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 endedOctober 31, 2016
| |  | ----------------------------------------------

OR

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



For the transition period from _______________
to _______________



|Commission
    File Number:  0-15535                      
|----------------------------------------------------------
|                                                          
|LAKELAND
    INDUSTRIES, INC.                             
|(Exact
    name of Registrant as specified in its charter)



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



|3555
    Veterans Memorial Highway, Suite C, Ronkonkoma, New York |  | 11779     
|----------------------------------------------------------------- |  | ----------
|(Address of principal
    executive offices)                      |  | (Zip Code)



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



(Former name, former address and former fiscal
year, if changed since last report)



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.

YesxNo ̈



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).

YesxNo ̈



Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a nonaccelerated 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 ̈        
|----------------------- | ---------------------------------------------- | --------------------------
|                        |                                                |                           
|Nonaccelerated filer    |  ̈(Do not check if a smaller reporting company) | Smaller reporting companyx



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

Yes ̈Nox



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 December 13, 2016
|------------------------------------------- |  | ------------------------------------
|                                            |  |                                     
|Common Stock, $0.01
    par value per share |  | 7,261,714 shares                    











LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES



FORM 10-Q



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



|                                | Page                                                                                                           
|------------------------------- | ---------------------------------------------------------------------------------------------------------------
|                                |                                                                                                                
|PART I - FINANCIAL INFORMATION: |                                                                                                                
|                                |                                                                                                                
|Item 1.                         | Financial Statements (Unaudited)                                                                               
|                                |                                                                                                                
|Introduction                    | 3                                                                                                              
|                                |                                                                                                                
|                                | Condensed Consolidated Statements of Operations Three and Nine Months Ended October 31, 2016 and 2015          
|                                |                                                                                                                
|                                | Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended October 31, 2016 and 2015
|                                |                                                                                                                
|                                | Condensed Consolidated Balance Sheets October 31, 2016 and January 31, 2016                                    
|                                |                                                                                                                
|                                | Condensed Consolidated Statements of Cash Flows Nine Months Ended October 31, 2016 and 2015                    
|                                |                                                                                                                
|                                | Notes to Condensed Consolidated Financial Statements                                                           
|                                |                                                                                                                
|Item 2.                         | Management's Discussion and Analysis of Financial Condition and Results of Operations                          
|                                |                                                                                                                
|Item 3.                         | Quantitative and Qualitative Disclosures about Market Risk                                                     
|                                |                                                                                                                
|Item 4.                         | Controls and Procedures                                                                                        
|                                |                                                                                                                
|PART II - OTHER INFORMATION:    |                                                                                                                
|                                |                                                                                                                
|Item 6.                         | Exhibits                                                                                                       
|                                |                                                                                                                
|Signature Pages                 | 35                                                                                                             











LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES



| | PART I | FINANCIAL INFORMATION
| | ------ | ---------------------



Item 1. Financial Statements



Introduction



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



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



| | · | our
                                         ability to obtain additional funds, if necessary;
| | - | ----------------------------------------------------------------------------------------------

| | · | we
                                         are subject to risk as a result of our international manufacturing operations;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         results of operations could be negatively affected by potential fluctuations in foreign
                                         currency exchange rates;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we
                                         deal in countries where corruption is an obstacle;
| | - | ----------------------------------------------------------------------------------------------

| | · | we
                                         have experienced material weaknesses in internal controls in the past and although we
                                         believe such weaknesses have been remediated, there can be no assurance that such weaknesses
                                         will not occur in the future;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | there
                                         is no assurance that our disposition of our Brazilian subsidiary will be entirely successful
                                         in that we may continue to be exposed to certain liabilities in connection with the operations
                                         of such company. In addition, while the Company’s tax advisors believe that the
                                         worthless stock deduction taken by the Company in connection therewith is valid, there
                                         can be no assurance that the IRS will not challenge it and, if challenged, that the Company
                                         will prevail.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | rapid
                                         technological change could negatively affect sales of our products, inventory levels
                                         and our performance;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we
                                         must estimate customer demand because we do not have long-term commitments from many
                                         of our customers, and errors in our estimates could negatively impact our inventory levels
                                         and net sales;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         operations are substantially dependent upon key personnel;
| | - | -------------------------------------------------------------------------------------------------------

| | · | we
                                         rely on a limited number of suppliers and manufacturers for specific fabrics, and we
                                         may not be able to obtain substitute suppliers and manufacturers on terms that are as
                                         favorable, or at all, if our supplies are interrupted;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         inability to protect our intellectual property;
| | - | --------------------------------------------------------------------------------------------

| | · | our
                                         effective tax rate could change as a result of tax reform and the result could be a significant
                                         one-time noncash charge to tax expense in order to adjust our deferred tax asset;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we
                                         face competition from other companies, a number of which have substantially greater resources
                                         than we do;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | some
                                         of our sales are to foreign buyers, which exposes us to additional risks;
| | - | -----------------------------------------------------------------------------------------------------------------------

| | · | a
                                         significant reduction in government funding for preparations for terrorist incidents
                                         could adversely affect our net sales;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we
                                         may be subject to product liability claims, and insurance coverage could be inadequate
                                         or unavailable to cover these claims;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3







| | · | our
                                         directors and executive officers have the ability to exert significant influence on us
                                         and on matters subject to a vote of our stockholders;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         failure to realize anticipated benefits from acquisitions, divestitures or restructurings,
                                         or the possibility that such acquisitions, divestitures or restructurings could adversely
                                         affect us;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                         ability to make payments on our indebtedness and comply with the restrictive covenants
                                         therein;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | covenants
                                         in our credit facilities may restrict our financial and operating flexibility;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         other factors referenced in this Form 10-Q, including, without limitation, in the sections
                                         entitled “Management’s Discussion and Analysis of Financial Condition and
                                         Results of Operations” and the factors described under “Risk Factors”
                                         disclosed in our fiscal 2016 Form 10-K.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Form 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.



4







LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                                                                                      |  | Three Months Ended                    |           |   | Nine Months Ended                     |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | - | ------------------------------------- | -
|                                                                                                                      |  | October 31,                           |           |   | October 31,                           |  
|                                                                                                                      |  | ($000’s) except for share information |           |   | ($000’s) except for share information |  
|                                                                                                                      |  | 2016                                  |           |   | 2015                                  |  
|Net sales from continuing operations                                                                                  |  | $                                     | 23,243    |   |                                       | $
|Cost of goods sold from continuing operations                                                                         |  |                                       | 14,724    |   |                                       |  
|Gross profit from continuing operations                                                                               |  |                                       | 8,519     |   |                                       |  
|Operating expenses from continuing operations                                                                         |  |                                       | 6,271     |   |                                       |  
|Operating profit from continuing operations                                                                           |  |                                       | 2,248     |   |                                       |  
|Other income (loss), net from continuing operations                                                                   |  |                                       | (2        | ) |                                       |  
|Interest expense from continuing operations                                                                           |  |                                       | 150       |   |                                       |  
|Income before taxes from continuing operations                                                                        |  |                                       | 2,096     |   |                                       |  
|Income tax expense from continuing operations                                                                         |  |                                       | 583       |   |                                       |  
|Net income from continuing operations                                                                                 |  |                                       | 1,513     |   |                                       |  
|Noncash reclassification of Other Comprehensive Income to Statement of Operations (no impact on stockholders’ equity) |  |                                       | —         |   |                                       |  
|Loss from operations from discontinued operations                                                                     |  |                                       | —         |   |                                       |  
|Loss from disposal of discontinued operations                                                                         |  |                                       | —         |   |                                       |  
|Loss before taxes for discontinued operations                                                                         |  |                                       | —         |   |                                       |  
|Income tax benefit from discontinued operations                                                                       |  |                                       | —         |   |                                       |  
|Net loss from discontinued operations                                                                                 |  |                                       | —         |   |                                       |  
|Net income                                                                                                            |  | $                                     | 1,513     |   |                                       | $
|Net income (loss) per common share – Basic:                                                                           |  |                                       |           |   |                                       |  
|Income from continuing operations                                                                                     |  | $                                     | 0.21      |   |                                       | $
|Loss from discontinued operations                                                                                     |  | $                                     | —         |   |                                       | $
|Net income                                                                                                            |  | $                                     | 0.21      |   |                                       | $
|Net income (loss) per common share – Diluted:                                                                         |  |                                       |           |   |                                       |  
|Income from continuing operations                                                                                     |  | $                                     | 0.21      |   |                                       | $
|Loss from discontinued operations                                                                                     |  | $                                     | —         |   |                                       | $
|Net income                                                                                                            |  | $                                     | 0.21      |   |                                       | $
|Weighted average common shares outstanding:                                                                           |  |                                       |           |   |                                       |  
|Basic                                                                                                                 |  |                                       | 7,258,697 |   |                                       |  
|Diluted                                                                                                               |  |                                       | 7,332,997 |   |                                       |  



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



5







LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



|                                                                                                                     |  | Three Months Ended |       |   | Nine Months Ended |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ----------------- | -
|                                                                                                                     |  | October 31,        |       |   | October 31,       |  
|                                                                                                                     |  | ($000’s)           |       |   | ($000’s)          |  
|                                                                                                                     |  | 2016               |       |   | 2015              |  
|                                                                                                                     |  |                    |       |   |                   |  
|Net income                                                                                                           |  | $                  | 1,513 |   |                   | $
|Other comprehensive income (loss):                                                                                   |  |                    |       |   |                   |  
|Cash flow hedge                                                                                                      |  |                    | —     |   |                   |  
|Foreign currency translation adjustments                                                                             |  |                    | (193  | ) |                   |  
|Brazil noncash reclassification of Other Comprehensive Income to Statement of Operations (transfer of shares Brazil) |  |                    | —     |   |                   |  
|Other comprehensive income (loss)                                                                                    |  |                    | (193  | ) |                   |  
|Comprehensive income                                                                                                 |  | $                  | 1,320 |   |                   | $



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



6







LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                                                  |  | October 31, |        |   | January 31, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ----------- | -
|                                                                                                                                                                                  |  | 2016        |        |   | 2016        |  
|                                                                                                                                                                                  |  | ($000’s)    |       
|ASSETS                                                                                                                                                                            |  |             |        |   |             |  
|Current assets                                                                                                                                                                    |  |             |        |   |             |  
|Cash and cash equivalents                                                                                                                                                         |  | $           | 8,453  |   |             | $
|Accounts receivable, net of allowance for doubtful accounts of $552 and $593 at October 31, 2016 and January 31, 2016, respectively                                               |  |             | 11,322 |   |             |  
|Inventories, net of allowance of $2,561 and $2,566 at October 31, 2016 and January 31, 2016, respectively                                                                         |  |             | 36,605 |   |             |  
|Prepaid VAT tax                                                                                                                                                                   |  |             | 1,516  |   |             |  
|Other current assets                                                                                                                                                              |  |             | 2,018  |   |             |  
|Total current assets                                                                                                                                                              |  |             | 59,914 |   |             |  
|Property and equipment, net                                                                                                                                                       |  |             | 8,538  |   |             |  
|Assets held for sale                                                                                                                                                              |  |             | 976    |   |             |  
|Deferred income tax                                                                                                                                                               |  |             | 14,098 |   |             |  
|Prepaid VAT and other taxes                                                                                                                                                       |  |             | 558    |   |             |  
|Other assets                                                                                                                                                                      |  |             | 92     |   |             |  
|Goodwill                                                                                                                                                                          |  |             | 871    |   |             |  
|Total assets                                                                                                                                                                      |  | $           | 85,047 |   |             | $
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                              |  |             |        |   |             |  
|Current liabilities                                                                                                                                                               |  |             |        |   |             |  
|Accounts payable                                                                                                                                                                  |  | $           | 4,833  |   |             | $
|Accrued compensation and benefits                                                                                                                                                 |  |             | 1,149  |   |             |  
|Other accrued expenses                                                                                                                                                            |  |             | 1,640  |   |             |  
|Current maturity of long-term debt                                                                                                                                                |  |             | 50     |   |             |  
|Short-term borrowings                                                                                                                                                             |  |             | 294    |   |             |  
|Borrowings under revolving credit facility                                                                                                                                        |  |             | 5,771  |   |             |  
|Total current liabilities                                                                                                                                                         |  |             | 13,737 |   |             |  
|Long-term portion of debt                                                                                                                                                         |  |             | 704    |   |             |  
|VAT taxes payable                                                                                                                                                                 |  |             | 8      |   |             |  
|Total liabilities                                                                                                                                                                 |  |             | 14,449 |   |             |  
|Commitments and contingencies                                                                                                                                                     |  |             |        |   |             |  
|Stockholders’ equity                                                                                                                                                              |  |             |        |   |             |  
|Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued)                                                                                                             |  |             | —      |   |             |  
|Common stock, $0.01 par; authorized 10,000,000 shares, Issued 7,618,155 and 7,610,603; outstanding 7,261,714 and 7,254,162 at October 31, 2016 and January 31, 2016, respectively |  |             | 76     |   |             |  
|Treasury stock, at cost; 356,441 shares at October 31, 2016 and January 31, 2016                                                                                                  |  |             | (3,352 | ) |             |  
|Additional paid-in capital                                                                                                                                                        |  |             | 64,683 |   |             |  
|Retained earnings                                                                                                                                                                 |  |             | 11,454 |   |             |  
|Accumulated other comprehensive loss                                                                                                                                              |  |             | (2,263 | ) |             |  
|Total stockholders' equity                                                                                                                                                        |  |             | 70,598 |   |             |  
|Total liabilities and stockholders' equity                                                                                                                                        |  | $           | 85,047 |   |             | $



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



7







LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                                                                     |  | Nine Months Ended  October 31, |       
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------
|                                                                                                                     |  | 2016                           |       
|                                                                                                                     |  | (000’s)                        |       
|Cash flows from operating activities:                                                                                |  |                                |       
|Net income                                                                                                           |  | $                              | 2,946 
|Adjustments to reconcile net income to net cash provided by (used in) operating activities                           |  |                                |       
|Provision for (recovery of) inventory obsolescence                                                                   |  |                                | (5    
|Recovery of doubtful accounts                                                                                        |  |                                | (41   
|Deferred income taxes                                                                                                |  |                                | 153   
|Depreciation and amortization                                                                                        |  |                                | 963   
|Stock-based and restricted stock compensation                                                                        |  |                                | 177   
|Loss on disposal of property and equipment                                                                           |  |                                | 31    
|Interest expense resulting from Arbitration Award                                                                    |  |                                | —     
|Non-cash reclassification of other comprehensive
    income to statement of operations due to the disposal of Brazil |  |                                | —     
|(Increase) decrease in operating assets:                                                                             |  |                                |       
|Accounts receivable                                                                                                  |  |                                | 176   
|Inventories                                                                                                          |  |                                | 4,283 
|Prepaid VAT and other taxes                                                                                          |  |                                | (374  
|Other current assets                                                                                                 |  |                                | (510  
|Increase (decrease) in operating liabilities:                                                                        |  |                                |       
|Accounts payable                                                                                                     |  |                                | 477   
|Accrued expenses and other liabilities                                                                               |  |                                | (145  
|Arbitration award in Brazil                                                                                          |  |                                | —     
|Net cash used by the sale of Brazil                                                                                  |  |                                | 80    
|Net cash provided by (used in) operating activities                                                                  |  |                                | 8,211 
|Cash flows from investing activities:                                                                                |  |                                |       
|Proceeds from sale of property                                                                                       |  |                                | —     
|Purchases of property and equipment                                                                                  |  |                                | (116  
|Net cash used in investing activities                                                                                |  |                                | (116  
|Cash flows from financing activities:                                                                                |  |                                |       
|Net borrowings (repayments) under revolving credit facility                                                          |  |                                | (3,687
|Loan repayments, short-term                                                                                          |  |                                | (4,511
|Loan borrowings, short-term                                                                                          |  |                                | 1,329 
|UK borrowings (repayments), net                                                                                      |  |                                | 243   
|Proceeds from exercise of stock options                                                                              |  |                                | 41    
|Shares returned to pay employee taxes under restricted stock program                                                 |  |                                | (3    
|Net cash (used in) provided by financing activities                                                                  |  |                                | (6,588
|Effect of exchange rate changes on cash and cash equivalents                                                         |  |                                | (76   
|Net increase (decrease) in cash and cash equivalents                                                                 |  |                                | 1,431 
|Cash and cash equivalents at beginning of period                                                                     |  |                                | 7,022 
|Cash and cash equivalents at end of period                                                                           |  | $                              | 8,453 
|                                                                                                                     |  |                                |       
|Cash paid for interest                                                                                               |  | $                              | 522   
|Cash paid for taxes                                                                                                  |  | $                              | 1,126 



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



8







LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited)



| | 1. | Business
| | -- | --------



Lakeland Industries, Inc. and Subsidiaries
(“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation
organized in April 1986, manufactures and sells a comprehensive line of safety garments and accessories for the industrial protective
clothing market. In April 2015, the Company decided to exit operations in Brazil. See Note 14 for further description.



| | 2. | Basis of Presentation
| | -- | ---------------------



The unaudited condensed consolidated
financial statements included herein have been prepared 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 unaudited condensed consolidated financial information required herein. Certain information and note disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“US 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 unaudited 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 fiscal year ended January 31, 2016.



The Company’s unaudited condensed
consolidated financial statements have been prepared using the accrual method of accounting in accordance with US GAAP.



The results of operations for the
three and nine month period ended October 31, 2016 are not necessarily indicative of the results to be expected for the full year.



In this Form 10-Q, (a) “FY”
means fiscal year; thus, for example, FY17 refers to the fiscal year ending January 31, 2017, (b) “Q” refers to quarter;
thus, for example, Q3 FY17 refers to the third quarter of the fiscal year ending January 31, 2017, (c) “Balance Sheet”
refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Operations" refers to the unaudited
condensed consolidated statement of operations.



| | 3. | Summary of Significant
                                         Accounting Policies
| | -- | -----------------------------------------------------------------------------------



Principles of Consolidation

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



Use of Estimates and assumptions

The preparation of unaudited condensed
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
It is reasonably possible that events could occur during the upcoming year that could change such estimates.



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, firefighting
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 pass 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.



9







Accounts Receivable, net

Trade accounts receivable are stated
at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. The Company recognizes losses when information available indicates
that it is probable that a receivable has been impaired based on criteria noted above at the date of the financial statements,
and the amount of the loss can be reasonably estimated. Management considers the following factors when determining the collectability
of specific customer accounts: customer creditworthiness, past transaction history with customers, current economic industry trends, changes in customer
payment terms. Past due balances over 90 days and other less creditworthy accounts are reviewed individually for
collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability
to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated
uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after
the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to
accounts receivable.



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.



Goodwill

Goodwill represents the future
economic benefits arising from other assets acquired in a business combination that are not individually identified and separately
recognized. Goodwill is evaluated for impairment at least annually; however, this evaluation may be performed more frequently
when events or changes in circumstances indicate the carrying amount may not be recoverable. Factors that the Company considers
important that could identify a potential impairment include: significant changes in the overall business strategy and significant
negative industry or economic trends. The Company measures any potential impairment on a projected discounted cash flow method.
Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual
results.



Impairment of Long-Lived Assets

The Company evaluates the carrying
value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be
recoverable. The Company measures any potential impairment on a projected undiscounted cash flow method. Estimating future cash
flows requires the Company’s management to make projections that can differ materially from actual results. The carrying
value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset is less than
its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value
of the long-lived asset. As of October 31, 2016 and January 31, 2016, no impairment was recorded.



Income Taxes

The Company is required to estimate
its income taxes in each of the jurisdictions in which it operates as part of preparing the unaudited condensed 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 carryforwards and tax
credits, are recorded as deferred tax assets or liabilities on the Company’s unaudited condensed consolidated balance sheet.
A judgment must then be made of the likelihood that any deferred tax assets will be recovered 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
the Company determines that it may not be able to realize all or part of its 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 income in the period of such determination.



The Company recognizes tax positions
that meet a “more likely than not” minimum recognition threshold.



10







Foreign Operations and Foreign
Currency Translation

The Company maintains manufacturing
operations in Mexico, Argentina and the People’s Republic of China and can access independent contractors in Mexico, Argentina
and China. It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina, Russia,
Kazakhstan and Mexico. The Company is vulnerable to currency risks in these countries. The functional currency for the United
Kingdom subsidiary is the Euro; the trading company in China, the RMB; the Canadian Real Estate subsidiary, the Canadian dollar;
and the Russian operation, the Russian Ruble and Kazakhstan Tenge. All other operations have the US dollar as its functional currency.



Pursuant to US GAAP, assets and
liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated at
the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing
during the periods. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’
equity. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement
of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.



Fair Value of Financial Instruments

US GAAP defines fair value, provides
guidance for measuring fair value and requires certain disclosures utilizing a fair value hierarchy which is categorized into
three levels based on the inputs to the valuation techniques used to measure fair value.



The following is a brief description
of those three levels:



| | Level 1: | Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
| | -------- | -----------------------------------------------------------------------------------------------------------



| | Level 2: | Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3: | Unobservable inputs that reflect management’s
own assumptions.
| | -------- | --------------------------------------------------------------



Foreign currency forward and hedge
contracts are recorded in the unaudited condensed consolidated balance sheets at their fair value as of the balance sheet dates
based on current market rates, as further discussed in Note 11.



The financial instruments of the
Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, short-term borrowings,
borrowings under revolving credit facility, accounts payable and accrued expenses, are recorded at carrying value, which approximates
fair value based on the short-term nature of these instruments.



The Company believes that the fair
values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current market
rate available to the Company.



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 shares and common stock equivalents. The diluted earnings per share
calculation takes into account unvested restricted shares and the shares that may be issued upon exercise of stock options, reduced
by shares that may be repurchased with the funds received from the exercise, based on the average price during the period.



11







Reclassifications

Certain reclassifications have
been made to the prior period’s unaudited condensed consolidated balance sheet to conform to the current period presentation.
These reclassifications have no effect on the accompanying unaudited condensed consolidated financial statements.



Recent Accounting Pronouncements

The Company considers the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards
that are issued.



In May 2014, the Financial Accounting
Standards Board (the “FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606):, to clarify
the principles used to recognize revenue for all entities. This guidance is effective for annual and interim reporting periods
beginning after December 15, 2017, with early adoption permitted for annual periods after December 31, 2016. This guidance permits
the use of one of two retrospective transition methods. The Company has neither selected a transition method, nor determined the
effects that the adoption of the pronouncement may have on its unaudited condensed consolidated financial statements.



In November 2015, the FASB issued
ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes how deferred taxes are
classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred
tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to
classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified
balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. During the quarter ended October 31, 2016, the Company
early applied this ASU and retrospectively applied it to the prior period presented. The adoption of ASU 2015-17 had no impact
on the Company’s results of operations and cash flows.



In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02
requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in
this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early
application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at,
or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company
is currently evaluating the impact of this new standard on its unaudited condensed consolidated financial statements.



In March 2016, the FASB Issued
ASU No. 2016-09, Compensation–Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The
guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early
adoption is permitted for an entity in any interim or annual period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact this guidance
will have on its unaudited condensed consolidated financial statements and related disclosures.



In April 2016, FASB issued ASU
No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments
clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation
guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements
for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the
amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e.,
January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently
evaluating the impact of this new standard on its unaudited condensed consolidated financial statements.



12







In May 2016, the FASB issued ASU
No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain
SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil
and Gas, effective upon adoption of Topic 606.  The Company does not expect the adoption of the ASU to have any impact on
its unaudited condensed consolidated financial statements.



In May 2016, FASB issued ASU No.
2016-12—Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is
intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606
by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying
Topic 606 both at transition and on an ongoing basis.  The Company is assessing the impact of the adoption of the ASU on
its unaudited condensed consolidated financial statements.



In August 2016, the FASB issued
ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This
ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists.
The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The
Company is currently in the process of evaluating the impact of adoption of this ASU on the Company's unaudited condensed consolidated
financial statements.



| | 4. | Inventories, net
| | -- | ----------------



Inventories, net consist of the following (in $000s):



|                |  | October 31, 2016 |        |  | January 31, 2016 |  
|--------------- |  | ---------------- | ------ |  | ---------------- | -
|                |  |                  |        |  |                  |  
|Raw materials   |  | $                | 20,685 |  |                  | $
|Work-in-process |  |                  | 943    |  |                  |  
|Finished goods  |  |                  | 14,977 |  |                  |  
|                |  | $                | 36,605 |  |                  | $



| | 5. | Long-Term Debt
| | -- | --------------



Revolving Credit Facility

On June 28, 2013, as amended on
March 31, 2015 and June 3, 2015, Lakeland Industries, Inc. and its wholly owned Canadian subsidiary, Lakeland Protective Wear
Inc. (collectively the “Borrowers”), entered into a Loan and Security Agreement (the “Senior Loan Agreement”)
with AloStar Business Credit, a division of AloStar Bank of Commerce (the “Senior Lender”). The Senior Loan Agreement
provides the Borrowers with a $15 million revolving line of credit (the “Senior Credit Facility”), at a variable interest
rate based on LIBOR, with a first priority lien on substantially all of the United States and Canada assets of the Company, except
for its Mexican plant and the Canadian warehouse.  After these amendments the maturity date of the Senior Credit Facility
is now June 28, 2017 and the minimum interest rate floor is 4.25% per annum. The Senior Lender has approved required aspects of
the transactions relating to the Brazil operations as such transactions are further described in Note 14 hereto.



The following is a summary of the
material terms of the Senior Credit Facility:



$15 million Senior Credit Facility

| | · | Borrowing
                                         pursuant to a revolving credit facility subject to a borrowing base calculated as the
                                         sum of:
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | 85%
                                         of eligible accounts receivable as defined
| | - | ---------------------------------------------------------------------------------------

| | o | The
                                         lesser of 60% of eligible inventory as defined or 85% of net orderly liquidation value
                                         of inventory
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | In
                                         transit inventory in bound to the US up to a cap of $1,000,000
| | - | ----------------------------------------------------------------------------------------------------------

| | o | Receivables
                                         and inventory held by the Canadian operating subsidiary to be included, up to a cap of
                                         $2.0 million of availability
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13







| | · | On
                                         October 31, 2016 and January 31, 2016, there was $5.8 million and $9.5 million outstanding
                                         under the Senior Credit Facility.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On
                                         October 31, 2016, there was $9.2 million available for further borrowings under the Senior
                                         Credit Facility.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Collateral
| | - | ----------



| | o | A
                                         perfected first security lien on all of the Borrower’s United States and Canadian
                                         assets, other than its Mexican plant and the Canadian warehouse
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Pledge
                                         of 65% of Lakeland Industries, Inc. stock in all foreign subsidiaries other than 100%
                                         pledge of stock of its Canadian subsidiaries
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Collection
| | - | ----------



| | o | All
                                         customers of Borrowers must remit to a lockbox controlled by Senior Lender or into a
                                         blocked account with all collection proceeds applied against the outstanding loan balance.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Prepayment
                                         penalties of 1%.
| | - | --------------------------------------------------------------------



| | · | Interest
                                         Rate
| | - | ------------------------------------------------------



| | o | Rate
                                         equal to LIBOR rate plus 325 basis points, subject to Floor rate of 4.25%
| | - | -----------------------------------------------------------------------------------------------------------------------

| | o | Rate
                                         at October 31, 2016 of 4.25% per annum
| | - | ------------------------------------------------------------------------------------



| | · | Financial
                                         Covenants
| | - | ------------------------------------------------------------



| | o | Borrowers
                                         are subject to certain covenants from the Closing Date, as defined in the Senior Loan
                                         Agreement, until the commitment termination date and full payment of the obligations
                                         to Senior Lender, Lakeland Industries, Inc. (the parent company), together with its subsidiaries
                                         on a consolidated basis, excluding its Brazilian subsidiary (have since been
                                         transferred), shall comply with the following additional covenants:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Fixed
                                         Charge Coverage Ratio.  At the end of each fiscal quarter of Borrowers, Borrowers
                                         shall maintain a Fixed Charge Coverage Ratio of not less than 1.1 to 1.00 for the twelve
                                         month period then ending.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Minimum
                                         Quarterly Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). 
                                         Borrowers shall achieve, on a rolling four quarter basis excluding the operations of
                                         the Borrower’s then Brazilian subsidiary, EBITDA of not less than $4.1 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Capital
                                         Expenditures. Borrowers shall not during any fiscal year make capital expenditures in
                                         an amount exceeding $1 million in the aggregate.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Other
                                         Covenants
| | - | --------------------------------------------------------

| | o | Standard
                                         financial reporting requirements as defined
| | - | ---------------------------------------------------------------------------------------------

| | o | Limitation
                                         on total net investment in foreign subsidiaries of a maximum of $1.0 million per annum
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



Borrowings in UK

On December 31, 2014, the Company
and Lakeland Industries Europe, Ltd, (“Lakeland UK”), a wholly owned subsidiary of the Company, amended the terms
of its existing line of credit facility with HSBC Bank to provide for (i) a one-year extension of the maturity date of the existing
financing facility to December 19, 2016, (ii) an increase in the facility limit from £1,250,000 (approximately USD $1.9
million, based on exchange rates at time of closing)) to £1,500,000 (approximately USD $2.3 million, based on exchange rates
at time of closing)), and (iii) a decrease in the annual interest rate margin from 3.46% to 3.0%. In addition, pursuant to a letter
agreement dated December 5, 2014, the Company agreed that £400,000 (approximately USD $0.6 million, based on exchange rates
at time of closing)) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of payment to the
subsidiary’s obligations to HSBC under the financing facility. The balance under this loan outstanding at October 31, 2016
and January 31, 2016 was USD $0.2 million and USD $0, respectively, and is included in short-term borrowings on the unaudited
condensed consolidated balance sheet. On December 31, 2015, Lakeland UK entered into an extension of the maturity date of its
existing financing facility with HSBC Invoice Finance (UK) Ltd. to December 19, 2016. Other than the extension of the maturity
date, all other terms of the facility remain the same.



14







Canada Loans

In September 2013, the Company
refinanced its loan with the Development Bank of Canada (“BDC”) for a principal amount of approximately $1.1 million
in both Canadian and USD (based on exchange rates at time of closing). Such loan is for a term of 240 months at an interest rate
of 6.45% per annum with fixed monthly payments of approximately USD $6,048 (C$8,169) including principal and interest. It is collateralized
by a mortgage on the Company's warehouse in Brantford, Ontario. The amount outstanding at October 31, 2016 is C$1,011,000 which
is included as USD $704,000 in long term borrowings on the accompanying unaudited condensed consolidated balance sheet, net of
current maturities of USD $50,000. The amount outstanding at January 31, 2016 was USD $691,000 (CAD $1.3 million) in long term
borrowings, net of current maturities of USD $50,000.



China Loans

On March 28, 2016, Weifang Lakeland
Safety Products Co., Ltd., (“WF”), the Company’s Chinese subsidiary and Chinese Rural Credit Cooperative Bank
(“CRCCB”) completed an agreement for WF to obtain a line of credit for financing in the amount of USD $1.3 million,
with interest at 120% of the benchmark rate supplied by CRCCB (which is currently 4.6% per annum), with the line of credit having
a term of one year. The effective per annum interest rate was 5.35%. The loan was collateralized by inventory owned by WF. The
line of credit was paid in full prior to October 31, 2016.



On December 1, 2015, WF and CRCCB
entered into an agreement for WF to obtain a line of credit for financing in the amount of RMB 6,000,000 (approximately USD $0.9
million), with interest at 120% of the benchmark rate supplied by CRCCB (which is currently 4.6% per annum), and with the line
of credit having a term of one year. The effective per annum interest rate was 5.52%. The loan was collateralized by inventory
owned by WF. The line of credit was paid in full prior to October 31, 2016. At January 31, 2016, the line of credit was RMB 6.0
million (approximately USD $0.9 million).



On October 10, 2015, WF and Bank
of China Anqiu Branch entered into an agreement for WF to obtain a line of credit for financing in the amount RMB 5,000,000 (approximately
USD $0.8 million). The effective per annum interest rate was 7% , with the line of credit having a term of one year.
The loan was collateralized by inventory owned by WF. The line of credit was paid in full prior to October 31, 2016. At January
31, 2016, the line of credit was RMB 5.0 (approximately USD $0.8 million).



Argentina Loan

In April 2015, Lakeland Argentina
S.R.L. (“Lakeland Argentina”), the Company’s Argentina subsidiary was granted a $300,000 line of credit denominated
in Argentine pesos, pursuant to a standby letter of credit granted by the parent company.



The following three loans were
made under the $300,000 facility stated above:



On December 2, 2015, Lakeland Argentina
and Banco Santander Rio S.A (“Santander”) entered into an agreement for Lakeland Argentina to obtain a loan in the
amount of ARS 559,906 (approximately USD $50,000, based on exchange rates at time of closing); such loan is for a term of 1 year
at an interest rate of 42% per annum. The amount outstanding at October 31, 2016 is ARS 110,071 (approximately USD $7,000) which
is included as short-term borrowings on the unaudited condensed consolidated balance sheet. At January 31, 2016, the line of credit
was ARS 522,000 (approximately USD $38,000).



On March 30, 2016, Lakeland Argentina
and Banco de la Nación Argentina (“BNA”) entered into an agreement for Lakeland Argentina to obtain a loan
in the amount of ARS 830,000 (approximately USD $56,000, based on exchange rates at time of closing); such loan is for a term
of one year at an interest rate of 27% per annum. The amount outstanding at October 31, 2016 is ARS 415,000 (approximately USD
$27,400) which is included as short-term borrowings on the unaudited condensed consolidated balance sheet.



15







On July 1, 2016, Lakeland Argentina
and BNA entered into an agreement for Lakeland Argentina to obtain a loan in the amount of ARS 569,000 (approximately USD $38,000,
based on exchange rates at time of closing); such loan is for a term of one year at an interest rate of 27.06% per annum. The
amount outstanding at October 31, 2016 is ARS 426,750 (approximately USD $28,000) which is included as short-term borrowings on
the unaudited condensed consolidated balance sheet.



| | 6. | Concentration
| | -- | -------------



Major Customer



No customer accounted for more
than 10% of net sales during the three and nine month periods ended October 31, 2016 and 2015.



Major Supplier



No supplier accounted for more
than 10% of net sales during the three and nine month periods ended October 31, 2016 and 2015.



| | 7. | Employee Stock Compensation and Stock Repurchase
Program
| | -- | --------------------------------------------------------



The 2012
and 2015 Plans



At the Annual Meeting of Stockholders
held on July 8, 2015, the Company’s stockholders approved the Lakeland Industries, Inc. 2015 Stock Plan (the “2015
Plan”). The executive officers and all other employees and directors of the Company and its subsidiaries are eligible to
participate in the 2015 Plan. The 2015 Plan is currently administered by the compensation committee of the Company’s Board
of Directors (“Committee”), except that with respect to all non-employee director awards, the Committee shall be deemed
to include the full Board. The 2015 Plan authorizes the issuance of awards of restricted stock, restricted stock units, performance
shares, performance units and other stock-based awards. The 2015 Plan also permits the grant of awards that qualify for “performance-based
compensation” within the meaning of Section 162(m) of the U.S. Internal Revenue Code. The aggregate number of shares of
the Company’s common stock that may be issued under the 2015 Plan may not exceed 100,000 shares. Awards covering no more
than 20,000 shares of common stock may be awarded to any plan participant in any one calendar year. Under the 2015 Plan, as of
October 31, 2016, the Company granted awards for up to an aggregate of 99,270 restricted shares assuming maximum award levels
are achieved.



The 2015 Plan, which terminates
in July 2017, is the successor to the Company’s 2012 Stock Incentive Plan (the “2012 Plan”). The Company’s
2012 Plan authorized the issuance of up to a maximum of 310,000 shares of the Company’s common stock to employees and directors
of the Company and its subsidiaries in the form of restricted stock, restricted stock units, performance shares, performance units
and other share-based awards. Under the 2012 Plan, as of October 31, 2016, the Company issued 289,462 fully vested shares of common
stock and 4,425 restricted shares which will continue to vest according to the terms of the 2012 Plan.



Under the 2012 Plan and the 2015
Plan, the Company generally awards eligible employees and directors with either performance-based or time-based restricted shares.
Performance-based restricted shares are awarded at either baseline (target), maximum or zero amounts. The number of restricted
shares subject to any award is not tied to a formula or comparable company target ranges, but rather is determined at the discretion
of the Committee at the end of the applicable performance period, which is two years under the 2015 Plan and had been three years
under the 2012 Plan. The Company recognizes expense related to performance-based restricted share awards over the requisite performance
period using the straight-line attribution method based on the most probable outcome (baseline, maximum or zero) at the end of
the performance period and the price of the Company’s common stock price at the date of grant.



16







In addition to the performance-based
awards, the Company also grants time-based vesting awards which vest either two or three years after date of issuance, subject
to continuous employment and certain other conditions.



As of October 31, 2016, unrecognized
stock-based compensation expense related to share-based stock awards totaled $598 pursuant to the 2012 Plan and $571,554 pursuant
to the 2015 Plan, before income taxes, based on the maximum performance award level. Such unrecognized stock-based compensation
expense related to restricted stock awards totaled $598 for the 2012 Plan and $295,925 for the 2015 Plan 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 for the
2012 Plan and two years for the 2015 Plan.



The Company recognized total stock-based
compensation costs of $99,034 and $165,356 for the three months ended October 31, 2016 and 2015, respectively, of which $392 and
$38,708 result from the 2012 Plan, and $98,642 and $126,648 result from the 2015 Plan; and $176,966 and $420,182 for the nine
months ended October 31, 2016 and 2015, respectively, of which $(9,746) and $293,534 result from the 2012 Plan, and $186,712 and
$126,648 result from the 2015 Plan. These amounts are reflected in operating expenses. The total income tax benefit recognized
for stock-based compensation arrangements was $35,652 and $59,528 for the three months ended October 31, 2016 and 2015 and $63,708
and $151,266 for the nine months ended October 31, 2016 and 2015, respectively.



|Shares under 2015 and 2012 Stock Plan  |  | Outstanding Unvested Grants at Maximum at Beginning of FY17 |         |  | Granted during FY17 through October 31, 2016 |   |       | Becoming Vested during FY17 through October 31, 2016 |  |   | Forfeited during FY17 through October 31, 2016 |  |  | Outstanding Unvested Grants at Maximum at End of October 31, 2016 |      
|-------------------------------------- |  | ----------------------------------------------------------- | ------- |  | -------------------------------------------- | - | ----- | ---------------------------------------------------- |  | - | ---------------------------------------------- |  |  | ----------------------------------------------------------------- | -----
|                                       |  |                                                             |         |  |                                              |   |       |                                                      |  |   |                                                |  |  |                                                                   |      
|Restricted stock grants – employees    |  |                                                             | 72,999  |  |                                              |   | —     |                                                      |  |   | —                                              |  |  |                                                                   | 5,380
|Matching award program                 |  |                                                             | 3,000   |  |                                              |   | —     |                                                      |  |   | —                                              |  |  |                                                                   | —    
|Bonus in stock - employees             |  |                                                             | 2,500   |  |                                              |   | —     |                                                      |  |   | —                                              |  |  |                                                                   | 2,500
|Retainer in stock - directors          |  |                                                             | 30,764  |  |                                              |   | 5,221 |                                                      |  |   | 2,909                                          |  |  |                                                                   | —    
|Total restricted stock plans           |  |                                                             | 109,263 |  |                                              |   | 5,221 |                                                      |  |   | 2,909                                          |  |  |                                                                   | 7,880
|                                       |  |                                                             |         |  |                                              |   |       |                                                      |  |   |                                                |  |  |                                                                   |      
|Weighted average grant date fair value |  | $                                                           | 9.93    |  |                                              | $ | 10.19 |                                                      |  | $ | 8.00                                           |  |  | $                                                                 | 9.68 



Other Compensation Plans/Programs

The Company previously awarded
stock-based options to non-employee directors under its Non-employee Directors’ Option Plan (the “Directors’
Plan”) which expired on December 31, 2012. All stock option awards granted under the Directors’ Plan were fully vested
at October 31, 2016. During the nine months ended October 31, 2016 there have been no forfeitures and 5,000 shares exercised at
an exercise price of $8.28 per share, and there were no options outstanding.



The Company utilized a matching
award program pursuant to the 2012 Restricted Stock Plan to which all employees were entitled to receive one share of restricted
stock for each two shares of the Company’s common stock purchased on the open market. Such restricted shares were subject
to a one year vesting period. The valuation was based on the stock price at the grant date and is amortized to expense over the
vesting period, which approximates the performance period.



Pursuant to the Company’s
director restrictive stock program, all directors are eligible to elect to receive any director fees in shares of restricted stock.
Such restricted shares are subject to a two year vesting period. The valuation is based on the stock price at the grant date and
is amortized to expense over the two year period, which approximates the performance period. Since the director is giving up cash
for unvested shares, the amount of shares awarded is 133% of the cash amount based on the grant date stock price.



17







Stock Repurchase Program

On July 19, 2016, the Company’s
board of directors approved a stock repurchase program under which the Company may repurchase up to $2,500,000 of its outstanding
common stock. The Company has not repurchased any stock under this program as of the date of this filing.



| | 8. | Income Taxes
| | -- | ------------

Income Tax Audits



The Company is subject to US federal
income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. Returns
for the year since FY2014 are still open based on statutes of limitation only.



Chinese tax authorities have performed
limited reviews on all Chinese subsidiaries as of tax years 2008 through 2015 with no significant issues noted and we believe
our tax positions are reasonably stated as of October 31, 2016. Weifang Meiyang Products Co., Ltd. (“Meiyang”), one
of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers and
equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd., (“WF”), another of our Chinese
operation thereby reducing our tax exposure.



Lakeland Protective Wear, Inc.,
our Canadian subsidiary, is subject to Canadian federal income tax, as well as income tax in the Province of Ontario. Income tax
return for the 2013 fiscal year and subsequent years are still within the normal reassessment period and open to examination by
tax authorities.



In connection with the exit from
Brazil as described in Note 14, the Company claimed a worthless stock deduction which generated a tax benefit of approximately
USD $9.5 million, net of a USD $2.2 million valuation allowance. While the Company and its tax advisors believe that this deduction
is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company
will prevail.



Except in Canada, and as set forth
in the next paragraph, it is our practice and intention to reinvest the earnings of our non-US subsidiaries in their operations.
As of October 31, 2016, the Company had not made a provision for US or additional foreign withholding taxes on approximately $24.1
million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are
essentially permanent in duration ($22.3 million at January 31, 2016). Generally, such amounts become subject to US taxation upon
remittance of dividends and under certain other circumstances. If theses earnings were repatriated to the US, the deferred tax
liability associated with these temporary differences would be approximately $3.4 million at October 31, 2016.



The Company’s Board of Directors
has instituted a plan to elect to pay annual dividends of $1.0 million to the Company from Weifang’s future profits, 33%
of Meiyang’s future profits and 50% of the UK’s future profits starting in FY15 and $1.0 million from Beijing’s
future profits starting in FY17. All other retained earnings are expected to be reinvested indefinitely.



Change in Valuation Allowance

We record net deferred tax assets to the extent we believe
these assets will more likely than not be realized. The valuation allowance was $2.0 million at October 31, 2016 and $2.0 million
at January 31, 2016.



Income Tax Expense

Income tax expenses consist of
federal, state and foreign income taxes. The statutory rate is the US rate. Reconciling items to the effective rate are foreign
dividend income, Argentina income, and other permanent tax differences.



18







| | 9. | Earnings Per Share
| | -- | ------------------



The following table sets forth the
computation of basic and diluted earnings per share for “income from continuing operations” and “discontinued
operations” at October 31, 2016 and 2015, as follows:



|                                                                                                                |  | Three Months Ended |           |  | Nine Months Ended |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- |  | ----------------- | -
|                                                                                                                |  | October 31,        |           |  | October 31,       |  
|                                                                                                                |  | (in $000s)         |           |  | (in $000s)        |  
|                                                                                                                |  | 2016               |           |  | 2015              |  
|Numerator                                                                                                       |  |                    |           |  |                   |  
|Net income from continuing operations                                                                           |  | $                  | 1,513     |  |                   | $
|Net loss from discontinued operations                                                                           |  |                    | —         |  |                   |  
|Net income                                                                                                      |  | $                  | 1,513     |  |                   | $
|Denominator                                                                                                     |  |                    |           |  |                   |  
|Denominator for basic earnings per share (weighted-average shares which reflect 356,441 shares in the treasury) |  |                    | 7,258,697 |  |                   |  
|Effect of dilutive securities from restricted stock plan and from dilutive effect of stock options              |  |                    | 74,300    |  |                   |  
|Denominator for diluted earnings per share (adjusted weighted average shares)                                   |  |                    | 7,332,997 |  |                   |  
|Basic earnings per share from continuing operations                                                             |  | $                  | 0.21      |  |                   | $
|Basic loss per share from discontinued operations                                                               |  | $                  | —         |  |                   | $
|Basic earnings per share                                                                                        |  | $                  | 0.21      |  |                   | $
|Diluted earnings per share from continuing operations                                                           |  | $                  | 0.21      |  |                   | $
|Diluted loss per share from discontinued operations                                                             |  | $                  | —         |  |                   | $
|Diluted earnings per share                                                                                      |  | $                  | 0.21      |  |                   | $



| | 10. | Segment Data
| | --- | ------------



| |  | Domestic and international sales from continuing operations are as
                                         follows in millions of dollars:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------



|              |  | Three Months Ended October 31, |       |  | Nine Months Ended October 31, | 
|------------- |  | ------------------------------ | ----- |  | ----------------------------- | 
|              |  | 2016                           |       |  | 2015                          | 
|              |  |                                |       |  |                               | 
|Domestic      |  | $                              | 11.26 |  |                               | 
|International |  |                                | 11.98 |  |                               | 
|Total         |  | $                              | 23.24 |  |                               | 



We manage our operations by evaluating
each of our geographic locations. Our US operations include a facility in Alabama (primarily the distribution to customers of
the bulk of our products and the light manufacturing of our chemical, wovens, reflective, and fire products). The Company also
maintains one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in
Mexico (primarily disposable, reflective, fire and chemical suit production) and a small manufacturing facility in India. Our
China facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s
international revenues. 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 USA, Canada, Mexico, Europe, Latin America,
India, Russia, Kazakhstan and China, which sell and distribute products shipped from the United States, Mexico, India or China.
The table below represents information about reported segments for the years noted therein:





19







|                                                                  |  | Three Months Ended       |       |   | Nine Months Ended        |  
|----------------------------------------------------------------- |  | ------------------------ | ----- | - | ------------------------ | -
|                                                                  |  | October 31,              |       |   | October 31,              |  
|                                                                  |  | (in millions of dollars) |       |   | (in millions of dollars) |  
|                                                                  |  | 2016                     |       |   | 2015                     |  
|Net Sales from continuing operations:                             |  |                          |       |   |                          |  
|USA                                                               |  | $                        | 12.75 |   |                          | $
|Other foreign                                                     |  |                          | 5.34  |   |                          |  
|Europe (UK)                                                       |  |                          | 1.90  |   |                          |  
|Mexico                                                            |  |                          | 0.84  |   |                          |  
|China                                                             |  |                          | 10.41 |   |                          |  
|Corporate                                                         |  |                          | 0.27  |   |                          |  
|Less intersegment sales                                           |  |                          | (8.27 | ) |                          |  
|Consolidated sales                                                |  | $                        | 23.24 |   |                          | $
|External Sales from continuing operations:                        |  |                          |       |   |                          |  
|USA                                                               |  | $                        | 11.26 |   |                          | $
|Other foreign                                                     |  |                          | 5.09  |   |                          |  
|Europe (UK)                                                       |  |                          | 1.90  |   |                          |  
|Mexico                                                            |  |                          | 0.40  |   |                          |  
|China                                                             |  |                          | 4.59  |   |                          |  
|Consolidated external sales                                       |  | $                        | 23.24 |   |                          | $
|Intersegment Sales from continuing operations:                    |  |                          |       |   |                          |  
|USA                                                               |  | $                        | 1.49  |   |                          | $
|Other foreign                                                     |  |                          | 0.25  |   |                          |  
|Europe (UK)                                                       |  |                          | —     |   |                          |  
|Mexico                                                            |  |                          | 0.44  |   |                          |  
|China                                                             |  |                          | 5.82  |   |                          |  
|Corporate                                                         |  |                          | 0.27  |   |                          |  
|Consolidated intersegment sales                                   |  | $                        | 8.27  |   |                          | $
|Operating Profit (Loss) from continuing operations:               |  |                          |       |   |                          |  
|USA                                                               |  | $                        | 1.58  |   |                          | $
|Other foreign                                                     |  |                          | 0.81  |   |                          |  
|Europe (UK)                                                       |  |                          | 0.01  |   |                          |  
|Mexico                                                            |  |                          | 0.04  |   |                          |  
|China                                                             |  |                          | 1.37  |   |                          |  
|Corporate                                                         |  |                          | (1.60 | ) |                          |  
|Less intersegment profit (loss)                                   |  |                          | 0.03  |   |                          |  
|Consolidated operating profit                                     |  | $                        | 2.25  |   |                          | $
|Depreciation and Amortization Expense from continuing operations: |  |                          |       |   |                          |  
|USA                                                               |  | $                        | 0.04  |   |                          | $
|Other foreign                                                     |  |                          | 0.03  |   |                          |  
|Europe (UK)                                                       |  |                          | —     |   |                          |  
|Mexico                                                            |  |                          | 0.03  |   |                          |  
|China                                                             |  |                          | 0.08  |   |                          |  
|Corporate                                                         |  |                          | 0.14  |   |                          |  
|Less intersegment                                                 |  |                          | 0.04  |   |                          |  
|Consolidated depreciation and amortization expense                |  | $                        | 0.36  |   |                          | $





20







|                                                          |  | Three Months Ended       |      |  | Nine Months Ended        |  
|--------------------------------------------------------- |  | ------------------------ | ---- |  | ------------------------ | -
|                                                          |  | October 31,              |      |  | October 31,              |  
|                                                          |  | (in millions of dollars) |      |  | (in millions of dollars) |  
|Interest Expense from continuing operations:              |  |                          |      |  |                          |  
|USA (shown in Corporate)                                  |  | $                        | —    |  |                          | $
|Other foreign                                             |  |                          | 0.02 |  |                          |  
|Europe (UK)                                               |  |                          | —    |  |                          |  
|Mexico                                                    |  |                          | —    |  |                          |  
|China                                                     |  |                          | 0.04 |  |                          |  
|Corporate                                                 |  |                          | 0.09 |  |                          |  
|Less intersegment                                         |  |                          | —    |  |                          |  
|Consolidated interest expense                             |  | $                        | 0.15 |  |                          | $
|Income Tax Expense (Benefits) from continuing operations: |  |                          |      |  |                          |  
|USA (shown in Corporate)                                  |  | $                        | —    |  |                          | $
|Other foreign                                             |  |                          | 0.16 |  |                          |  
|Europe (UK)                                               |  |                          | 0.01 |  |                          |  
|Mexico                                                    |  |                          | —    |  |                          |  
|China                                                     |  |                          | 0.36 |  |                          |  
|Corporate                                                 |  |                          | 0.04 |  |                          |  
|Less intersegment                                         |  |                          | 0.01 |  |                          |  
|Consolidated income tax expense                           |  | $                        | 0.58 |  |                          | $



|                                    |  | October 31, 2016         |        |   | January 31, 2016         |  
|----------------------------------- |  | ------------------------ | ------ | - | ------------------------ | -
|                                    |  | (in millions of dollars) |        |   | (in millions of dollars) |  
|Total Assets:*                      |  |                          |        |   |                          |  
|USA                                 |  | $                        | 53.66  |   |                          | $
|Other foreign                       |  |                          | 19.47  |   |                          |  
|Europe (UK)                         |  |                          | 4.05   |   |                          |  
|Mexico                              |  |                          | 4.01   |   |                          |  
|China                               |  |                          | 28.43  |   |                          |  
|India                               |  |                          | (1.34  | ) |                          |  
|Corporate                           |  |                          | 28.16  |   |                          |  
|Less intersegment                   |  |                          | (51.39 | ) |                          |  
|Consolidated assets                 |  | $                        | 85.05  |   |                          | $
|Total Assets Less Intersegment:*    |  |                          |        |   |                          |  
|USA                                 |  | $                        | 30.75  |   |                          | $
|Other foreign                       |  |                          | 10.83  |   |                          |  
|Europe (UK)                         |  |                          | 4.04   |   |                          |  
|Mexico                              |  |                          | 3.93   |   |                          |  
|China                               |  |                          | 18.01  |   |                          |  
|India                               |  |                          | 0.46   |   |                          |  
|Corporate                           |  |                          | 17.03  |   |                          |  
|Consolidated assets                 |  | $                        | 85.05  |   |                          | $
|Property and Equipment:             |  |                          |        |   |                          |  
|USA                                 |  | $                        | 2.10   |   |                          | $
|Other foreign                       |  |                          | 1.54   |   |                          |  
|Europe (UK)                         |  |                          | 0.04   |   |                          |  
|Mexico                              |  |                          | 2.02   |   |                          |  
|China                               |  |                          | 2.14   |   |                          |  
|India                               |  |                          | 0.03   |   |                          |  
|Corporate                           |  |                          | 0.70   |   |                          |  
|Less intersegment                   |  |                          | (0.03  | ) |                          |  
|Consolidated property and equipment |  | $                        | 8.54   |   |                          | $
|Goodwill:                           |  |                          |        |   |                          |  
|USA                                 |  | $                        | 0.87   |   |                          | $
|Consolidated goodwill               |  | $                        | 0.87   |   |                          | $





21







* Negative assets reflect intersegment accounts eliminated in consolidation



|                                  |  | Nine Months Ended        |      |  | Nine Months Ended        |  
|--------------------------------- |  | ------------------------ | ---- |  | ------------------------ | -
|                                  |  | October 31, 2016         |      |  | October 31, 2015         |  
|                                  |  | (in millions of dollars) |      |  | (in millions of dollars) |  
|                                  |  |                          |      |  |                          |  
|Capital Expenditures:             |  |                          |      |  |                          |  
|USA                               |  | $                        | 0.02 |  |                          | $
|Other foreign                     |  |                          | —    |  |                          |  
|Europe (UK)                       |  |                          | —    |  |                          |  
|Mexico                            |  |                          | —    |  |                          |  
|China                             |  |                          | 0.03 |  |                          |  
|India                             |  |                          | 0.02 |  |                          |  
|Corporate                         |  |                          | 0.05 |  |                          |  
|Consolidated capital expenditures |  | $                        | 0.12 |  |                          | $



22







| | 11. | Derivative Instruments and Foreign Currency Exposure
| | --- | ----------------------------------------------------



The Company is exposed to foreign
currency risk. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts
to sell the Canadian Dollar and the Euro other than the cash flow hedge discussed below. 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. We designated the forward contracts as derivatives but not as hedging instruments, with loss and
gain recognized in current earnings.



The Company accounts for its foreign
exchange derivative instruments by recognizing all derivatives as either assets or liabilities at fair value, which may result
in additional volatility in current period earnings or other comprehensive income, depending whether the instrument was designated
as a cash flow hedge, as a result of recording recognized and unrecognized gains and losses from changes in the fair value of
derivative instruments.



We have two types of derivatives
to manage the risk of foreign currency fluctuations.



We enter into forward contracts
with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies.
Those forward contract derivatives, not designated as hedging instruments, are generally settled quarterly. Gain and loss on those
forward contracts are included in current earnings. There were no outstanding forward contracts at October 31, 2016 or 2015 or
January 31, 2016.



We also enter into cash flow hedge
contracts with financial institutions to manage our currency exposure on future cash payments denominated in foreign currencies.
The effective portion of gain or loss on cash flow hedge is reported as a component of accumulated other comprehensive loss. The
notional amount of these contracts was $1.1 million and $1.0 million at October 31, 2016 and January 31, 2016, respectively. The
corresponding unrealized income or loss is recorded in the unaudited condensed consolidated statements of comprehensive income
(loss). The corresponding liability amounted to approximately $(3,000), and $(26,000) at October 31, 2016 and January 31, 2016,
respectively.



| | 12. | VAT Tax Issue in Brazil
| | --- | -----------------------

Asserted Claims



Value Added Tax (“VAT”)
in Brazil is charged at the state level. We commenced operations in Brazil in May 2008 through an acquisition of Qualytextil,
S.A., which subsequently became Lake Brasil Indústria e Comércio de Roupas e Equipamentos de Proteção
Individual Ltda. (referred to in this footnote as “Qualytextil” and also referred to in this Form 10-Q as “Lakeland
Brazil”).



An audit was performed on the VAT
for the 2007-2009 period was completed by the State of Bahia (state of domicile for the Lakeland operations in Brazil). In October
2010, the Company received four claims for 2007-2009 from the State of Bahia, the largest of which was for taxes of R$6.2 million
(USD $2.3 million) and interest, penalties and fees currently at R$8.3 million (USD $3.1 million), for a total of R$14.6 million
(USD $5.5 million). The Company had intended to defend itself through a regulatory process and waited for the next amnesty
period.  Of other claims, our attorney informed us that three claims totaling R$1.3 million (USD $0.5 million) excluding
interest, penalties and fees of R$2.7 million (USD $0.9 million) were likely to be successfully defended based on state auditor
misunderstanding.



As more fully described in Note
14, Lakeland and Qualytextil entered into a Shares Transfer Agreement pursuant to which, effective October 31, 2015, Zap Comércio
de Brindes Corporativos Ltda , a company owned by an existing Qualytextil manager, acquired all of the shares of Qualytextil and
assumed liabilities of Qualytextil, including VAT tax liabilities.



23







Loan Agreement with Transferee
of Brazil Operations

The Company had entered into a loan
agreement (the “Loan Agreement”) on December 11, 2015 with Qualytextil for the amount of R$8,584,012 (approximately
USD $2.29 million) for the purpose of providing funds necessary for Qualytextil to settle its largest outstanding VAT claim with
the State of Bahia.



The Company has determined that
a reserve against the collection of this loan in full is prudent; which resulted in an additional charge to the loss on disposal
of discontinued operations of $2,286,022 in the fourth quarter of the fiscal year ended January 31, 2016, net of tax benefits
of $834,398. Such additional losses will be available as additional tax loss carryforwards to offset cash taxes payable against
future taxable income in the USA.



| | 13. | Litigation
| | --- | ----------



The Company is involved in various
litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will
not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can
be no assurance as to the ultimate outcome of these matters. As of October 31, 2016, to the best of the Company’s knowledge,
there were no outstanding claims or litigation.



| | 14. | Brazil Transaction
| | --- | ------------------



On March 9, 2015, Lakeland Brazil
changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao
Individual LTDA.



Settlement Agreement –
Arbitration Debt

On June 18, 2015, Lakeland and its
then wholly owned subsidiary Lakeland Brazil (together with Lakeland, the “Brazil Co”), entered into an Amendment
(the “Amendment”) to a Settlement Agreement, dated as of September 11, 2012 (the “Settlement Agreement”),
with two former officers (the “former officers”) of Lakeland Brazil. As part of the original Settlement Agreement,
the parties resolved all alleged outstanding claims against Lakeland Brazil arising from an arbitration proceeding in Brazil involving
Lakeland Brazil and the former officers of Lakeland Brazil for an aggregate amount of approximately USD $8.5 million payable by
Lakeland Brazil to the former officers over a period of six (6) years. As of the June 18, 2015 settlement date, there was a balance
of USD $3.75 million (the “Outstanding Amount”) owed under the Settlement Agreement, which Outstanding Amount was
to be paid by the Company in quarterly installments of USD $250,000 through December 31, 2018.



Pursuant to the Amendment, the former
officers agreed to fully and finally settle the Outstanding Amount owed by the Company for an aggregate lump sum payment of USD
$3.41 million, resulting in a gain of USD $224,000 after allowing for imputed interest on the original Settlement Agreement. Within
five days of receipt of such payment, the former officers provided to Lakeland Brazil the documents needed to have their lien
securing payment of the Outstanding Amount removed on certain real estate owned by Lakeland Brazil and such lien was removed.
The Amendment also contains a general release of claims by the former officers in favor of the Company and its past or present
officers, directors, and other affiliates. The Company’s senior lender, AloStar Bank of Commerce, has consented to the transactions
contemplated by the Amendment.



Shares Transfer Agreement

On July 31, 2015 (the “Closing
Date”), Lakeland and Lakeland Brazil, completed a conditional closing of a Shares Transfer Agreement (the “Shares
Transfer Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by
an existing Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee
has acquired all of the shares of Lakeland Brazil owned by the Company. Pursuant to the Shares Transfer Agreement, Transferee
paid R$1.00 to the Company and assumed all liabilities and obligations of Lakeland Brazil, whether arising prior to, on or after
the Closing Date. In order to help enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least
two years following the Closing Date, the Company provided funding to Lakeland Brazil in the aggregate amount of USD $1,130,000,
in cash, in the form of a capital raise, on or prior to the Closing Date, and agreed to provide an additional R$582,000 (approximately
USD $188,000) (the “Additional Amount”), in the form of a capital raise, to be utilized by Lakeland Brazil to pay
off the Brazilian Liabilities and other potential contingent liabilities. Pursuant to the Shares Transfer Agreement, the Company
paid R$992,000 (approximately USD $320,000) in cash, on July 1, 2015 and issued a non-interest bearing promissory note for the
payment to be due for the Additional Amount (R$582,000) (approximately USD $188,000) on the Closing Date which was paid to Lakeland
Brazil in two (2) installments of (i) R$288,300 (approximately USD $82,000) which was paid on August 1, 2015, and (ii) R$294,500
(approximately USD $84,000) on September 1, 2015.





24







In addition, the Company may continue
to be exposed to certain liabilities arising in connection with the prior operations of Lakeland Brazil, including, without limitation,
from lawsuits pending in the labor courts in Brazil in which plaintiffs were seeking, as at July 31, 2015, a total of nearly USD
$8,000,000 in damages from the Company’s then Brazilian subsidiary (Lakeland Brazil). The Company believes many of these
labor court claims are without merit and the amount of damages being sought is significantly higher than any damages which may
have been incurred. Pursuant to the Shares Transfer Agreement, the Company is required to fully fund amounts owed by Lakeland
Brazil in connection with the then existing labor claims by Lana dos Santos and to pay amounts potentially owed for future labor
claims up to an aggregate amount of $375,000 plus 60% of the excess of such amount until the earlier of (i) the date all labor
claims against Lakeland Brazil deriving from events prior to the sale are settled, (ii) by our mutual agreement with Lakeland
Brazil or (iii) on the two (2) year anniversary of closing of the sale. As of October 31, 2016, the Lana dos Santos claim was
settled for $272,000 and $79,000 was paid in respect of other labor claims. With respect to continuing claims, $278,000 is being
sought, of which management estimates the aggregate liability will be less than that amount.



The closing of this agreement was
subject to Brazilian government approval of the shares transfer, which was received in October 2015 (The “Final Closing
Date”). Even after the Final Closing Date for transactions contemplated by the Shares Transfer Agreement, the Company may
be exposed to certain liabilities arising in connection with the prior operations of Lakeland Brazil, including, without limitation,
from lawsuits pending in the labor courts in Brazil and VAT taxes, as more fully described in Note 12. The Company understands
that under the laws of Brazil, a concept of fraudulent bankruptcy exists, which may hold a parent company liable for the liabilities
of its Brazilian subsidiary in the event some level of fraud or misconduct is shown during the period that the parent company
owned the subsidiary. While the Company believes that there has been no such fraud or misconduct relating to the proposed transfer
of stock of Lakeland Brazil and the transactions contemplated by the Shares Transfer Agreement, as evidenced by the Company’s
funding support for continuing operations of Lakeland Brazil, there can be no assurance that the courts of Brazil will not make
such a finding nonetheless.



The risk of exposure to the Company
continues to diminish as the Transferee continues to operate Lakeland Brazil, as the risk of a finding of fraudulent bankruptcy
lessens and pre-sale liabilities are paid off. Should the Transferee operate Lakeland Brazil for a period of two years, the Company
believes the risk of a finding of fraudulent bankruptcy is eliminated. The Company believes that the loan transaction with its
former Brazilian subsidiary resulting in a substantial reduction of the VAT tax liability, as described in Note 12 and below,
significantly reduced such potential liability. In addition, as discussed above in this Note, the potential labor claims liability
has substantially diminished. The Shares Transfer Agreement, which is governed by United States law, contains customary representations,
warranties and covenants of the parties for a transaction of this type. The Company and Transferee have agreed to indemnify each
other from and against certain liabilities, subject to certain exceptions. Under the Shares Transfer Agreement, the Company will
be subject to certain non-solicitation provisions for a period of two years following the Closing Date.



For the nine months ended October
31, 2015, the transactions involved with the completion of the Company’s exit from Brazil resulted in a loss of approximately
$1.2 million (net of tax benefit of $0.6 million) as reflected on its statements of operations and a decrease of approximately
$1.2 million to stockholders’ equity as a result of recording the exit transactions. The Company also recorded a reclassification
of approximately $1.3 million from Accumulated Other Comprehensive Loss to the Statement of Operations which did not impact net
stockholders’ equity. Further losses on the sale were reflected in Q4 FY16 as a result of the reserves against the loans
related to the VAT taxes as described in Note 12. Since this is a resolution of contingencies that arose from and that are directly
related to the operations of the Brazil component prior to its disposal, it has been accounted for as discontinued operations.





25







The following tables summarize the results
of the Brazil business included in the statements of operations for the nine months ended October 31, 2015. The Company did not
recognize any income (loss) from discontinued operations during the three and nine months ended October 31, 2016 or the three
months ended October 31, 2015.



|                                                                                                                       |  | Nine Months Ended October 31, 2015 |       
|---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------
|Net sales from discontinuing operations                                                                                |  | $                                  | 869   
|Gross profit from discontinuing operations                                                                             |  |                                    | 164   
|Operating expenses from discontinuing operations                                                                       |  |                                    | 763   
|Operating loss from discontinuing operations                                                                           |  |                                    | (599  
|Interest expense from discontinuing operations                                                                         |  |                                    | 256   
|Other expense from discontinuing operations                                                                            |  |                                    | 398   
|Loss from operations of discontinuing operations before income tax                                                     |  |                                    | (1,253
|Non-cash reclassification of Other Comprehensive Income to Statement of Operations (no impact on stockholders’ equity) |  |                                    | (1,286
|Loss from disposal of discontinued operations                                                                          |  |                                    | (515  
|Loss before taxes for discontinued operations                                                                          |  |                                    | (3,054
|Income tax benefit from discontinued operations                                                                        |  |                                    | (569  
|Net loss from discontinued operations                                                                                  |  | $                                  | (2,485



Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations

This Form 10-Q may contain certain
“forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. This information
involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.



Overview

We manufacture and sell a comprehensive
line of safety garments and accessories for the industrial and public protective clothing market. Our products are sold by our
in-house customer service group, our regional sales managers and independent sales representatives to a network of over 1,200
North American safety and mill supply distributors. These distributors in turn supply end user industrial customers, such as integrated
oil, chemical/petrochemical, utilities, automobile, steel, glass, construction, smelting, munition plants, janitorial, pharmaceutical,
mortuaries and high technology electronics manufacturers, as well as scientific and medical laboratories. In addition, we supply
federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units,
the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, sales are
to a mixture of end users directly and to industrial distributors depending on the particular country market. Sales are made to
more than 40 foreign countries but are primarily in China, European Economic Community (“EEC”), Canada, Chile, Argentina,
Russia, Colombia, Mexico, Ecuador, Australia and Southeast Asia.



We have operated facilities in Mexico
since 1995 and in China since 1996. Beginning in 1995, we moved the labor intensive sewing operation for our limited use/disposable
protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive
labor pool than is available in the United States of America 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. Our net sales from continuing operations attributable to customers
outside the United States of America were $30.6 million and $33.2 million for the nine months ended October 31, 2016 and 2015,
respectively.



26







Critical Accounting Policies
and Estimates

Our discussion and analysis of our
financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of our unaudited condensed consolidated 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 our estimates on the 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 unaudited condensed 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, firefighting 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 pass 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.



Accounts Receivable, Net.
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to make required payments. The Company recognizes
losses when information available indicates that it is probable that a receivable has been impaired based on criteria noted above
at the date of the financial statements, and the amount of the loss can be reasonably estimated. Management considers the following
factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with customers, current economic industry trends, changes in customer
payment terms. Past due balances over 90 days and other less creditworthy
accounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment,
the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances
that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable.



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.



Goodwill.Goodwill represents
the future economic benefits arising from other assets acquired in a business combination that are not individually identified
and separately recognized. Goodwill is evaluated for impairment at least annually; however, this evaluation may be performed more
frequently when events or changes in circumstances indicate the carrying amount may not be recoverable. Factors that the Company
considers important that could identify a potential impairment include: significant changes in the overall business strategy and
significant negative industry or economic trends. The Company measures any potential impairment on a projected discounted cash
flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially
from actual results.



Impairment of Long-Lived Assets. The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances
indicate the carrying value may not be recoverable. The Company measures any potential impairment on a projected undiscounted
cash flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially
from actual results. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash
flows from the asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair value of the long-lived asset. As of October 31, 2016 and January 31, 2016, no impairment was recorded.





27







Income Taxes. The Company
is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the unaudited
condensed 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 carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s unaudited
condensed consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered
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 the Company determines that it may not be able to realize all or part of its 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 income in the period of such determination.



The Company recognizes tax positions
that meet a “more likely than not” minimum recognition threshold.



Foreign Operations and Foreign
Currency Translation.The Company maintains manufacturing operations in Mexico, Argentina and the People’s Republic
of China and can access independent contractors in Mexico, Argentina and China. It also maintains sales and distribution entities
located in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan and Mexico. The Company is vulnerable to currency
risks in these countries. The functional currency for the United Kingdom subsidiary is the Euro; the trading company in China,
the RMB; the Canadian Real Estate subsidiary, the Canadian dollar; and the Russian operation, the Russian Ruble and Kazakhstan
Tenge. All other operations have the US dollar as its functional currency.



Pursuant to US GAAP, assets and
liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated at
the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing
during the periods. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’
equity. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement
of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.



Fair Value of Financial Instruments.US GAAP defines fair value, provides guidance for measuring fair value and requires certain disclosures utilizing a fair value
hierarchy which is categorized into three levels based on the inputs to the valuation techniques used to measure fair value.



The following is a brief description
of those three levels:



| | Level 1: | Observable inputs such as quoted prices (unadjusted) in
active markets for identical assets or liabilities.
| | -------- | -----------------------------------------------------------------------------------------------------------



| | Level 2: | Inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3: | Unobservable inputs that reflect management’s own
assumptions.
| | -------- | --------------------------------------------------------------



Foreign currency forward and hedge
contracts are recorded in the unaudited condensed consolidated balance sheets at their fair value as of the balance sheet dates
based on current market rates.



The financial instruments of the
Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, short-term borrowings,
borrowings under revolving credit facility, accounts payable and accrued expenses, are recorded at carrying value, which approximates
fair value based on the short-term nature of these instruments.



The Company believes that the fair
values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current market
rate available to the Company.





28







Significant
Balance Sheet Fluctuation October 31, 2016, As Compared to January 31, 2016

Cash increased by $1.4 million
as the Company planned for a possible dividend paid to the Company from its' Weifang and Meiyang China subsidiaries later in
FY17. In addition, the Company minimized capital expenditures in the current year in anticipation of a technology project in
FY18 and the Company has also reduced inventory levels during the nine months ended October 31, 2016. Inventory net of
reserves decreased $4.2 million as the Company continued to focus on improvements in planning and working through existing
stock of core product in response to low volume in the quarter. The Company experienced a decrease in borrowings under the
revolving credit facility of $3.7 million and repaid short term debt in China in the amount of $2.9 million as the Company
controlled costs and actively managed inventory levels.



Three Months ended October
31, 2016, As Compared to the Three Months Ended October 31, 2015

Net
Sales.Net sales from continuing operations decreased to $23.2 million for the three months ended October
31, 2016 compared to $24.9 million for the three months ended October 31, 2015, a decrease of 6.6%. Overall sales volume was reduced
in the quarter due to global softness in the industrial sector partially resulting from a continuing downturn in the oil and gas
industry as well as currency volatility in China, Canada, and the UK in which we conduct business. As a result of a stronger US
dollar in relation to these other currencies, these foreign revenues are reported on a reduced basis. Sales in the USA decreased
$3.3 million or 20% due primarily to a continued soft market in the industrial sector for FY17 and as compared to the same quarter
in the previous year which included sales into the bird flu pandemic. USA sales of disposables decreased by $2.0 million, chemical
sales decreased $2.0 million, wovens and fire protection sales combined increased $0.6 million or 28% mostly due to a large intercompany
sales to Argentina while glove sales and reflective sales remained level. Sales in China and to the Asia Pacific Rim were down
$2.6 million or 20% as intercompany demand decreased and that region experienced currency headwinds. Canada sales increased by
$0.2 million or 17% as that country continued to experience an oil and gas turnaround and an asbestos remediation program –
all requiring protective wear. UK sales decreased by $0.9 million or 33% mostly due to uncertainty in the economy as a result
of Brexit and continuing currency challenges. Russia and Kazakhstan sales combined remained level at $0.3 million. Latin America
sales increased $1.4 million or 83% due to a large sale from Argentina into Ecuador, which was offset in part by a depressed commodities
market which curtails agriculture and mining production.



Gross Profit.Gross
profit from continuing operations decreased $0.7 million, or 7.9%, to $8.5 million for the three months ended October 31, 2016,
from $9.2 million for the three months ended October 31, 2015. Gross profit as a percentage of net sales remained level at 37%
for the three months ended October 31, 2016. Major factors driving gross margins were:



| | · | Disposables gross margins increased 2.2 percentage points
in spite of low volume as the Company continues to contain cost and maximize production efficiency and as compared to the previous
year’s sales which included sales into the bird flu pandemic.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Chemical
                                         gross margin decreased by 13.3 percentage points primarily due to low volume and as compared
                                         to the previous year’s sales which included sales into the bird flu pandemic.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Wovens
                                         gross margin decreased 4.2 percentage points as a result of product mix.
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | Fire
                                         protection gross margin increased 1.4 percentage points as the Company moved production
                                         to our more cost effective facility in Mexico.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Reflective
                                         gross margins decreased 14.7 percentage points primarily as a result of product mix.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | · | UK
                                         gross margins decreased 3.4 percentage points primarily as a result of currency challenges
                                         and uncertainty in the economy resulting from the Brexit.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Chile’s
                                         gross margin decreased 10.8 percentage points as a result of low volume and Argentina’s
                                         gross margin increased 21.8 percentage points primarily as a result of a large sale into
                                         Ecuador.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating Expense.Operating expenses of continuing operations increased from $6.1 million for the three months ended October 31, 2015 to $6.3
million for the three months ended October 31, 2016. Operating expenses as a percentage of net sales was 27.0% for the three months
ended October 31, 2016 up from 24.4% for the three months ended October 31, 2015. The main factors for the mild increase in operating
expenses are a $0.4 million increase in sales commissions resulting from a large order that shipped from Argentina to Ecuador
and a $0.2. million increase to depreciation in the normal course of business, offset by a $0.3 million decrease to freight out
resulting from low volume, $0.1 million decrease to equity compensation due to the change in the performance level of the Company’s
2015 stock plan from maximum to baseline as of Q2 FY17, a decrease of $0.1 million due to a change the management estimate of
the fair market of assets held for sale and a $0.1 million decrease in bad debt expense with collection efforts.





29







Operating Profit.
Operating profit from continuing operations decreased to a profit of $2.2 million for the three months ended October 31, 2016,
from $3.2 million for the three months ended October 31, 2015, mainly as a result of weak sales. Operating margins were 10% for
the three months ended October 31, 2016, compared to 12.9% for the three months ended October 31, 2015.



Interest Expense.
Interest expenses from continuing operations decreased slightly to $0.1 million for the three months ended October 31, 2016 from
$0.2 million for the three months ended October 31, 2015 as the Company reduced borrowings in the three months ended October 31,
2016.



Income Tax Expense. 
Income tax expense consists of federal, state and foreign income taxes. Income tax expense from continuing operations was $0.6
million for the three months ended October 31, 2016, as compared to an income tax expense of $0.9 million for the three months
ended October 31, 2015 as a result of reduced profitability.



Net Income. 
Net income from continuing operations decreased $0.6 million to $1.5 million for the three months ended October 31, 2016 from
$2.1 million for the three month ended October 31, 2015. The results for the three months ended October 31, 2016 are primarily
due to low sales volume and currency challenges in our foreign operations.



Nine Months ended October
31, 2016, As Compared to the Nine Months Ended October 31, 2015

Net
Sales.Net sales from continuing operations decreased to $65.9 million for the nine months ended October
31, 2016 compared to $79.2 million for the nine months ended October 31, 2015, a decrease of 16.8%. Overall sales volume was reduced
due to global softness in the industrial sector partially resulting from a continuing downturn in the oil and gas industry as
well as currency volatility in Argentina, Kazakhstan, Russia, Chile, China and the U.K in which we conduct business. As a result
of a stronger US dollar in relation to these other currencies, our foreign revenues are reported on a reduced basis. Sales in
the USA decreased $11.1 million or 22% due primarily to the strong sales levels in the disposables and chemical divisions related
to the Company’s response to the Ebola crisis and the bird flu in FY16 and a soft market in the industrial sector in FY17.
USA sales of disposables decreased by $5.5 million, chemical sales decreased $6.5 million, wovens and fire protection sales combined
increased $0.6 million while glove sales decreased $0.2 million and reflective sales increased $0.6 million. Sales in China and
to the Asia Pacific Rim were down $9.8 million or 24% as intercompany demand decreased and that region experienced moderate currency
headwinds and economic sluggishness. Canada sales increased by $1.1 million or 23% as that country saw a concerted effort begin
for asbestos remediation and experienced an oil and gas turnaround – all requiring protective wear. UK sales decreased by
$4.9 million or 42% mostly due to the Company’s Ebola sales in Q1 FY16, economic uncertainty as a result of the Brexit,
and continuing currency challenges. Russia and Kazakhstan sales combined remained level at $0.9 million despite an extreme currency
depreciation in Kazakhstan. Latin America sales increased $0.3 million or 9% primarily due to a large sale from Argentina into
Ecuador, which was offset in part by a depressed commodities market which curtails agriculture and mining production and a poor
economic environment in Brazil.



Gross Profit.Gross
profit from continuing operations decreased $6.4 million, or 21.3%, to $23.9 million for the nine months ended October 31, 2016,
from $30.3 million for the nine months ended October 31, 2015. Gross profit as a percentage of net sales decreased to 36% for
the nine months ended October 31, 2016, from 38% for the nine months ended October 31, 2015. Major factors driving the changes
in gross margins were:



| | · | Disposables
                                         gross margins increased 2 percentage points to 35% in spite of low volume as the Company
                                         continues to contain cost and maximize production efficiency.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





30







| | · | Chemical
                                         gross margin decreased by 21 percentage points primarily due to the very high volume
                                         and high margins associated with the Company’s response to the Ebola crisis and
                                         bird flu in FY16 and severance payments of $0.1 million associated with a reduction in
                                         force in the USA to move production to our more cost effective facilities in Mexico and
                                         China during Q1FY17.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Wovens
                                         gross margin decreased 1 percentage point due to a change in the product mix and excess
                                         supply in the marketplace.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Fire
                                         protection gross margin increased 2 percentage points due to product mix and included
                                         severance payments in excess of $0.1 million associated with a reduction in force in
                                         the USA to move production to our more cost effective facility in Mexico.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Reflective
                                         gross margins decreased 7 percentage points as a result of product mix and severance
                                         payments of $0.1 million associated with a reduction in force in the USA to move production
                                         to our Mexico and China facilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Canada’s
                                         gross margins increased 5 percentage points as a result of strong sales volume and product
                                         mix and in spite of currency challenges.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | UK
                                         gross margins decreased 6 percentage points as a result of weak sales volume, uncertainty
                                         in the marketplace resulting from the Brexit, and as compared to FY16 where the Company’s
                                         sales related to the Ebola crisis had very high margins.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Chile’s
                                         gross margin increased 8 percentage points as a result of product mix and Argentina’s
                                         gross margin increased 15 percentage points primarily as a result of a large sale into
                                         Equador and in spite of otherwise very weak sales volume and a challenging economic environment
                                         where there is excess supply.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating Expense.Operating expenses of continuing operations increased from $18.2 million for the nine months ended October 31, 2015 to $18.9
million for the nine months ended October 31, 2016. Operating expenses as a percentage of net sales was 28.7 % for the nine months
ended October 31, 2016 up from 23% for the nine months ended October 31, 2015. The main factors for the increase in operating
expenses are a $0.7 million decrease in freight out due to low volume, a $0.2 million increase in travel and entertainment due
to increased sales efforts, a $0.3 million increase in sales salaries due to hires in the US, Asia and Australia, a $0.2 million
decrease in equity compensation due to the change in performance level of the Company’s 2015 stock plan from maximum to
baseline, an increase of $0.2 million in professional fees, an increase of $0.1 million in director’s fees due to a change
in the compensation program, an increase of $0.1 million in employee benefits with higher 401-K participation, an increase of
$0.2 million in currency charges, a decrease of $0.1 million due to a change the management estimate of the fair market of assets
held for sale and a $0.1 million decrease in bad debt expense with collection efforts, an $0.1 million increase in medical insurance
under the Company’s is self–insurance plan, and in increase of $0.2 million to depreciation as a normal course of
business and various other smaller charges.



Operating Profit.
Operating profit from continuing operations decreased to a profit of $5.0 million for the nine months ended October 31, 2016,
from $12.1 million for the nine months ended October 31, 2015, mainly as a result of weak sales as compared to very strong sales
related to the Company’s response to Ebola and to the bird flu in the nine months ended October 31, 2015. Operating margins
were 7.6% for the nine months ended October 31, 2016, compared to 15.3% for the nine months ended October 31, 2015 also mainly
as a result of weak sales as compared to very strong sales with higher margins related to the Company’s response to Ebola
and to the bird flu in the nine months ended October 31, 2015.



Interest Expense.
Interest expenses from continuing operations had a modest decrease to $0.5 million for the nine months ended October 31, 2016
from $0.6 million for the nine months ended October 31, 2015.



Income Tax Expense. 
Income tax expense consists of federal, state and foreign income taxes. Income tax expense from continuing operations was $1.5
million for the nine months ended October 31, 2016, as compared to an income tax expense of $3.7 million for the nine months ended
October 31, 2015.



Discontinued Operations.
Loss from discontinued operations in Brazil decreased from $2.5 million to $0 this year.





31







Net Income. 
Net income from continuing operations decreased $5.0 million to $2.9 million for the nine months ended October 31, 2016 from $7.9
million for the nine months ended October 31, 2015. The results for the nine months ended October 31, 2016 are primarily due to
low sales volume.



Liquidity and Capital Resources

As of October 31, 2016, we had cash
and cash equivalents of approximately $8.5 million and working capital of $46.2 million. Cash and cash equivalents increased $1.4
million and working capital increased $4.0 million from January 31, 2016 primarily as the Company built excess cash in its Chinese
subsidiaries in anticipation of a possible dividend to the Company expected to be declared and paid later in FY17, the Company
minimized capital expenditures and managed inventory levels. International cash management is affected by local requirements and
movements of cash across borders can be slowed down significantly.



Of the Company’s total cash
and cash equivalents of $8.5 million as of October 31, 2016, cash held in the UK of $0.1 million, cash held in India of $0.1 million
and cash held in Canada of $0.2 million would not be subject to additional tax as foreign income has already been subject to U.S.
tax. Cash in all countries, other than the U.S., of $7.1 million would incur U.S. tax less any foreign tax credits if the cash
was repatriated. In the event that the Company repatriated cash from China of the $6.4 million balance at October 31, 2016, there
would be an additional 10% withholding tax incurred in that country. The Company has strategically employed a dividend plan subject
to certain approvals in which its Canadian subsidiary sends dividends to the U.S. in the amount of 100% of the previous year’s
earnings, the UK subsidiary sends dividends to the U.S. in the amount of 50% of the previous year’s earnings and the Weifang
China subsidiary sends dividends to the U.S. in the amount of $1.0 million of the previous year’s earnings.



Net cash provided by operating activities
of $8.2 million for the nine months ended October 31, 2016 was primarily due to a net income of $2.9 million, a decrease in inventories
of $4.3 million, an increase in accounts payable of $0.5 million, a decrease in stock-based compensation of $0.2 million, depreciation
and amortization of $1.0 million and a decrease in accounts receivable of $0.2 million offset by an increase in prepaid VAT taxes
and other current assets of $0.9 million primarily associated with foreign VAT taxes receivable Net cash used in investing activities
of $0.1 million reflect minor purchases in property and equipment and net cash used in financing activities was $6.6 million in
the nine months ended October 31, 2016, due to a $3.7 million decrease in borrowings under the Company’s revolving credit
facility and the $3.0 million payment of our loans in China.



We currently have one senior credit
facility: $15 million revolving credit facility which commenced June 28, 2013, of which we had $5.8 million of borrowings outstanding
as of October 31, 2016, expiring on June 30, 2017, at a current per annum rate of 4.25%. Maximum availability in excess of amount
outstanding at October 31, 2016 was $9.2 million. Our current credit facility requires, and any future credit facilities may also
require, that we comply with specified financial covenants relating to earnings before interest, taxes, depreciation and amortization
and others relating to fixed charge coverage ratio and limits on capital expenditures and investments in foreign subsidiaries.
Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee that we
will meet the requirements of these covenants. These restrictive covenants could affect our financial and operational flexibility
or impede our ability to operate or expand our business. Default under our credit facilities would allow the lenders to declare
all amounts outstanding to be immediately due and payable. Our lenders, including AloStar Bank of Commerce and Development Bank
of Canada, have a security interest in substantially all of our US and Canadian assets and pledges of 65% of the equity of the
Company’s foreign subsidiaries, other than Canada which is 100%. If our lenders declare amounts outstanding under any credit
facility to be due, the lenders could proceed against our assets. Any event of default, therefore, could have a material adverse
effect on our business. We believe that our current availability under our senior credit facility, coupled with our anticipated
operating cash and cash management strategy, is sufficient to cover our liquidity needs for the next 12 months.



Stock Repurchase Program.
On July 19, 2016, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase
up to $2,500,000 of its outstanding common stock. The Company has not repurchased any stock under this program as of the date
of this filing.





32







Capital Expenditures. Our
capital expenditures thru Q3 FY17 of $0.1 million principally relate to additions to equipment in China and manufacturing equipment,
computer system and leasehold improvements in the USA. We anticipate FY17 capital expenditures to be approximately $0.5 million.
There are no further specific plans for material capital expenditures in FY17, in anticipation for a technology project scheduled
for FY18.



Item 3. Quantitative and
Qualitative Disclosures About Market Risk



Foreign Currency Risk

While as a smaller reporting company,
disclosure of market risk is not required, the Company is voluntarily including such disclosures.



We are exposed to changes in foreign
currency exchange rates as a result of our purchases and sales in other countries. To manage the volatility relating to foreign
currency exchange rates, we seek to limit, to the extent possible, our non-US dollar denominated purchases and sales.



In connection with our operations
in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are
primarily made in Chinese RMB, the value of which had been largely pegged to the US dollar for the last decade. However, the Chinese
RMB has been decoupled from the US Dollar and allowed to float by the Chinese government and, therefore, we have been exposed
to additional foreign exchange rate risk on our Chinese raw material and component purchases.



Our primary risk from foreign currency
exchange rate changes is presently related to non-US dollar denominated sales in Canada, Europe and in South American countries.
Our sales to customers in Canada are denominated in Canadian dollars and in Europe in Euros and British pounds. If the value of
the US dollar increases relative to the Canadian dollar, the Pound or the Euro, then our net sales could decrease as our products
would be more expensive to these international customers because of changes in rate of exchange. Our sales from China are denominated
in the Chinese RMB and US dollars. We manage the foreign currency risk through the use of rolling 90-day forward contracts against
the Canadian dollar and the Euro and through longer term cash flow hedges in the US against the Euro. We do not hedge other currencies
at this time. As non-US dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could
have a material adverse impact on our financial results. The only significant unhedged foreign exchange exposure we have is the
Argentine peso. Other unhedged currency exposure is not significant. If the Argentina exchange rate varied either way by
+/- 10%, it would not be significant so long as prices could be raised to account for more expensive garments.



Interest Rate Risk

We are exposed to interest rate
risk with respect to our credit facilities, which have variable interest rates based upon the London Interbank Offered Rate. At
October 31, 2016, we had $5.8 million in borrowings outstanding under our senior credit facility. If the interest rate applicable
to this variable rate debt rose 1% in the year ended January 31, 2017, our interest expense would have increased only 0.25% due
to the floor of 4.25%. If the effective interest rate rose 0.25 percentage point over 4.25%, it would increase interest expense
by an insignificant amount.



Tax Rate Risk

We are exposed to tax rate risk
with respect to our deferred tax asset. Should the effective tax rate decrease as a result of tax reform there could be a significant
one-time noncash charge to earnings in order to adjust our deferred tax asset. Though this one-time adjustment might be material,
the Company would be in a favorable tax position going forward.



Item 4. Controls and
Procedures



Disclosure Controls and Procedures

We conducted an evaluation, under
the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of 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 October 31, 2016. 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 October 31, 2016.





33







Changes in Internal Control
over Financial Reporting

There have been no changes that
occurred during Lakeland's third quarter of fiscal 2017 which materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.



PART II. OTHER INFORMATION



Items 1, 1A, 2, 3, 4 and 5 are not applicable



Item 6. Exhibits:

Exhibits:



|31.1*     | Certification of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 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
|101.INS** | XBRL instance Document                                                                                
|101.SCH** | XBRL Taxonomy Extension Schema Document                                                               
|101.CAL** | XBRL Taxonomy Extension Definitions Document                                                          
|101.DEF** | XBRL Taxonomy Extension Labels Document                                                               
|101.LAB** | XBRL Taxonomy Extension Labels Document                                                               
|101.PRE** | XBRL Taxonomy Extension Presentations Document                                                        



| | * | Filed herewith
| | - | --------------

| | ** | To be filed by amendment
| | -- | ------------------------



34







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:  December 14, 2016 | /s/
    Christopher J. Ryan                                
|                         | Christopher J. Ryan,                                       
|                         | Chief Executive Officer, President and Secretary           
|                         | (Principal Executive Officer and Authorized
    Signatory) 
|                         |                                                            
|Date:  December 14, 2016 | /s/
    Teri W. Hunt                                       
|                         | Teri W. Hunt,                                              
|                         | Chief Financial Officer                                    
|                         | (Principal Accounting Officer and Authorized
    Signatory)



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