UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




FORM
10-Q




(Mark
one)




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




For the
quarterly period endedJuly 31,
2009




OR




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




For the
transition period from _______________ to _______________




Commission
File Number:  0-15535




LAKELAND
      INDUSTRIES, INC.(Exact
      name of Registrant as specified in its
charter)





Delaware
              
              13-3115216(State
      of incorporation)
              
              (IRS
      Employer Identification
Number)





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





(631)
      981-9700(Registrant's
      telephone number, including area
code)




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




Yes o    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 ̈
            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 September 4,
      2009Common
      Stock, $0.01 par value per share
              
              5,437,534








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 (unaudited):
                                3Introduction
                                3Condensed
      Consolidated Balance Sheets  - July 31, 2009 and January 31,
      2009
                                4Condensed
      Consolidated Statements of Income  -  Three and Six Months Ended
      July 31, 2009 and 2008
                                5Condensed
      Consolidated Statement of Stockholders' Equity and Comprehensive Income -
      Six Months Ended  July 31, 2009
                                6Condensed
      Consolidated Statements of Cash Flows -Six Months Ended July 31, 2009 and
      2008
                                7Notes
      to Condensed Consolidated Financial Statements
                                8Item
      2.
                                
                                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                14Item
      3.
                                
                                Quantitative
      and Qualitative Disclosures About Market Risk
                                22Item
      4.
                                
                                Controls
      and Procedures
                                22PART
      II - OTHER INFORMATION:Item
      6.
                                
                                Exhibits
      and Reports on Form 8-K
                                26Signature
      Page
                                27





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





July 31, 2009
                      
                      
                      January 31, 2009(Unaudited)ASSETSCurrent
      assets:Cash
                      
                      $
                      4,494,053
                      
                      
                      $
                      2,755,441Accounts
      receivable; net of allowance for doubtful accounts of $30,800 at July 31,
      2009 and $104,500 at January 31, 2009
                      
                      
                      14,724,197
                      
                      
                      
                      13,353,430Inventories,
      net of allowances of $855,000 at July 31, 2009 and $657,000 at
      January 31, 2009
                      
                      
                      49,188,854
                      
                      
                      
                      57,074,028Deferred
      income taxes
                      
                      
                      2,001,956
                      
                      
                      
                      2,578,232Prepaid
      income tax and other current assets
                      
                      
                      3,703,120
                      
                      
                      
                      2,602,292Total
      current assets
                      
                      
                      74,112,180
                      
                      
                      
                      78,363,423Property
      and equipment, net of accumulated depreciation of $9,888,096 at July 31,
      2009 and $8,929,669 at January 31, 2009
                      
                      
                      14,121,415
                      
                      
                      
                      13,736,326Intangibles
      and other assets, net
                      
                      
                      5,580,499
                      
                      
                      
                      4,405,833Goodwill
                      
                      
                      5,833,717
                      
                      
                      
                      5,109,136$
                      99,647,811
                      
                      
                      $
                      101,614,718LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                      
                      $
                      5,233,323
                      
                      
                      $
                      3,853,890Accrued
      expenses
                      
                      
                      3,570,202
                      
                      
                      
                      3,504,218Borrowing
      under revolving credit facility expiring July 7, 2010
                      
                      
                      17,684,466
                      
                      
                      
                      —Current
      maturity of long-term debt
                      
                      
                      92,984
                      
                      
                      
                      94,000Total
      current liabilities
                      
                      
                      26,580,975
                      
                      
                      
                      7,452,108Canadian
      warehouse loan payable (net of current maturity)
                      
                      
                      1,619,478
                      
                      
                      
                      1,368,406Borrowings
      under revolving credit facility
                      
                      
                      —
                      
                      
                      
                      24,408,466Other
      liabilities
                      
                      
                      92,284
                      
                      
                      
                      74,611Deferred
      income tax
                      
                      
                      122,414
                      
                      
                      
                      —Total
      Liabilities
                      
                      
                      28,415,151
                      
                      
                      
                      33,303,591Commitments
      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 5,562,856 and 5,523,288 shares at July 31, 2009 and at
      January 31, 2009, respectively
                      
                      
                      55,629
                      
                      
                      
                      55,233Less
      treasury stock, at cost, 125,322 shares at July 31, 2009 and 107,317
      shares at January 31, 2009
                      
                      
                      (1,353,247
                      )
                      
                      
                      (1,255,459
                      )Additional
      paid-in capital
                      
                      
                      49,594,452
                      
                      
                      
                      49,511,896Accumulated
      other comprehensive (loss)
                      
                      
                      (1,360,618
                      )
                      
                      
                      (4,191,801
                      )Retained
      earnings
                      
                      
                      24,296,444
                      
                      
                      
                      24,191,258Stockholders'
      equity
                      
                      
                      71,232,660
                      
                      
                      
                      68,311,127$
                      99,647,811
                      
                      
                      $
                      101,614,718





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


4


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(UNAUDITED)





THREE MONTHS ENDED
                
                
                SIX MONTHS ENDEDJuly 31,
                
                
                July 31,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      sales
                
                $
                23,048,759
                
                
                $
                27,565,036
                
                
                $
                47,024,654
                
                
                $
                54,845,193Cost
      of goods sold
                
                
                16,811,889
                
                
                
                19,209,787
                
                
                
                34,777,346
                
                
                
                39,811,346Gross
      profit
                
                
                6,236,870
                
                
                
                8,355,249
                
                
                
                12,247,308
                
                
                
                15,033,847Operating
      expenses
                
                
                6,023,378
                
                
                
                6,161,511
                
                
                
                11,355,311
                
                
                
                11,391,995Operating
      profit
                
                
                213,492
                
                
                
                2,193,738
                
                
                
                891,997
                
                
                
                3,641,852Interest
      and other income, net
                
                
                14,138
                
                
                
                55,816
                
                
                
                54,252
                
                
                
                85,890Interest
      expense
                
                
                (226,770
                )
                
                
                (253,976
                )
                
                
                (420,249
                )
                
                
                (353,496
                )Income
      before income taxes
                
                
                860
                
                
                
                1,995,578
                
                
                
                526,000
                
                
                
                3,374,246Provision
      (benefit) for income taxes
                
                
                (7,007
                )
                
                
                371,061
                
                
                
                420,814
                
                
                
                856,590Net
      income
                
                $
                7,867
                
                
                $
                1,624,517
                
                
                $
                105,186
                
                
                $
                2,517,656Net
      income per common share:Basic
                
                $
                0.00
                
                
                $
                0.30
                
                
                $
                0.02
                
                
                $
                0.46Diluted
                
                $
                0.00
                
                
                $
                0.30
                
                
                $
                0.02
                
                
                $
                0.46Weighted
      average common shares outstanding:Basic
                
                
                5,415,391
                
                
                
                5,421,520
                
                
                
                5,410,938
                
                
                
                5,454,209Diluted
                
                
                5,436,309
                
                
                
                5,459,191
                
                
                
                5,452,560
                
                
                
                5,490,690





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


5





LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


AND
COMPREHENSIVE INCOME


(UNAUDITED)


Six
months ended July 31, 2009




Common Stock
                      
                      
                      Additional
                        Paid-in
                        Capital
                      
                      
                      Treasury Stock
                      
                      
                      Retained
                        Earnings
                      
                      
                      Accumulated
                        Other
                        Comprehensive
                        (loss)
                      
                      
                      TotalShares
                      
                      
                      Amount
                      
                      
                      
                      
                      
                      Shares
                      
                      
                      AmountBalance
      February 1, 2009
                      
                      
                      5,523,288
                      
                      
                      $
                      55,233
                      
                      
                      $
                      49,511,896
                      
                      
                      
                      (107,317
                      )
                      
                      $
                      (1,255,459
                      )
                      
                      $
                      24,191,258
                      
                      
                      $
                      (4,191,801
                      )
                      
                      $
                      68,311,127Net
      Income
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      105,186
                      
                      
                      
                      —
                      
                      
                      
                      105,186Stock
      Repurchase Program
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (18,005
                      )
                      
                      
                      (97,788
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (97,788
                      )Other
      Comprehensive Income
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      2,831,183
                      
                      
                      
                      2,831,183Stock-Based
      Compensation:Restricted
      Stock
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      132,444
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      132,444Director
      options granted at fair market value
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      47,068
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      47,068Director
      stock options exercised
                      
                      
                      3,267
                      
                      
                      
                      33
                      
                      
                      
                      23,529
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      23,562Shares
      issued from Restricted Stock Plan
                      
                      
                      36,301
                      
                      
                      
                      363
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      363Return
      of shares in lieu of payroll tax withholding
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (102,005
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (102,005
                      )Cash
      paid in lieu of issuing shares
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (18,480
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (18,480
                      )Balance
      July 31, 2009
                      
                      
                      5,562,856
                      
                      
                      $
                      55,629
                      
                      
                      $
                      49,594,452
                      
                      
                      
                      (125,322
                      )
                      
                      $
                      (1,353,247
                      )
                      
                      $
                      24,296,444
                      
                      
                      $
                      (1,360,618
                      )
                      
                      $
                      71,232,660Total
      Comprehensive Income:Net
      Income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      105,186Foreign
      Exchange translation adjustments
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,620,183Interest
      rate swap – change in unrealized accruals
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      211,000Net
      other comprehensive income adjustments
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,831,183Total
      Comprehensive Income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      2,936,369





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


6


LAKELAND
INDUSTRIES, INC.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





SIX MONTHS ENDEDJuly 31,2009
                
                
                2008Cash
      Flows from Operating Activities:Net
      income
                
                $
                105,186
                
                
                $
                2,517,656Adjustments
      to reconcile net income to net cash provided by operating
      activities:Stock
      based compensation
                
                
                138,649
                
                
                
                158,356Allowance
      for doubtful accounts
                
                
                (73,333
                )
                
                
                26,317Allowance
      for inventory obsolescence
                
                
                198,486
                
                
                
                (100
                )Depreciation
      and amortization
                
                
                820,735
                
                
                
                826,644Deferred
      income tax
                
                
                698,689
                
                
                
                (28,000
                )Changes
      in operating assets and liabilities:(Increase)
      in accounts receivable
                
                
                (1,297,434
                )
                
                
                (1,179,837
                )Decrease
      in inventories
                
                
                7,686,688
                
                
                
                3,028,909(Increase)
      in other assets
                
                
                (2,401,822
                )
                
                
                (361,735
                )(Decrease)
      increase in accounts payable, accrued expenses and other
      liabilities
                
                
                3,027,601
                
                
                
                (270,954
                )Net
      cash provided by operating activities
                
                
                8,903,445
                
                
                
                4,717,256Cash
      Flows from Investing Activities:Acquisition
      of Qualytextil, SA
                
                
                —
                
                
                
                (13,640,450
                )Purchases
      of property and equipment
                
                
                (681,405
                )
                
                
                (702,162
                )Net
      cash used in investing activities
                
                
                (681,405
                )
                
                
                (14,342,612
                )Cash
      Flows from Financing Activities:Purchases
      of stock under stock repurchase program
                
                
                (97,787
                )
                
                
                (1,201,005
                )Director
      options granted at fair market value
                
                
                47,068
                
                
                
                —Proceeds
      from exercise of director stock options
                
                
                23,562
                
                
                
                —Borrowing
      to fund Qualytextil acquisition
                
                
                —
                
                
                
                13,344,466Payments
      under loan agreements
                
                
                (6,456,271
                )
                
                
                (1,680,425
                )Net
      cash provided by (used in) financing activities
                
                
                (6,483,428
                )
                
                
                10,463,036Net
      increase in cash
                
                
                1,738,612
                
                
                
                837,680Cash
      and cash equivalents at beginning of period
                
                
                2,755,441
                
                
                
                3,427,672Cash
      and cash equivalents at end of period
                
                $
                4,494,053
                
                
                $
                4,265,352




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


7


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
            Business




Lakeland
Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation,
organized in April 1982, manufactures and sells a comprehensive line of safety
garments and accessories for the industrial protective clothing and homeland
security markets. The principal market for our products is the United States. No
customer accounted for more than 10% of net sales during the six month periods
ended July 31, 2009 and 2008, 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, 2009. We have evaluated subsequent events through the
time of filing on September 9, 2009, the date of issuance of our financial
statements.





The
results of operations for the three and six month periods ended July 31, 2009
are 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:




July 31,
                  
                  
                  January 31,2009
                  
                  
                  2009Raw
      materials
                  
                  $
                  23,684,520
                  
                  
                  $
                  26,343,875Work-in-process
                  
                  
                  1,822,001
                  
                  
                  
                  2,444,160Finished
      Goods
                  
                  
                  23,682,333
                  
                  
                  
                  28,285,993$
                  49,188,854
                  
                  
                  $
                  57,074,028




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 for the three and six months ended July 31, 2009 and 2008.




Three Months Ended
                    
                    
                    Six Months EndedJuly 31,
                    
                    
                    July 312009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008NumeratorNet
      Income
                    
                    $
                    7,867
                    
                    
                    $
                    1,624,517
                    
                    
                    $
                    105,186
                    
                    
                    $
                    2,517,656DenominatorDenominator
      for basic earnings per share
                    
                    
                    5,415,391
                    
                    
                    
                    5,421,520
                    
                    
                    
                    5,410,938
                    
                    
                    
                    5,454,209(Weighted-average
      shares which reflect 125,322 and 121,159 weighted average common shares in
      the treasury as a result of the stock repurchase program) for the three
      and six months ended July 31, 2009, respectively.- 
        Effect of dilutive securities from restricted stock plan and from
      dilutive effect of stock options
                    
                    
                    20,918
                    
                    
                    
                    37,671
                    
                    
                    
                    41,622
                    
                    
                    
                    36,481Denominator
      for diluted earnings per share.
                    
                    
                    5,436,309
                    
                    
                    
                    5,459,191
                    
                    
                    
                    5,452,560
                    
                    
                    
                    5,490,690(adjusted
      weighted average shares)Basic
      earnings per share
                    
                    $
                    0.00
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.02
                    
                    
                    $
                    0.46Diluted
      earnings per share
                    
                    $
                    0.00
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.02
                    
                    
                    $
                    0.46




6.
            Revolving
      Credit Facility




At July
31, 2009, the balance outstanding under our five year revolving credit facility
amounted to $17.7 million. In May 2008 the facility was increased from $25
million to $30 million. The credit facility is collateralized by substantially
all of the assets of the Company. The credit facility contains financial
covenants, including, but not limited to, fixed charge ratio, funded debt to
EBITDA ratio, inventory and accounts receivable collateral coverage ratio, with
respect to which the Company was in compliance at July 31, 2009 and for the
period then ended except for the ratio of debt to EBITDA. Such exception has
been waived by the lender for the quarter ended July 31, 2009. The weighted
average interest rate for the six month period ended July 31, 2009 was
3.15%.





The
Company’s revolving credit facility with Wachovia Bank, N.A. by its terms
expires July 7, 2010. Since this date is less than 12 months from the balance
sheet date of July 31, 2009, the balance outstanding as of July 31, 2009 has
been included as a current liability.




Management
believes it will be able to secure adequate financing in July 2010.




7.
            Major
      Supplier




We
purchased 14% of our raw materials from one supplier during the six month period
ended July 31, 2009. We normally purchase approximately 75% of our raw material
from this suppler. We carried higher inventory levels in Q3 and Q4 FY09 and
limited our material purchases in Q1 and Q2 of FY10. 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.


9


8.
            Director
      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 6 month
period and generally expire 6 years from the grant date.





The
following table represents our stock options granted, exercised, and forfeited
during the six months ended July 31, 2009.




Stock Options
                            
                            Number
                              of Shares
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price per
                              Share
                            
                            
                            Weighted
                              Average
                              Remaining
                              Contractual
                              Term
                            
                            
                            Aggregate
                              Intrinsic
                              ValueOutstanding
      at January 31, 2009
                            
                            
                            20,567
                            
                            
                            $
                            13.42
                            
                            
                            2.27
      years
                            
                            
                            $
                            1,594Granted
      in the six months ended July 31, 2009
                            
                            
                            8,000
                            
                            
                            $
                            6.88
                            
                            
                            6.00
      years
                            
                            
                            $
                            6,950Exercised
      in the six months ended July 31, 2009
                            
                            
                            (3,267
                            )
                            
                            $
                            7.22
                            
                            
                            
                            —
                            
                            
                            
                            —Outstanding
      at July 31, 2009
                            
                            
                            25,300
                            
                            
                            $
                            11.20
                            
                            
                            3.28
      years
                            
                            
                            $
                            6,950Exercisable
      at  July 31, 2009
                            
                            
                            17,300
                            
                            
                            $
                            14.59
                            
                            
                            2.13
      years
                            
                            
                            $
                            0


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
Corporation’s 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
the same voting rights as other common stock. Restricted stock awards do not
have voting rights, 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 July 31, 2009. All of these restricted stock
awards are non-vested at July 31, 2009 (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 outstanding as of July 31, 2009 unvested grants of 5,558 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
July 31, 2009, unrecognized stock-based compensation expense related to
restricted stock awards totaled $1,356,809, consisting of $73,634 remaining
under the 2006 Equity Incentive Plan and $1,283,175 under the 2009 Equity
Incentive Plan, before income taxes, based on the maximum performance award
level, less what has been charged to expense on a cumulative basis through July
31, 2009, which was set at zero.  Such unrecognized stock-based
compensation expense related to restricted stock awards totaled $997,414 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.


10





Stock-Based
Compensation




The
Company recognized total stock-based compensation costs of $138,649 and $137,345
for the six months ended July 31, 2009 and 2008, respectively, of which $113,966
results from the 2006 Equity Incentive Plan, $0 results from the 2009 Equity
Incentive Plan, and $24,683 results from the Director Option Plan in 2009.
$126,812 results from the 2006 Equity Incentive Plan and $10,533 results from
the Director Option Plan in 2008.  These amounts are reflected in selling,
general and administrative expenses.  The total income tax benefit
recognized for stock-based compensation arrangements was $49,913 and $49,447 for
the six months ended July 31, 2009 and 2008, respectively.





Directors
Sale of Stock





The
Company is in the process of setting up a Rule 10-b-5 plan for directors to sell
stock.





9.
            Manufacturing
      Segment Data




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




Three Months Ended
                  
                  
                  Six Months EndedJuly 31,
                  
                  
                  July 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Domestic
                  
                  $
                  14.4
                  
                  
                  
                  62.8
                  %
                  
                  $
                  20.1
                  
                  
                  
                  72.7
                  %
                  
                  $
                  31.7
                  
                  
                  
                  67.4
                  %
                  
                  $
                  42.5
                  
                  
                  
                  77.6
                  %International
                  
                  
                  8.6
                  
                  
                  
                  37.2
                  %
                  
                  
                  7.5
                  
                  
                  
                  27.3
                  %
                  
                  
                  15.3
                  
                  
                  
                  32.6
                  %
                  
                  
                  12.3
                  
                  
                  
                  22.4
                  %Total
                  
                  $
                  23.0
                  
                  
                  
                  100
                  %
                  
                  $
                  27.6
                  
                  
                  
                  100
                  %
                  
                  $
                  47.0
                  
                  
                  
                  100
                  %
                  
                  $
                  54.8
                  
                  
                  
                  100
                  %





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), Jerez, Mexico (primarily disposable,
glove and chemical suit production) St. Joseph, Missouri and Shillington,
Pennsylvania (primarily fire, hi-visibility and woven products production). We
also maintain four manufacturing facilities in China (primarily disposable
and chemical suit production) and a glove manufacturing facility in New Delhi,
India. On May 13, 2008 we acquired Qualytextil S.A. which manufactures primarily
fire protective apparel for the Brazilian market. 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, 2009. 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 the U.S.A.,
Brazil, Canada, Europe, Chile, Argentina, China and India which sell and
distribute products shipped from the United States, Mexico, Brazil, China, and
recently India.


11




The table
below represents information about reported manufacturing segments for the
three months and six month periods noted therein:




Three Months Ended
                    July 31,
                    (in millions of dollars)
                  
                  
                  Six Months Ended
                    July 31,
                    (in millions of dollars)2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      Sales:North
      America and other foreign
                  
                  $
                  18.5
                  
                  
                  $
                  24.1
                  
                  
                  $
                  39.2
                  
                  
                  $
                  51.3Brazil
                  
                  
                  3.2
                  
                  
                  
                  3.1
                  
                  
                  
                  5.8
                  
                  
                  
                  3.1China
                  
                  
                  4.8
                  
                  
                  
                  6.1
                  
                  
                  
                  9.4
                  
                  
                  
                  11.4India
                  
                  
                  0.2
                  
                  
                  
                  0.1
                  
                  
                  
                  0.3
                  
                  
                  
                  0.2Less
      inter-segment sales
                  
                  
                  (3.7
                  )
                  
                  
                  (5.8
                  )
                  
                  
                  (7.7
                  )
                  
                  
                  (11.2
                  )Consolidated
      sales
                  
                  $
                  23.0
                  
                  
                  $
                  27.6
                  
                  
                  $
                  47.0
                  
                  
                  $
                  54.8Operating
      Profit:North
      America and other foreign
                  
                  $
                  (.15
                  )
                  
                  $
                  .69
                  
                  
                  $
                  .04
                  
                  
                  $
                  1.77Brazil
                  
                  
                  (.16
                  )
                  
                  
                  .79
                  
                  
                  
                  (.07
                  )
                  
                  
                  .79China
                  
                  
                  .70
                  
                  
                  
                  .97
                  
                  
                  
                  1.47
                  
                  
                  
                  1.75India
                  
                  
                  (.25
                  )
                  
                  
                  (.19
                  )
                  
                  
                  (1.49
                  )
                  
                  
                  (.41
                  )Less
      inter-segment profit
                  
                  
                  .07
                  
                  
                  
                  (.07
                  )
                  
                  
                  .94
                  
                  
                  
                  (.26
                  )Consolidated
      operating profit
                  
                  $
                  .21
                  
                  
                  $
                  2.19
                  
                  
                  $
                  .89
                  
                  
                  $
                  3.64Identifiable
      Assets (at Balance Sheet date):North
      America and other foreign
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  66.5
                  
                  
                  $
                  71.4Brazil
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  18.5
                  
                  
                  
                  13.9China
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  14.0
                  
                  
                  
                  11.6India
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  0.7
                  
                  
                  
                  4.2Consolidated
      assets
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  99.7
                  
                  
                  $
                  101.1Depreciation 
      and Amortization Expense:North
      America and other foreign
                  
                  $
                  .21
                  
                  
                  $
                  .28
                  
                  
                  $
                  .41
                  
                  
                  $
                  .43Brazil
                  
                  
                  .03
                  
                  
                  
                  .00
                  
                  
                  
                  .05
                  
                  
                  
                  .07China
                  
                  
                  .08
                  
                  
                  
                  .07
                  
                  
                  
                  .16
                  
                  
                  
                  .14India
                  
                  
                  .10
                  
                  
                  
                  .09
                  
                  
                  
                  .20
                  
                  
                  
                  .18Consolidated
      depreciation expense
                  
                  $
                  .42
                  
                  
                  $
                  .44
                  
                  
                  $
                  .82
                  
                  
                  $
                  .82





10.
            FIN
      48




UNCERTAIN TAX POSITIONS.Effective February 1, 2007, the first day of fiscal 2008, the Company
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”).
FIN 48 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 FIN 48, an entity may only recognize
or continue to recognize tax positions that meet a "more likely than not"
threshold.





The
Company’s policy is to recognize interest and penalties related to income tax
issues as components of income tax expense. The Company has no accrued interest
as of July 31, 2009.





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 year ended January 31,
2007 have been audited by the Internal Revenue Service. Such audit is complete
with a final “No Change Letter” received by the Company.





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 fifteen years.  Our China subsidiaries were audited during the tax year
2007 for the tax years through 2006, 2005 and 2004, respectively. 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 year
2008 or during current year as of current filing date.   China tax
authority performed a fraud audit but the scope was limited to the fraud
activities found in late tax year 2008 in late FY09.






12








Lakeland
Protective Wear, Inc., our Canadian subsidiary, follows Canada tax regulatory
framework recording its tax expense and tax deferred assets or liability. The
company has been audited once 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
with the six months ended July 31, 2009, 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 $350,000
against the ultimate realization of the $750,000 included in Deferred Income
Taxes on the accompanying balance sheet.





11.
            Related
      Party Transactions




In
connection with the asset purchase agreement, dated August 1, 2005, between the
Company and Mifflin Valley, Inc., the Company entered into a five year lease
agreement with the seller (now an employee of the Company) to rent the
manufacturing facility in Shillington, Pennsylvania at an annual rental of
$57,504, or a per square foot rental of $3.25.  This amount was obtained
prior to the acquisition from an independent appraisal of the fair market rental
value per square feet.  In addition the Company has, starting January 1,
2006 rented a second 12,000 sq ft of warehouse space in Blandon, Pennsylvania
from this employee, on a month-to-month basis, for the monthly amount of $3.00
per square foot.





On March
1, 1999, we entered into a one year (renewable for four additional one year
terms) lease agreement with Harvey Pride, Jr., our Vice President of
Manufacturing, for a 2,400 sq. ft. customer service office located next to our
existing Decatur, Alabama facility at an annual rent of $18,900. This lease was
renewed on March 1, 2004 through March 31, 2009 at the same rental rate and
resigned on April 1, 2009 for a continuation through 2011, with a 5% increase
each year.




12.
            Derivative
      Instruments and Foreign Currency
Exposure




The
Company has foreign currency exposure, principally through its investment in
Brazil, sales in Canada, Chile 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 the
Brazilian Real.





Effective
January 1, 2009, the Company adopted the provisions of SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company accounts for its foreign
exchange derivative instruments under Statement of Financial Accounting
Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended by SFAS No. 161.  This standard 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. The Company
had no derivative instruments outstanding at July 31, 2009 for foreign
exchange.


13





Interest
Rate Risk Management




We are
exposed to interest rate risk from debt. We have hedged against the risk of
changes in the interest rate associated with our variable rate Revolving Credit
by entering into a variable-to-fixed interest rate swap agreement, designated as
fair value hedge, with a total notional amount of $18 million as of July 31,
2009. We assume no hedge ineffectiveness as each interest rate swap meets the
short-cut method requirements under SFAS 133 for fair value hedges of debt
instruments. As a result, changes in the fair value of the interest rate swaps
are offset by changes in the fair value of the debt, both are reported in
interest and other income and no net gain or loss is recognized in
earnings.





The fair
value of the interest rate swap in a net liability position is included in Other
Liabilities on the balance sheet.





The fair
values of all derivatives recorded on the consolidated balance sheet are as
follows:




July 31, 2009
                      
                      
                      January 31, 2009Unrealized
      Gains:Unrealized
      (Losses):Interest rate
      swaps
                      
                      $
                      (416,380
                      )
                      
                      $
                      (627,380
                      )




The
Brazilian financial statements, when translated into USD pursuant to FAS 52,
“Foreign Currency Translation” resulted in a Currency Translation Adjustment
(CTA) of $(926,537), which is included in Other Comprehensive Loss on the
Balance Sheet.





13.
            Reclassifications




Certain
reclassifications were made in the previous year’s statement of income to
conform with current classifications.





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,
2009.  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.


14




Overview




We
manufacture and sell a comprehensive line of safety garments and accessories for
the industrial protective clothing and homeland security markets. Our products
are sold by our in-house sales force 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 chemical/petrochemical,
automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and
high technology electronics manufacturers, as well as hospitals and
laboratories. In addition, we supply federal, state and local governmental
agencies and departments such as fire and police departments, airport crash
rescue units, the Department of Defense, the Centers for Disease Control, and
numerous other agencies of the federal, state and local
governments.





We have
operated manufacturing facilities in Mexico since 1995, in China since 1996, in
India since 2006 and in Brazil since May 2008. Beginning in 1995, we moved the
labor intensive sewing operation for our limited use/disposable protective
clothing lines to China and Mexico. Our facilities and capabilities in China,
Mexico, India and Brazil 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 2010. 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 Latin America 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.


15


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 allowances for accounts that we
determine to be doubtful of collection.





Income Taxes and Valuation
Allowances.We are required to estimate our income taxes in each of the
jurisdictions in which we operate as part of preparing our consolidated
financial statements. This involves estimating the actual current tax in
addition to assessing temporary differences resulting from differing treatments
for tax and financial accounting purposes. These differences, together with net
operating loss carry forwards and tax credits, are recorded as deferred tax
assets or liabilities on our balance sheet. A judgment must then be made of the
likelihood that any deferred tax assets will be realized from future taxable
income. A valuation allowance may be required to reduce deferred tax assets to
the amount that is more likely than not to be realized. In the event we
determine that we may not be able to realize all or part of our deferred tax
asset in the future, or that new estimates indicate that a previously recorded
valuation allowance is no longer required, an adjustment to the deferred tax
asset is charged or credited to net income in the period of such
determination.





Valuation of Goodwill and Other
Intangible Assets.Goodwill and other intangible assets are no longer
amortized, but are assessed for impairment annually and upon occurrence of an
event that indicates impairment may have occurred. Goodwill impairment is
evaluated utilizing a two-step process as required by SFAS No. 142. Factors that
we consider important that could identify a potential impairment include:
significant underperformance relative to expected historical or projected future
operating results; significant changes in the overall business strategy; and
significant negative industry or economic trends. When we determine that the
carrying value of intangibles and goodwill may not be recoverable based upon one
or more of these indicators of impairment, we measure any potential impairment
based on a projected discounted cash flow method. Estimating future cash flows
requires our management to make projections that can differ materially from
actual results.





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 Fluctuations July 31, 2009 as compared to January 31,
2009




Cash
increased by $1.7 million as borrowings under the revolving credit facility
decreased by $6.7 million at July 31, 2009, mainly due to the reduction in
inventory levels. Accounts receivable increased by $1.3 million mainly resulting
from a government agency receivable in Brazil.  Inventory decreased by
$7.9 million, mainly due to lower levels of raw material purchasing and lower
production in its china plants. Accounts payable increased by $1.4 million due
to increase in Brazil payables and a large vendor credit at January 31, 2009
which was subsequently applied. Other assets increased by $1.2 million, mainly
due to currency exchange fluctuation in Brazil.





At July
31, 2009 the Company had an outstanding loan balance of $17.7 million under its
facility with Wachovia Bank, N.A. compared with $24.4 million at January 31,
2009, with the decrease mainly due to reductions in the Company’s inventory
levels. Total stockholders equity increased principally due to the net income
for the period of $0.1 million, and the foreign exchange gains from the
Brazilian operations, offset by the Company’s stock repurchase program of
purchases of $0.1 million in FY10.


16




Three
months ended July 31, 2009 as compared to the three months ended July 31,
2008




Net Sales.Net sales
decreased $4.5 million, or 16.4% to $23.0 million for the three months ended
July 31, 2009 from $27.6 million for the three months ended July 31,
2008.  The net decrease was mainly due to domestic sales. Qualytextil
sales increased by $0.1 million or 3.7%. Qualytextil sales increased 26% in
local currency. External sales from China increased by $0.6 million, or 36%,
driven by sales to the new Australian distributor. Canadian sales increased by
$0.1 million, or 2.5%, UK sales decreased by $0.1 million, or 11.2%, Chile sales
increased by $0.6 million, or 204%. US domestic sales decreased by $ 5.8 million
or 28%. US domestic sales were mainly impacted by a 34.5% decrease in
disposables sales, a 44.7% decrease in gloves sales and a 13.0% decrease in
reflective sales. Wovens sales increased by 5.7% and chemical sales increased by
0.6%.





Gross Profit.Gross profit
decreased $2.1 million or 25.4% to $6.2 million for the three months ended July
31, 2009 from $8.4 million for the three months ended July 31,
2008.  Gross profit as a percentage of net sales decreased to 27.1%
for the three months ended July 31, 2009 from 30.3% for the three months ended
July 31, 2008. The major factors driving the changes in gross margins
were:





·
            Disposables
      gross margins declined by 4.4 percentage points in Q2 this year compared
      with Q2 last year. This decline was mainly due to higher priced raw
      materials and a predatory pricing environment coupled with lower volume,
      partially offset by labor cutbacks.


·
            Brazil
      gross margin was 40.6% for Q2 this year compared with 55.9% last year.
      Several features were at play. There were several large sales which had
      bid requirements for complete fire ensembles including boots and/or
      helmets. This required Qualytextil to obtain these items from vendors.
      There were several issues with these vendors causing Qualytextil to use
      different vendors under delivery pressure, resulting in higher costs.
      Qualytextil is presently negotiating with a boot vendor and also a helmet
      vendor to obtain more reliable delivery and pricing and is considering
      maintaining a stock of these items on hand in inventory to avoid such
      problems in the future. One large contract was bid at a 17% margin as
      introductory pricing for a new customer. Much of Qualytextil’s fabric used
      as raw materials is imported from vendors in the US which caused
      unfavorable costs earlier in the quarter resulting from exchange rate
      differences. Since then the exchange rates have changed to strengthen the
      Brazilian real which should favorably impact the cost and margins in the
      future. Further, the margins of 55.9% obtained in Q2 FY2009 were
      exceptional, partially due to a very weak U.S. dollar and may not be
      achieved in the near future. In normal conditions, in the future, the
      Qualytextil margins will be expected to be between 42% and
      46%.


·
            Glove
      division reduction in volume coupled with inventory
      write-offs.


·
            Continued
      gross losses of $0.1 million from India in Q2
  FY2010.


·
            Chemical,
      Reflective and China external sales margins were approximately the same as
      prior year.


·
            Canada
      gross margin increased by 15.6 percentage points mainly resulting from
      more favorable exchange rates and local competitive pricing
      climate.


·
            UK
      and Europe margins increased by 2.8 percentage points mainly resulting
      from exchange rate differentials.


·
            Chile
      margins increased by 11.2 percentage points mainly resulting from higher
      volume and several larger sales
orders.


17





Operating Expenses.Operating
expenses decreased $0.1 million, or 2.2% to $6.0 million for the three months
ended July 31, 2009 from $6.2 million for the three months ended July 31,
2008.  As a percentage of sales, operating expenses increased to 26.1%
for the three months ended July 31, 2009 from 22.4% for the three months ended
July 31, 2008. Excluding Qualytextil in Brazil, operating expenses declined $0.7
million for Q2 FY2010 compared with Q2 FY2009. Major items comprising this are
as follows:




·
              $(0.2)
              million
      - freight out declined, mainly resulting from lower
  volume.
 ·
              $(0.2)
              million
      - sales commissions declined, mainly resulting from lower
      volume.
 ·
              $(0.2)
              million
      - officers salaries declined, reflecting the retirement of Ray Smith to
      become a non-employee director and Chairman of the Board, and also
      reflecting an 8% across the board reduction in total officer
      compensation.
 ·
              $(0.1)
              million
      - shareholder expenses declined, reflecting the proxy fight in the prior
      year.
 ·
              $(0.1)
              million
      – consulting fees were reduced, resulting from using interns and revising
      Sarbanes Oxley procedures.
 ·
              $(0.1)
              million
      – miscellaneous decreases
 ·
              $0.2
              million
      – professional fees increased, reflecting costs of $0.1 million resulting
      from analysis of tax issues and $0.1 million, resulting from timing
      differences in the predecessor auditors billing more in Q2 and less in Q1
      this year. The company has changed independent auditing firms in the
      expectation that such professional fees will be reduced in the
      future


Qualytextil,
Brazil operating expenses increased $0.5 million in Q2 FY2010 compared with Q2
FY2009. Major factors in this increase are as follows:
 
 ·
                    $0.3
                    million
      – start-up expenses in connection with Qualytextil gearing up to sell
      Lakeland branded products. This includes hiring 20 sales and logistical
      support staff, printing of catalogs, lease of two new distribution centers
      and increased travel expense.
 ·
                    $0.1
                    million
      – in additional employee benefits and payroll taxes resulting from hiring
      as employees certain people who had been performing services on an
      out-sourcing basis.
 ·
                    $0.1
                    million
      – miscellaneous
increases.


Operating profit. Operating
profit decreased 90% to $0.2 million for the three months ended July 31, 2009
from $2.2 million for the three months ended July 31, 2008.  Operating
margins were 0.9% for the three months ended July 31, 2009 compared to 8.0% for
the three months ended July 31, 2008.





Interest
Expenses.  Interest expenses decreased by $0.03 million for the
three months ended July 31, 2009 as compared to the three months ended July 31,
2008 due to lower interest rates in the current year which was offset by higher
borrowing levels outstanding in the current year.





Income Tax
Expense.  Income tax expenses consist of federal, state, and
foreign income taxes.  Income tax expenses decreased $0.4 million, or
100%, to $0.0 million for the three months July 31, 2009 from $0.4 million for
the three months ended July 31, 2008.  Our effective tax rate was
18.6% for the three months ended 2008. Our effective tax rate for the three
months ended July 2009 of the current year is not meaningful due to the near
breakeven level of pretax income. Major factors in the July 2009 income tax
expenses are losses in India and profit in Chile with no tax benefit or expense,
and tax benefits in Brazil resulting from government incentives and goodwill
write-offs.





Net Income. Net income
decreased $1.6 million, or 100% to $0.0 million for the three months ended July
31, 2009 from $1.6 million for the three months ended July 31, 2008. The
decrease in net income primarily resulted from a decrease in domestic sales, a
reduction in gross margins in disposables and Brazil and larger losses in
India partially offset by management’s cost reduction
program.


18




Six
months ended July 31, 2009 as compared to the six months ended July 31,
2008




Net Sales.Net sales
decreased $7.8 million, or 14.3% to $47 million for the six months ended July
31, 2009 from $54.8 million for the six months ended July 31,
2008.  The net decrease was mainly due to domestic sales. Qualytextil
sales included in the current year were $5.8 million, but were only included in
Q2 of last year. External sales from China increased by $0.7 million, or 21%,
driven by sales to the new Australian distributor. Canadian sales decreased by
$0.1 million, or 2.4%, UK sales decreased by $0.6 million, or 25.7%, Chile sales
increased by $0.5 million, or 75.5%. US domestic sales of disposables decreased
by $10.6 million, chemical suit sales decreased by $0.1 million, wovens
decreased by $0.3 million, reflective sales increased by $0.2 million and glove
sales decreased by $0.9 million.





Gross Profit.Gross profit
decreased $2.8 million or 18.5% to $12.2 million for the six months ended July
31, 2009 from $15.0 million for the six months ended July 31,
2008.  Gross profit as a percentage of net sales decreased to 26.0%
for the six months ended July 31, 2009 from 27.4% for the six months ended July
31, 2008.  The major factors driving the changes in gross margins
were:





·
            Disposables
      gross margins declined by 4.5 percentage points for the six months ended
      July 31, 2009 compared with Q2 last year. This decline was mainly due to
      higher priced raw materials and a predatory pricing environment coupled
      with lower volume.


·
            Brazil
      gross margin was 43.3% for the six months ended July 31, 2009, compared
      with 55.9% last year, but Brazil was only included in operations for Q2
      last year this year. Several features were at play. There were several
      large sales which had bid requirements for complete fire ensembles
      including boots and/or helmets. This required Qualytextil to obtain these
      items from vendors. There were several issues with these vendors causing
      Qualytextil to use different vendors under delivery pressure, resulting in
      higher costs. Qualytextil is presently negotiating with a boot and also a
      helmet vendor to obtain more reliable delivery and pricing and is
      considering maintaining a stock of these items on hand in inventory to
      avoid such problems in the future. One large contract was bid at a 17%
      margin as introductory pricing for a new customer. Much of Qualytextil’s
      fabric was used as raw materials in imported from vendors in the US which
      caused unfavorable costs earlier in the quarter resulting from exchange
      rate differences. Since then the exchange rates have changed to strengthen
      the Brazilian real which should favorably impact the cost and margins in
      the future. Further, the margins of 55.9% obtained in Q2 FY2009 were
      exceptional, partially due to a very weak U.S. dollar and may not be
      achieved in the near future. In normal conditions, in the future, the
      Qualytextil margins will be expected to be between 42 and 46%. There was
      also a large order shipped in April 2009, but bid in the summer of 2008,
      which had significant purchased items impacted by the major change in
      foreign exchange rates in August to October 2008. Further, the month of
      March had low sales resulting in no incentives from the Brazilian
      government. Management expects both these factors will be
      non-recurring.


·
            Glove
      division reduction in volume coupled with inventory
      write-offs.


·
            Continued
      gross losses of $0.3 million from India for the six months ended July 31,
      2009.


·
            Chemical
      margins increased by 4.0 percentage points for the six months ended July
      2009, mainly resulting from favorable sales mix in the first
      quarter.


·
            Reflective
      margins decreased by 2.6 percentage points due to sales
    mix.


·
            Canada
      gross margin increased by 15.2 percentage points mainly resulting from
      more favorable exchange rates and a better economic
    climate.


·
            UK
      and Europe margins decreased by 5.2 percentage points mainly resulting
      from exchange rate differentials, unfavorable in Q1 and favorable in
      Q2.


·
            Chile
      margins increased by 2.1 percentage points mainly resulting from higher
      volume and several larger sales orders in
Q2.





Operating Expenses.Operating
expenses were flat at $11.4 million for the six months ended July 31, 2009 and
ended July 31, 2008.  As a percentage of sales, operating expenses
increased to 24.1% for the six months ended July 31, 2009 from 20.8% for the six
months ended July 31, 2008.  Excluding Qualytextil in Brazil,
operating expenses declined $1.7 million for the six months ended July 31, 2009
compared with the six months ended July 31, 2008 compared with Q2 FY2009. Major
items comprising this are as follows:


19




·
              $(0.6)
              million
      - freight out declined, mainly resulting from lower volume and lower
      prevailing carrier rates.
 ·
              $(0.4)
              million
      - sales commissions declined, mainly resulting from lower
      volume.
 ·
              $(0.3)
              million
      - officers salaries declined, reflecting the retirement of Ray Smith to
      become a non-employee director and Chairman of the Board, and also
      reflecting an 8% across the board reduction in total office
      compensation.
 ·
              $(0.3)
              million
      - shareholder expenses declined, reflecting the proxy fight in the prior
      year.
 ·
              $(0.2)
              million
      – reduction in marketing and various sales
  expenses
 ·
              $(0.1)
              million
      – consulting fees were reduced, resulting from using interns and revising
      Sarbanes Oxley procedures.
 ·
              $(0.1)
              million
      – reduction in foreign exchange costs resulting from the Company’s hedging
      program and more favorable rates.
 ·
              $0.1
              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.
 ·
              $0.2
              million
      – professional fees increased resulting from analysis of tax issues and an
      IRS audit. The company has changed independent auditing firms in the
      expectation that such professional fees will be reduced in the
      future.


Qualytextil,
Brazil operating expenses increased $1.7 million in Q2 FY2010 compared with Q2
FY2009. Major factors in this increase are as follows:
 ·
                $1.1
                million
      – Brazil operating expenses in Q1 of this year. Brazil operations were not
      included in Q1 last year, as it was acquired effective May 1,
      2008.
 ·
                $0.3
                million
      – start-up expenses in connection with Qualytextil gearing up to sell
      Lakeland branded products. This includes hiring 20 sales and logistical
      support staff, printing of catalogs, lease of two new distribution centers
      and increased travel expense.
 ·
                $0.1
                million
      –in additional employee benefits and payroll taxes resulting from hiring
      as employees certain people who had been performing services on an
      out-sourcing basis.
 ·
                $0.2
                million
      – miscellaneous increases.


Operating profit. Operating
profit decreased 75.5% to $0.9 million for the six months ended July 31, 2009
from $3.6 million for the six months ended July 31, 2008.  Operating
margins were 1.9% for the six months ended July 31, 2009 compared to 6.6% for
the six months ended July 31, 2008.





Interest
Expenses.  Interest expenses increased by $0.1 million for the
six months ended July 31, 2009 as compared to the six months ended July 31, 2008
due to higher borrowing levels outstanding, mainly due to the funding for the
Qualytextil acquisition and higher inventory levels, partially offset by lower
interest rates in the current year.





Income Tax
Expense.  Income tax expenses consist of federal, state, and
foreign income taxes.  Income tax expenses decreased $0.4 million, or
50.9%, to $0.4 million for the six months July 31, 2009 from $0.9 million for
the six months ended July 31, 2008.  Our effective tax rates were 80%
and 25.4% for the six months ended July 31, 2009 and 2008, respectively. Our
effective tax rate for the current year was affected by a $350,000 allowance
against deferred taxes resulting from the India restructuring recorded in Q1,
losses in India with no tax benefit, tax benefits in Brazil resulting from
government incentives and goodwill write-offs, and credits to prior year taxes
in the U.S. not previously recorded.





Net Income.  Net
income decreased $2.4 million, or 95.8% to $0.1 million for the six months ended
July 31, 2009 from $2.5 million for the six months ended July 31, 2008.The decrease in net income
primarily resulted from a decrease in sales, larger losses in India and
reduction in gross margins in disposables and Brazil, a $350,000 allowance
against deferred taxes resulting from the India restructuring , offset by
management’s cost reduction program.


20




Liquidity
and Capital Resources




Cash Flows.As of July 31,
2009 we had cash and cash equivalents of $4.5 million and working capital of
$47.5 million; an increase of $1.7 million and a decrease of $23.4 million,
respectively, from January 31, 2009. 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. The decrease in working capital is mainly due to the debt
outstanding under the Revolving Credit at July 2009 being classified as current
since it is due in July 2010.





Net cash
provided by operating activities of $8.9 million for the six months ended July
31, 2009 was due primarily to net income of $0.1 million and a decrease in
inventories of $7.7 million, with an increase in accounts receivable of $1.3
million. Net cash used in financing activities of $6.5 million in the six months
ended July 31, 2009, was mainly due to repayment of the Company’s revolving line
of credit. Cash flows from investing activities was a result of the purchases of
property and equipment.





We
currently have one credit facility - a $30 million revolving credit, of which
$17.7 million of borrowings were outstanding as of July 31, 2009.  Our
credit facility requires that we comply with specified financial covenants
relating to fixed charge ratio, debt to EBIDTA coverage, and inventory and
accounts receivable collateral coverage ratios.  These restrictive
covenants could affect our financial and operational flexibility or impede our
ability to operate or expand our business.  Default under our credit
facility would allow the lender to declare all amounts outstanding to be
immediately due and payable.  Our lender has a security interest in
substantially all of our assets to secure the debt under our credit
facility.  As of July 31, 2009, we were in compliance with all
covenants contained in our credit facility, except for the ratio of debt to
EBITDA. Such exception has been waived by the lender for the quarter ended July
31, 2009.





We
believe that our current cash position of $4.5 million, our cash flow from
operations along with borrowing availability under our $30 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, as well as payments related to
the construction of our new facilities in China. 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 capital equipment, primarily computer equipment and apparel
manufacturing equipment in fiscal 2010, and plant renovations in
Brazil.





Foreign Currency
Exposure.The Company has foreign currency exposure,
principally through its investment in Brazil, sales in Canada, Latin America 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, Euro and Great Britain Pound.  Such contracts for the
Euro and Pound 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 positions in the Chinese Yuan and Brazilian
Real.





The
Company recognizes 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.


21





The
Company had one derivative instrument outstanding July 31, 2008 which was
treated as a cash flow hedge intended for forecasted purchases of merchandise by
the Company’s Canadian subsidiary.





Interest Rate Risk
Management




We are
exposed to interest rate risk from debt. We have hedged against the risk of
changes in the interest rate associated with our variable rate Revolving Credit
by entering into a variable-to-fixed interest rate swap agreement, designated as
fair value hedges, with a total notional amount of $18 million as of April 30,
2009. We assume no hedge ineffectiveness as each interest rate swap meets the
short-cut method requirements under SFAS 133 for fair value hedges of debt
instruments. As a result, changes in the fair value of the interest rate swaps
are offset by changes in the fair value of the debt, both are reported in
interest and other income and no net gain or loss is recognized in
earnings.





Effective
January 1, 2009, the Company adopted the provisions of SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company accounts for its foreign
exchange derivative instruments under Statement of Financial Accounting
Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended by SFAS No. 161.  This standard 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. The fair
value of the interest rate swap in a net liability position is included in Other
Liabilities on the balance sheet.





The
company has a net investment in Brazil denominated in foreign currency of
approximately 22 million Brazilian Reals. Management has decided not to hedge
this investment at this time. Applying translation methodology per SFAS 52
results in a Currency Translation Adjustment of $926,537, included in Other
Comprehensive Loss in Stockholders’ Equity on the Balance Sheet at July 31,
2009.





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, 2009.




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 July 31, 2009. There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility
of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives. Based
on their evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of July
31, 2009 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 July 31,
2009.





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.


22




Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of July 31, 2009. In making this assessment, management used the
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, management has concluded that the Company’s internal control
over financial reporting was effective as of July 31, 2009. Our Chief Executive
Officer and Chief Financial Officer have concluded that we no longer have a
material weakness over our inventory relating to sales of raw material waste in
China at July 31, 2009.




In
response to the fraud in China (as fully explained in Note 17 to the Annual
Report filed under Form 10-K) and the material weakness identified at October
31, 2008, we have initiated a China Internal Control Committee. Such Committee
reviews, examines and evaluates China operating activities, and plans, designs
and implements internal control procedures and policies. The Committee reports
to the Chief Financial Officer. In particular, the Committee focuses on:
strengthening controls over waste/scrap sales, upgrading local accounting
manager authority and responsibility, and creating new banking and inventory
controls.




We believe the above remediation steps
now provide us with the infrastructure and processes necessary to accurately
prepare our financial statements on a quarterly basis.




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.




Other Previous Material Weaknesses-In its report at April 30, 2008, management had previously identified a
material weakness in its period-end financial reporting process relating to
employee withholding for medical insurance. The employee withholding for medical
insurance was not offset against the expenses as a result of human error and was
not identified on review due to the favorable claim experience resulting in
lowered expenses. This control deficiency resulted in an adjustment to our April
30, 2008 financial statements and could have resulted in an overstatement of
cost of sales and operating expenses that would have resulted in an
understatement of net earnings in the amount of $127,000 to the interim
financial statements if not detected and prevented.





In
response to the material weakness identified at April 30, 2008, we have
initiated additional review procedures to reduce the likelihood of future human
error on the assets and liabilities trial balance amounts. Management believes
that the remediation relating to the weakness relating to the Chinese
subsidiaries is now completely in effect.





Management
had also previously identified two material weaknesses at January 31, 2008, in
its period-end financial reporting process relating to the elimination of
inter-company profit in inventory and the inadequate review of inventory cutoff
procedures and financial statement reconciliations from one of our China
subsidiaries.  The material weakness which related to the elimination
of inter-company profit in inventory resulted from properly designed controls
that did not operate as intended due to human error. The material weakness that
resulted in the inventory cut-off error was as a result of the improper
reconciliation of the conversion of one of our China subsidiaries’ financial
statements from Chinese GAAP to U.S. GAAP. We engaged a CPA firm in China to
assist management in this conversion, and the Chinese CPA firm’s review as well
as management’s final review did not properly identify the error in the
reconciliation. These control deficiencies resulted in audit adjustments to our
January 31, 2008 financial statements and could have resulted in a misstatement
to cost of sales that would have resulted in a material misstatement to the
annual and interim financial statements if not detected and
prevented.


23





Remediation - In response to
the material weaknesses identified at January 31, 2008, we continue the process
of initiating additional review procedures to reduce the likelihood of future
human error and are transitioning to internal accounting staff with greater
knowledge of U.S. GAAP to improve the accuracy of the financial reporting of our
Chinese subsidiary.  We have automated key elements of the calculation
of intercompany profits in inventory and formalized the review process of the
data needed to calculate this amount. With the implementation of this corrective
action we believe that the previously identified material weakness relating to
intercompany profit elimination has been remediated as of the first quarter of
the fiscal year 2009.





Effective
in full at October 31, 2008, management has taken primary responsibility to
prepare the U.S. GAAP financial reporting based on China GAAP financial
statements. This function was previously performed by outside accountants in
China. Further, U.S. corporate management is now also reviewing the China GAAP
financial statements. In addition, in July 2008, an internal auditor was hired
in China who will report directly to the U.S. corporate internal audit
department and who will work closely with U.S. management.





As
described below under the heading “Changes in Internal Controls Over
Financial Reporting,” we have previously taken a number of steps designed
to improve our accounting for our Chinese subsidiaries,  the
elimination of intercompany profit in inventory, and employee withholding for
medical insurance.





Management
is in the process of reviewing, evaluating and upgrading the systems of internal
control existing at our new subsidiary in Brazil, Qualytextil, S.A.





Lakeland
Industries, Inc.’s management, with the participation of Lakeland Industries,
Inc.’s Chief Executive Officer and Chief Financial Officer, has evaluated
whether any change in the Company’s internal control over financial reporting
occurred during the second quarter of fiscal 2010.  Based on that
evaluation, management concluded that other than the China Internal Control
Committee discussed above, there have not been changes in Lakeland Industries,
Inc.’s internal control over financial reporting during the second quarter of
fiscal 2010 that have materially affected, or is reasonably likely to materially
affect, Lakeland Industries, Inc.’s internal control over financial
reporting.




Holtz Rubenstein Reminick LLP, the
Company's previous independent registered public accounting firm has issued a
report on management’s assessment of the Company’s internal control over
financial reporting. That report dated April 14, 2009 is included in the
Company’s Annual Report on Form 10-K for the year ended January 31,
2009.




Changes
in Internal Control over Financial Reporting





Other
than the China Internal Control Committee discussed above and the appointment of
a new financial manager at one of the Company’s China subsidiaries, there have
been no other changes in Lakeland Industries, Inc.’s internal control over
financial reporting during the second quarter of fiscal 2010 that have
materially affected, or is reasonably likely to materially affect, Lakeland
Industries, Inc.’s internal control over financial reporting.


24




PART
II. OTHER INFORMATION




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




Item
      4.
            
            Submission of Matter to a Vote
      of Security Holders:




The
      annual meeting of shareholders of the Company (the “Annual Meeting”) was
      held on June 17, 2009 in Ronkonkoma, New York. The Company had 5,523,288
      shares of common stock outstanding as of April 27, 2009, the record date
      for the Annual Meeting.




1.      The
following persons were elected Directors pursuant to the votes
indicated





Nominee
                      
                      For
                      
                      WithheldEric O. Hallman
                      
                      4,003,548
                      
                      1,139,080Stephen M. Bachelder
                      
                      4,003,548
                      
                      1,139,080John J. Collins
                      
                      4,003,548
                      
                      1,139,080





2.
            Board
      proposal to approve the Company’s 2009 Restricted Stock Program (the
      “incentive Proposal”)





For
                            
                            Against
                            
                            Abstain
                            
                            Broker-Non-Vote3,084,348
                            
                            680,554
                            
                            1,668
                            
                            1,376,058





3.
            Ratification
      of the appointment of Warren, Averett, Kimbrough & Marino LLC as the
      Registrant’s Independent Public Accountant as
  follows:





For
                            
                            Against
                            
                            Abstain
                            
                            Broker-Non-Vote4,501,126
                            
                            635,966
                            
                            5,536
                            
                            ——


25




Item
      6.
            Exhibits and
      Reports on Form 8-K:




Reports
on Form 8-K:





On June
9, 2009, the Company filed a Form 8-K under item 2.02 for the purpose of
furnishing a press release announcing the Company's Q1 FY10 financial results
for the reporting period ended April 30, 2009.




Exhibits:




31.1
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002


31.2
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002


32.1
            Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002


32.2
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002


10.18
            Agreement
      of non-residential rent between Lakeland (Beijing) Safety Products
      Limited and Yeqing Plaza dated June 11, 2009. (filed
    herein)


10.19
            Dissolution
      of non-residential rent Agreement between Ceprin Empreendimentos e
      Participacoes S.A. and Qualytextil, S.A. dated July 22, 2009. (filed
      herein)


10.20
              Agreement
      of non-residential rent between Lakeland Industries, Inc.
      and Acrilicos Palopoli S.A. (filed herein)10.21
              Waiver letter
      from Wachovia Bank, NA dated September 4, 2009 regarding the Default under
      the Loan Agreement. (filed
herein)


26




SIGNATURES




Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




LAKELAND INDUSTRIES,
INC.(Registrant)Date:  September
      9, 2009
              /s/ Christopher J. RyanChristopher
      J. Ryan,Chief
      Executive Officer, President,Secretary
      and General Counsel(Principal
      Executive Officer and Authorized Signatory)Date:
      September 9, 2009
              /s/Gary PokrassaGary
      Pokrassa,Chief
      Financial Officer(Principal
      Accounting Officer and Authorized
Signatory)




27