assets
                              Deferred
      taxes
                              
                              
                              3.5
                              
                              
                              
                              1.9Long-term
      Liabilities
                              Taxes
      payable
                              
                              $
                              6.0
                              
                              
                              $
                              3.3




15




14.
            Subsequent
      Events




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,
Lakeland pursuant to a Trademark License Agreement with DuPont 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.




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. In May 2010,
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 has increased to $7.0 million as of May 31,
2010.




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
will take 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. Lakeland expects a charge of at least US$200,000
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.




16




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.





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.





17




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 under performance 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.





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 April 30, 2010
as compared to January 31, 2010


Cash
increased by $0.6 million as borrowings under the revolving credit facility
decreased by $4.6 million at April 30, 2010. Accounts receivable increased by
$1.5 million as sales for the three months ended April 30, 2010 increased by
2.1% from the three months ended January 31, 2010. Inventory decreased by $4.9
million, including a decrease in intercompany profit elimination of $0.1 million
resulting from a decrease of $4.5 million in finished goods inventory. Accounts
payable increased by $1.3 million mainly due to larger payables in Brazil. Other
current assets increased by $0.6 million, mainly due to prepaid insurance
policies with policy years the same as the Company’s fiscal year, VAT and other
taxes refundable in Europe and China.





As a
result of the VAT tax issue in Brazil as disclosed herein, as of April 30, 2010
we have recorded additional current assets for prepaid taxes $1.1 million,
escrow receivable of $0.5 million and current liabilities-VAT taxes payable
for US$1.9 million, and non-current deferred taxes asset and long-term
liability-VAT tax payable for US$3.3 million.





18




At April
30, 2010 the Company had an outstanding loan balance of $5.0 million under its
facility with TD Bank, N.A. compared with $9.5 million at January
2010.  Total stockholder’s equity decreased $0.1 million principally
due to the net loss for the period of $(1.3) million and the changes in foreign
exchange translations in other comprehensive income of $1.2
million.





Three
months ended April 30, 2010 as compared to the three months ended April 30,
2009


Net Sales.Net sales
increased $1.4 million, or 5.8% to $25.4 million for the three months ended
April 30, 2010, from $24.0 million for the three months ended April 30,
2009.  The net increase was due to an increase of $3.1 million in
foreign sales, offset by a $1.7 million decrease in domestic sales. External
sales from China increased by $1.2 million, or 63.6% driven by sales to the new
Australian distributor. Canadian sales increased by $0.5 million, or 37.6%, UK
sales increased by $0.4 million or 51.5%, Chile sales increased by $0.1 million,
or 19%. US domestic sales of disposables decreased by $1.1 million, chemical
suit sales decreased by $0.4 million, wovens increased by $0.1 million,
reflective sales decreased by $0.3 million and glove sales increased by $0.2
million. Sales in Brazil increased $0.3 million, an increase of
10.4%.





Gross Profit.Gross profit
increased $0.4 million or 6.5% to $6.4 million for the three months ended April
30, 2010, from $6.0 million for the three months ended April 30, 2009. Gross
profit as a percentage of net sales increased to 25.2% for the three months
ended April 30, 2010, from 25.1% for the three months ended April 30, 2009.
Major factors driving the changes in gross margins were:





o
            Disposables
      gross margin declined by 3.5 percentage points in Q1 this year compared
      with Q1 last year. This decline was mainly due to higher priced raw
      materials and a very competitive pricing environment coupled with lower
      volume.


o
            Brazil’s
      gross margin was 49.4% in Q1 this year compared with 46.6% in Q1 last
      year. This increase was largely due to the volume provided by a larger bid
      contract this year.


o
            Continued
      gross losses of $0.1 million from India in Q1
  FY11.


o
            Chemical
      division gross margin declined 5.7 percentage points resulting from lower
      volume and sales mix


o
            Canada
      gross margin increased 6.7 percentage points due to higher volume and
      favorable exchange rates.





Operating Expenses.Operating
expenses increased $0.8 million, or 14.7% to $6.1 million for the three months
ended April 30, 2010, from $5.3 million for the three months ended April 30,
2009.  As a percentage of sales, operating expenses increased to 24.1%
for the three months ended April 30, 2010 from 22.2% for the three months ended
April 30, 2009.  The $0.8 million increase in operating expenses in
the three months ended April 30, 2010 as compared to the three months ended
April 30, 2009 were comprised of:





o
            ($0.1)
      million in reduced officer salaries resulting from cost cut-backs, along
      with related reduction in payroll taxes and employee
    benefits.


o
            ($0.1)
      million reduction in professional and consulting fees resulting from cost
      cut backs.


o
            ($0.1)
      million reduction in equity compensation resulting from the 2009
      restricted stock plan treated at the zero performance level for the time
      being.


o
            $0.1
      million in increased sales commissions resulting from higher
      volume.


o           $0.1
million miscellaneous increases.


o
            $0.1
      million increase in the self insured medical insurance program resulting
      from unfavorable experience in the current
year.


o
            $0.1
      million in inventory contributions made to the Chilean earthquake relief
      effort.


o
            $0.1
      million increase in Delaware Franchise Taxes. This is a result of the
      increase in total assets in prior years resulting from prior inventory
      buildup and the Brazil acquisition. It is anticipated the cost for this
      tax will be greatly reduced going
forward.


o
            $0.2
      million increase in foreign exchange costs resulting from unhedged losses
      against the Euro in China.


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.




19




o
            $0.2
      million of increased operating expenses in Brazil mainly resulting from
      increased sales personnel and support
staff.





Operating profit. Operating
profit decreased 57% to $0.3 million for the three months ended April 30, 2010
from $0.7 million for the three months ended April 30,
2009.  Operating margins were 1.1% for the three months ended April
30, 2010 compared to 2.8% for the three months ended April 30,
2009.





Interest
Expenses.  Interest expenses decreased by $0.1 million for the
three months ended April 30, 2010 as compared to the three months ended April
30, 2009 due to lower borrowing levels outstanding.





Income Tax
Expense.  Income tax expenses consist of federal, state, and
foreign income taxes.  Income tax expenses decreased $0.4 million, or
105%, to $0.0 million for the three months April 30, 2010 from $0.4 million for
the three months ended April 30, 2009.  Our effective tax rates were
not meaningful for Q1FY11 and 81.5% for the three months ended April 30, 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 Q1 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 to a loss of $1.3 million for the
three months ended April 30, 2010 from $0.1 million for the three months ended
April 30, 2009. The increase in net income primarily resulted from the $1.6
million charge for VAT tax expense to Brazil. Excluding the Brazilian VAT tax
expense, the Company would have reported net income of $0.2 million in the
first quarter of fiscal 2011, a 143% increase as compared to the same period in
fiscal 2009. 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.





Liquidity
and Capital Resources


Cash Flows.As of April 30,
2010, we had cash and cash equivalents of $5.7 million and working capital of
$49.5 million. Cash and cash equivalents increased $0.6 million and working
capital increased $0.6 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 $2.0 million for the three months ended
April 30, 2010 was due primarily to net loss from operations of $(1.3) million,
and a decrease in inventories of $4.9 million, offset by an increase in accounts
receivable of $1.4 million and an increase in deferred tax asset of $3.0
million. Net cash used in investing activities of $0.1 million in the three
months ended April 30, 2010, was due to purchases of property and
equipment.





We
currently have one credit facility, a $23.5 million revolving credit, of which
$5.0 million of borrowings were outstanding as of April 30, 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 April 30, 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 $5.7 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.





20




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, Euro and Great Britain Pound.  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.





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 the
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 April 30, 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 April
30, 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. Our Chief Executive Officer
and Chief Financial Officer have concluded that we no longer have a material
weakness over our China operations and financial reporting as of April 30,
2010.





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.





21




Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of April 30, 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 April 30, 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 first 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 first
quarter of  2011 that have materially affected, or is reasonably
likely to materially affect, Lakeland Industries, Inc.’s internal control over
financial reporting.





PART
II. OTHER INFORMATION




Items 1,
2, 3, and 5 are not applicable




Item
6. Exhibits:




Exhibits:10.21
              
              Transition
      Wholesaler Distribution Agreement between Lakeland Industries, Inc. and
      E.I. du Pont de Nemours and company dated May 17, 2010.(a
      portion of this exhibit has been omitted pursuant to a request for
      confidential treatment filed separately with the Securities and Exchange
      Commission)10.22
              
              Sales
      Agreement between Lakeland Industries, Inc. and E.I. du Pont de Nemours
      and Company dated May 17, 2010. (a portion of this exhibit has been
      omitted pursuant to a request for confidential treatment filed separately
      with the Securities and Exchange Commission)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





22





_________________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:  June
      14, 2010
                
                /s/ Christopher J. RyanChristopher
      J. Ryan,Chief
      Executive Officer, President,Secretary
      and General Counsel(Principal
      Executive Officer and Authorized
Signatory)





Date:
      June 14, 2010
            
            /s/Gary PokrassaGary
      Pokrassa,Chief
      Financial Officer(Principal
      Accounting Officer and Authorized
Signatory)




23