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,
2010




OR




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




For the
transition period from _______________ to _______________




Commission
File Number:  0-15535




LAKELAND
INDUSTRIES, INC.







(Exact
name of Registrant as specified in its charter)




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




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




(631)
981-9700


(Registrant's
telephone number, including area code)




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





Yeso    No
x




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




Yes o   No  x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.




Yes x  No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a 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 o
              Accelerated
      filer oNonaccelerated
      filer o (Do not check if a smaller
      reporting company)
              Smaller
      reporting company x




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




Yeso   No
x




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




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




Yeso   No
x




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




Class
            
            Outstanding at December 10, 2010Common
      Stock, $0.01 par value per share
            
            5,442,868
      shares





LAKELAND
INDUSTRIES, INC.


AND
SUBSIDIARIES





FORM
10-Q




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





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





LAKELAND
INDUSTRIES, INC.


AND
SUBSIDIARIES





PART
I                 FINANCIAL
INFORMATION





Item
1. Financial Statements





Introduction





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




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





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





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


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


·
            Potential
      fluctuations in foreign currency exchange
rates;


·
            Our
      ability to respond to rapid technological
  change;


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


·
            Our
      ability to manage our growth;


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


·
            Our
      ability to accurately estimate customer
demand;


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


·
            Risks
      associated with sales to foreign
buyers;


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


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


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


·
            The
      impact of potential product liability
claims;


·
            Liabilities
      under environmental laws and
regulations;


·
            Fluctuations
      in the price of our common stock;


·
            Variations
      in our quarterly results of
operations;


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


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


·
            The
      limited liquidity of our common
stock;


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





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


3


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


October 31,
                          2010
                        
                        
                        January 31,
                          2010(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        5,455,108
                        
                        
                        $
                        5,093,380Accounts
      receivable, net of allowance for doubtful accounts of
    $193,700at
      October 31, 2010 and $200,200 at January 31, 2010
                        
                        
                        17,394,927
                        
                        
                        
                        15,809,010Inventories,
      net of reserves of $1,129,000 at October 31, 2010 and
    $868,000at
      January 31, 2010
                        
                        
                        38,780,448
                        
                        
                        
                        38,575,890Deferred
      income taxes
                        
                        
                        1,473,387
                        
                        
                        
                        1,261,250Prepaid
      income and VAT tax
                        
                        
                        2,681,499
                        
                        
                        
                        1,731,628Other
      current assets
                        
                        
                        1,336,698
                        
                        
                        
                        2,355,506Total
      current assets
                        
                        
                        67,122,067
                        
                        
                        
                        64,826,664Property
      and equipment, net
                        
                        
                        13,781,616
                        
                        
                        
                        13,742,454Intangibles
      and other assets, net
                        
                        
                        8,068,674
                        
                        
                        
                        5,622,120Goodwill
                        
                        
                        6,225,962
                        
                        
                        
                        5,829,143Total
      assets
                        
                        $
                        95,198,319
                        
                        
                        $
                        90,020,381LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                        
                        $
                        7,377,045
                        
                        
                        $
                        3,882,730Accrued
      compensation and benefits
                        
                        
                        1,739,669
                        
                        
                        
                        1,288,796Other
      accrued expenses
                        
                        
                        899,228
                        
                        
                        
                        1,138,303Borrowings
      under revolving credit facility
                        
                        
                        —
                        
                        
                        
                        9,517,567Current
      maturity of long-term debt
                        
                        
                        98,226
                        
                        
                        
                        93,601Total
      current liabilities
                        
                        
                        10,114,168
                        
                        
                        
                        15,920,997Borrowings
      under revolving credit facility
                        
                        
                        5,859,344
                        
                        
                        
                        —Construction
      loan payable, net of current maturity
                        
                        
                        1,587,982
                        
                        
                        
                        1,583,419Other
      liabilities
                        
                        
                        101,569
                        
                        
                        
                        92,176VAT
      taxes payable long-term
                        
                        
                        3,309,218
                        
                        
                        
                        —Total
      liabilities
                        
                        
                        20,972,281
                        
                        
                        
                        17,596,592Commitments
      and ContingenciesStockholders'
      equity:Preferred
      stock, $.01 par; authorized 1,500,000 shares(none
      issued)
                        
                        
                        —
                        
                        
                        
                        —Common
      stock, $.01 par; authorized 10,000,000 shares, issued and outstanding
      5,567,652 and 5,564,732 shares at October 31, 2010 and  January
      31, 2010, respectively
                        
                        
                        55,677
                        
                        
                        
                        55,647Less
      treasury stock, at cost, 125,322 shares at October 31, 2010
      and  January 31, 2010
                        
                        
                        (1,353,247
                        )
                        
                        
                        (1,353,247
                        )Additional
      paid-in capital
                        
                        
                        50,202,520
                        
                        
                        
                        49,622,632Retained
      earnings
                        
                        
                        25,096,402
                        
                        
                        
                        25,221,050Other
      comprehensive income (loss)
                        
                        
                        224,686
                        
                        
                        
                        (1,122,293
                        )Total
      stockholders' equity
                        
                        
                        74,226,038
                        
                        
                        
                        72,423,789Total
      liabilities and stockholders’ equity
                        
                        $
                        95,198,319
                        
                        
                        $
                        90,020,381





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


4




LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





THREE MONTHS ENDED
                    
                    
                    NINE MONTHS ENDEDOctober 31,
                    
                    
                    October 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      sales
                    
                    $
                    26,293,150
                    
                    
                    $
                    22,285,254
                    
                    
                    $
                    76,207,265
                    
                    
                    $
                    69,309,908Cost
      of goods sold
                    
                    
                    19,105,978
                    
                    
                    
                    16,629,456
                    
                    
                    
                    54,344,519
                    
                    
                    
                    51,406,802Gross
      profit
                    
                    
                    7,187,172
                    
                    
                    
                    5,655,798
                    
                    
                    
                    21,862,746
                    
                    
                    
                    17,903,106Operating
      expenses
                    
                    
                    6,360,823
                    
                    
                    
                    5,468,067
                    
                    
                    
                    19,905,621
                    
                    
                    
                    16,823,378Operating
      profit
                    
                    
                    826,349
                    
                    
                    
                    187,731
                    
                    
                    
                    1,957,125
                    
                    
                    
                    1,079,728VAT
      tax charge Brazil
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,583,247
                    )
                    
                    
                    —Interest
      and other income, net
                    
                    
                    15,602
                    
                    
                    
                    6,260
                    
                    
                    
                    50,605
                    
                    
                    
                    60,512Interest
      expense
                    
                    
                    (77,362
                    )
                    
                    
                    (571,537
                    )
                    
                    
                    (255,635
                    )
                    
                    
                    (991,786
                    )Income
      (loss) before income taxes
                    
                    
                    764,589
                    
                    
                    
                    (377,546
                    )
                    
                    
                    168,848
                    
                    
                    
                    148,454Provision
      (benefit) for income taxes
                    
                    
                    115,737
                    
                    
                    
                    (187,377
                    )
                    
                    
                    293,496
                    
                    
                    
                    233,437Net
      income (loss)
                    
                    $
                    648,852
                    
                    
                    $
                    (190,169
                    )
                    
                    $
                    (124,648
                    )
                    
                    $
                    (84,983
                    )Net
      income (loss) per common share:Basic
                    
                    $
                    .12
                    
                    
                    $
                    (.03
                    )
                    
                    $
                    (.02
                    )
                    
                    $
                    (.02
                    )Diluted
                    
                    $
                    .12
                    
                    
                    $
                    (.03
                    )
                    
                    $
                    (.02
                    )
                    
                    $
                    (.02
                    )Weighted
      average common shares outstanding:Basic
                    
                    
                    5,440,520
                    
                    
                    
                    5,438,400
                    
                    
                    
                    5,440,396
                    
                    
                    
                    5,420,244Diluted
                    
                    
                    5,546,389
                    
                    
                    
                    5,458,777
                    
                    
                    
                    5,513,939
                    
                    
                    
                    5,440,484





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


5




LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(UNAUDITED)


Nine
months ended October 31, 2010




Common Stock
                  
                  
                  Treasury Stock
                  
                  
                  Additional
                    Paid-in
                    Capital
                  
                  
                  Retained
                    Earnings
                  
                  
                  Accumulated Other
                    Comprehensive
                    Income
                    (Loss)
                  
                  
                  TotalShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  AmountBalance
      January 31, 2010
                  
                  
                  5,564,732
                  
                  
                  $
                  55,647
                  
                  
                  
                  (125,322
                  )
                  
                  $
                  (1,353,247
                  )
                  
                  $
                  49,622,632
                  
                  
                  $
                  25,221,050
                  
                  
                  $
                  (1,122,293
                  )
                  
                  $
                  72,423,789Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (124,648
                  )
                  
                  
                  —
                  
                  
                  
                  (124,648
                  )Other
      Comprehensive Income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,346,979
                  
                  
                  
                  1,346,979Stock-Based
      Compensation:Restricted
      Stock
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  591,751
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  591,751Shares
      issued from Restricted Stock Plan
                  
                  
                  2,920
                  
                  
                  
                  30
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (30
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Return
      of shares in lieu of payroll tax withholding
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (11,833
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (11,833
                  )Balance
      October 31, 2010
                  
                  
                  5,567,652
                  
                  
                  $
                  55,677
                  
                  
                  
                  (125,322
                  )
                  
                  $
                  (1,353,247
                  )
                  
                  $
                  50,202,520
                  
                  
                  $
                  25,096,402
                  
                  
                  $
                  224,686
                  
                  
                  $
                  74,226,038Total
      Comprehensive Income:Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (124,648
                  )Foreign
      Exchange Translation Adjustments:Qualytextil,
      SA, Brazil
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,333,788Canada
      Real Estate
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,892UK
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (73,660
                  )China
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  59,990Canada
      operating
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  23,969
                  
                  
                  
                  1,346,979Total
      Comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,222,331





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





6




LAKELAND
INDUSTRIES, INC.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





NINE
      MONTHS ENDEDOctober
      31,2010
                
                
                2009Cash
      Flows from Operating Activities:Net
      loss
                
                $
                (124,648
                )
                
                $
                (84,983
                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Stock-based
      compensation
                
                
                591,751
                
                
                
                177,092Provision
      for doubtful accounts
                
                
                (6,509
                )
                
                
                (72,658
                )Provision
      for inventory obsolescence
                
                
                260,614
                
                
                
                121,023Depreciation
      and amortization
                
                
                1,478,761
                
                
                
                1,265,310Deferred
      income tax
                
                
                3,097,081
                
                
                
                712,443Changes
      in operating assets and liabilities:Increase
      in accounts receivable
                
                
                (1,579,408
                )
                
                
                (2,789,603
                )(Increase)
      decrease in inventories
                
                
                (465,172
                )
                
                
                12,839,967Increase
      in other assets
                
                
                (2,719,667
                )
                
                
                (1,722,989
                )Increase
      in accounts payable, accrued expenses and other
liabilities
                
                
                4,785,544
                
                
                
                2,555,350Net
      cash provided by operating activities
                
                
                5,318,347
                
                
                
                13,000,952Cash
      Flows from Investing Activities:Purchases
      of property and equipment
                
                
                (1,235,789
                )
                
                
                (1,068,006
                )Net
      cash used in investing activities
                
                
                (1,235,789
                )
                
                
                (1,068,006
                )Cash
      Flows from Financing Activities:Purchases
      of stock under stock repurchase program
                
                
                —
                
                
                
                (97,788
                )Director
      options granted at fair market value
                
                
                —
                
                
                
                47,068Proceeds
      from exercise of director stock options
                
                
                —
                
                
                
                23,562Shares
      issued under Restricted Stock Program
                
                
                —
                
                
                
                133,733Net
      payments under loan agreements
                
                
                (3,720,830
                )
                
                
                (9,948,019
                )Increase
      in VAT taxes payable long term
                
                
                —
                
                
                
                —Net
      cash (used in) financing activities
                
                
                (3,720,830
                )
                
                
                (9,841,444
                )Net
      increase in cash
                
                
                361,728
                
                
                
                2,091,502Cash
      and cash equivalents at beginning of period
                
                
                5,093,380
                
                
                
                2,755,441Cash
      and cash equivalents at end of period
                
                $
                5,455,108
                
                
                $
                4,846,943





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


7


LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.      Business


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





2.      Basis
of Presentation


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





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





3.      Principles
of Consolidation


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





4.      Inventories


Inventories
consist of the following:


October 31, 2010
                  
                  
                  January 31, 2010Raw
      materials
                  
                  $
                  16,588,388
                  
                  
                  $
                  18,727,993Work-in-process
                  
                  
                  3,171,773
                  
                  
                  
                  2,444,693Finished
      goods
                  
                  
                  19,020,287
                  
                  
                  
                  17,403,204$
                  38,780,448
                  
                  
                  $
                  38,575,890





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





5.      Earnings
Per Share


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


8





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


Three
      Months Ended
                                    
                                    
                                    Nine
      Months EndedOctober
      31,
                                    
                                    
                                    October
      31,2010
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2009NumeratorNet
      Income (Loss)
                                    
                                    $
                                    648,852
                                    
                                    
                                    $
                                    (190,169
                                    )
                                    
                                    $
                                    (124,648
                                    )
                                    
                                    $
                                    (84,983
                                    )DenominatorDenominator
      for basic earnings per share(Weighted-average
      shares which reflect 125,322 weighted average common shares in the
      treasury as a result of the stock repurchase program for the quarter ended
      October 31, 2010 and 2009, and 125,322 and 122,547 for the nine months
      ended October 31, 2010 and 2009, respectively)
                                    
                                    
                                    5,440,520
                                    
                                    
                                    
                                    5,438,400
                                    
                                    
                                    
                                    5,440,396
                                    
                                    
                                    
                                    5,420,244Effect
      of dilutive securities from restricted stock plan and from dilutive effect
      of stock options
                                    
                                    
                                    105,869
                                    
                                    
                                    
                                    20,377
                                    
                                    
                                    
                                    73,543
                                    
                                    
                                    
                                    20,240Denominator
      for diluted earnings per share
                                    
                                    
                                    5,546,389
                                    
                                    
                                    
                                    5,458,777
                                    
                                    
                                    
                                    5,513,939
                                    
                                    
                                    
                                    5,440,484(adjusted
      weighted average shares)Basic
      earnings (loss) per share
                                    
                                    $
                                    0.12
                                    
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.02
                                    )Diluted
      earnings (loss) per share
                                    
                                    $
                                    0.12
                                    
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.02
                                    )





6.      Revolving
Credit Facility and Subsequent Event


At
October 31, 2010, the balance outstanding under our one-year revolving credit
facility amounted to    $5.9 million. In January 2010, the
Company entered into a new one-year $23.5 million revolving credit facility with
TD Bank, N.A. The credit facility contains financial covenants, including, but
not limited to, fixed charge ratio, funded debt to EBIDTA ratio, inventory and
accounts receivable collateral coverage ratio, with respect to which the Company
was in compliance at October 31, 2010. The weighted average interest rate for
the nine-month period ended October 31, 2010 was 1.90%.





On
November 30, 2010, TD Bank, N.A. agreed to extend the maturity date to January
14, 2013, and raised the limit on stock buybacks to $2 million. No other terms
have changed. Accordingly, the borrowing outstanding at October 31, 2010 has
been reclassified as a long-term liability.





7.      Major
Supplier


We did
not purchase more than 10% of our raw materials from any one supplier
during the nine-month period ended October 31, 2010. In the past, we purchased
approximately 75% of our raw material from one supplier. We carried higher
inventory levels throughout FY10 and limited our material purchases through Q2
of FY11. We now purchase mainly finished goods from this supplier. We expect
this relationship to continue on this new basis for the foreseeable future. If
required, similar raw materials could be purchased from other sources; however,
our competitive position in the marketplace could be adversely
affected.





8.      Employee
Stock Compensation


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


9





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





Stock Options
                  
                  Number
                    of Shares
                  
                  
                  Weighted Average
                    Exercise Price per
                    Share
                  
                  Weighted Average
                    Remaining
                    Contractual Term
                  
                  Aggregate
                    Intrinsic
                    ValueOutstanding
      at January 31, 2010
                  
                  
                  24,300
                  
                  
                  $
                  12.11
                  
                  2.34
      years
                  
                  $
                  11,200Outstanding
      at October 31, 2010
                  
                  
                  24,300
                  
                  
                  $
                  12.11
                  
                  1.59
      years
                  
                  $
                  21,990Exercisable
      at October 31, 2010
                  
                  
                  24,300
                  
                  
                  $
                  12.11
                  
                  1.59
      years
                  
                  $
                  21,990





Restricted
Stock Plan and Performance Equity Plan





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




Under the
2009 Equity Incentive Plan, the Company has granted up to a maximum of 215,321
restricted stock awards as of October 31, 2010. All of these restricted stock
awards are nonvested at October 31, 2010 (156,253 shares at “baseline”) and have
a weighted average grant date fair value of $8.02. Under the 2006 Equity
Incentive Plan, there are also outstanding as of October 31, 2010 unvested
grants of 2,558 shares under the stock purchase match program and 16,479 shares
under the bonus in stock program. The Company recognizes expense related to
performance-based awards over the requisite service period using the
straight-line attribution method based on the outcome that is
probable.




As of
October 31, 2010, unrecognized stock based compensation expense related to
restricted stock awards totaled $1,161,514, consisting of $10,894 remaining
under the 2006 Equity Incentive Plan and $1,150,620 under the 2009 Equity
Incentive Plan, before income taxes, based on the maximum performance award
level, less what has been charged to expense on a cumulative basis through
October 31, 2010, which has been set at baseline.  The cost of these
nonvested awards is expected to be recognized over a weighted-average period of
three years.  The board has estimated its current performance level to
be at the baseline level, and expenses have been recorded
accordingly.  The performance based awards are not considered stock
equivalents for EPS purposes.




Stock-Based
Compensation





The
Company recognized total stock based compensation costs of $591,751 and $177,092
for the nine months ended October 31, 2010 and 2009, respectively, of which
$43,257 and $133,372 result from the 2006 Equity Incentive Plan and $548,494 and
$0 result from the 2009 Equity Incentive Plan for the nine months ended October
31, 2010 and 2009, respectively, and $0 and $43,720, respectively, from the
Director Option Plan.  These amounts are reflected in selling, general
and administrative expenses.  The total income tax benefit recognized
for stock based compensation arrangements was $213,031 and $63,753 for the nine
months ended October 31, 2010 and 2009, respectively.





Effective
July 31, 2010, the Company’s Board of Directors elected to change the expected
performance level to baseline for the Company’s 2009 Equity Incentive Plan. This
resulted in a cumulative charge of $457,000 ($292,000 net of taxes) or $0.05 per
share in Q2.


10


9.      Manufacturing
Segment Data





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





Three Months Ended
                                                  
                                                  
                                                  Nine Months EndedOctober 31,
                                                  
                                                  
                                                  October 31,2010
                                                  
                                                  
                                                  2009
                                                  
                                                  
                                                  2010
                                                  
                                                  
                                                  2009Domestic
                                                  
                                                  $
                                                  16.5
                                                  
                                                  
                                                  
                                                  63
                                                  %
                                                  
                                                  $
                                                  13.6
                                                  
                                                  
                                                  
                                                  61
                                                  %
                                                  
                                                  $
                                                  45.8
                                                  
                                                  
                                                  
                                                  60
                                                  %
                                                  
                                                  $
                                                  45.3
                                                  
                                                  
                                                  
                                                  65
                                                  %International
                                                  
                                                  
                                                  9.8
                                                  
                                                  
                                                  
                                                  37
                                                  %
                                                  
                                                  
                                                  8.7
                                                  
                                                  
                                                  
                                                  39
                                                  %
                                                  
                                                  
                                                  30.4
                                                  
                                                  
                                                  
                                                  40
                                                  %
                                                  
                                                  
                                                  24.0
                                                  
                                                  
                                                  
                                                  35
                                                  %Total
                                                  
                                                  $
                                                  26.3
                                                  
                                                  
                                                  
                                                  100
                                                  %
                                                  
                                                  $
                                                  22.3
                                                  
                                                  
                                                  
                                                  100
                                                  %
                                                  
                                                  $
                                                  76.2
                                                  
                                                  
                                                  
                                                  100
                                                  %
                                                  
                                                  $
                                                  69.3
                                                  
                                                  
                                                  
                                                  100
                                                  %





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





Three Months Ended
                      October 31,
                      (in millions of dollars)
                    
                    
                    Nine Months Ended
                      October 31,
                      (in millions of dollars)2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      Sales:North
      America and other foreign
                    
                    $
                    20.16
                    
                    
                    $
                    17.66
                    
                    
                    $
                    59.09
                    
                    
                    $
                    56.79Brazil
                    
                    
                    3.11
                    
                    
                    
                    3.38
                    
                    
                    
                    8.96
                    
                    
                    
                    9.21China
                    
                    
                    9.12
                    
                    
                    
                    4.55
                    
                    
                    
                    24.10
                    
                    
                    
                    13.95India
                    
                    
                    .61
                    
                    
                    
                    .20
                    
                    
                    
                    1.51
                    
                    
                    
                    .55Less
      intersegment sales
                    
                    
                    (6.71
                    )
                    
                    
                    (3.50
                    )
                    
                    
                    (17.45
                    )
                    
                    
                    (11.19
                    )Consolidated
      sales
                    
                    $
                    26.29
                    
                    
                    $
                    22.29
                    
                    
                    $
                    76.21
                    
                    
                    $
                    69.31Operating
      Profit:North
      America and other foreign
                    
                    $
                    .15
                    
                    
                    $
                    (.20
                    )
                    
                    $
                    .16
                    
                    
                    $
                    (.16
                    )Brazil
                    
                    
                    .08
                    
                    
                    
                    (.12
                    )
                    
                    
                    (.07
                    )
                    
                    
                    (.18
                    )China
                    
                    
                    1.37
                    
                    
                    
                    .55
                    
                    
                    
                    3.25
                    
                    
                    
                    2.0India
                    
                    
                    (.07
                    )
                    
                    
                    (.22
                    )
                    
                    
                    (.44
                    )
                    
                    
                    (.68
                    )Less
      intersegment profit
                    
                    
                    (.70
                    )
                    
                    
                    .18
                    
                    
                    
                    (.94
                    )
                    
                    
                    .1Consolidated
      operating profit
                    
                    $
                    .83
                    
                    
                    $
                    .19
                    
                    
                    $
                    1.96
                    
                    
                    $
                    1.08Identifiable
      Assets (at Balance Sheet date):North
      America and other foreign
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    49.68
                    
                    
                    $
                    57.57Brazil
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    22.75
                    
                    
                    
                    19.98China
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    18.14
                    
                    
                    
                    14.47India
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    4.63
                    
                    
                    
                    3.95Consolidated
      assets
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    95.20
                    
                    
                    $
                    95.97Depreciation  and
      Amortization Expense:North
      America and other foreign
                    
                    $
                    .22
                    
                    
                    $
                    .20
                    
                    
                    $
                    .66
                    
                    
                    $
                    .61Brazil
                    
                    
                    .08
                    
                    
                    
                    .05
                    
                    
                    
                    .25
                    
                    
                    
                    .10China
                    
                    
                    .06
                    
                    
                    
                    .08
                    
                    
                    
                    .24
                    
                    
                    
                    .24India
                    
                    
                    .11
                    
                    
                    
                    .11
                    
                    
                    
                    .33
                    
                    
                    
                    .31Consolidated
      depreciation expense
                    
                    $
                    .47
                    
                    
                    $
                    .44
                    
                    
                    $
                    1.48
                    
                    
                    $
                    1.26


11


10.  Income
Tax Audit/Change in Accounting Estimate





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





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




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




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




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




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




Lakeland
Protective Wear, Inc., our Canadian subsidiary, follows Canada tax regulatory
framework recording its tax expense and tax deferred assets or liabilities. The
Company has not been audited in the last five years by the Canada tax authority.
As of this statement filing date, we believe the Company’s tax position is
reasonably stated, and we do not anticipate future tax liability.




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




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


12


11.
Related Party Transactions





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




On March
1, 1999, the Company entered into a one-year (renewable for four additional
one-year terms) lease agreement with Harvey Pride, Jr., a former officer of the
Company, for a 2,400 sq. ft. customer service office for $18,000 annually
located next to the existing Decatur, Alabama facility mentioned
above.  This lease was renewed on April 1, 2009 through March 31, 2011
with a 5% yearly increase in rental rate. In June 2010, the Company purchased
this facility from Mr. Pride for $250,000, based on an independent
appraisal.




12.
Derivative Instruments and Foreign Currency Exposure





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





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





13.VAT Tax Issue in
Brazil




Asserted
Claims




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




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




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




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




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




13


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




Amounts
from Preacquisition Period; Escrow




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




Future
Accounting for Funds




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




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




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




New
VAT Claim for 2007/2009 Period




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




An audit
for the 2007/2008 period has just been completed by the State of
Bahia. In October 2010, the Company received a claim from the State of
Bahia for taxes of R$6.2 million and fines and penalties of R$4.9 million, for a
total of R$11.1 million, which had been expected per above. The Company
intends to defend and wait for the next amnesty period.  Of these
claims, our attorney informs us that R$0.48 million will be successfully
defended based on state auditor misunderstanding.




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




14







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




At the
next amnesty period:




·
            If before judicial
      process - still administration proceeding - the Company would pay
      just the taxes with no penalty or interest. This would then be recouped
      via credits against future taxes on future imports. As before, the Company
      would lose desenvolve and interest.




·
            If after judicial
      process commences - the amount of the judicial deposit previously
      remitted would be reclassified to the taxes at issue, and the excess
      submitted to cover fines and interest would be refunded to QT. As above,
      the taxes would be recouped via credits against future taxes on future
      imports but losing desenvolve and
interest.




·
            The
      desenvolve is scheduled to expire on February 2013 and will be partially
      phased out starting February 2011. Based on the anticipated timing of the
      next amnesty, there may be little amounts of lost desenvolve since it
      would largely expire on its own terms in any
  case.




Cash
Commitments




As a
result of the process described above, the Company expects to make or has made
the following payments:




Date
                            
                            Description
                            
                            R$ Amount
                            
                            US$ AmountMay
      31, 2010
                            
                            Payment
      into amnesty program
                            
                            $3.5
      million(1)
                            
                            $1.9
      millionNovember
      2011
                            
                            Judicial
      deposit
                            
                            $10.2
      million(2)
                            
                            $5.5
      millionNovember
      2012
                            
                            Convert
      Judicial deposit into amnesty program
                            
                            $5.8
      million(3)
                            
                            $3.2
      millionNovember
      2012
                            
                            Refund
      from excess judicial deposit
                            
                            $(4.4)
      million
                            
                            $(2.4)
      million


(1)Projected
to be repaid in full via credits against future imports, by March
2011.


(2)Judicial
deposit does not have to be all cash. Management believes Brazilian banks will
provide several million Reals as a guaranty for the fee of 3%-4% per
year.


(3)Projected
to be repaid in full via credits against future imports, by September
2014.




Statement
of Operations Treatment




There is a R$2.9 million (US$1.6
million) charge to expense as a result of this issue, determined as
follows:




MillionsR$
            
            
            US$Total
      to be paid not available for credit:Asserted
      claims
            
            $
            1.4
            
            
            $
            0.8Unasserted
      claims
            
            
            2.5
            
            
            
            1.33.9
            
            
            
            2.1Escrow
      funds released
            
            
            (1.0
            )
            
            
            (0.5
            )Charge
      to expense
            
            $
            2.9
            
            
            $
            1.6Escrow
      funds available:Total
      escrow funds
            
            $
            2.8
            
            
            $
            1.6Escrow
      released in May
            
            
            (1.0
            )
            
            
            (0.5
            )Remaining
      funds in escrow
            
            $
            1.8
            
            
            $
            1.1




15




This new
claim for 2007-2009 is in the amount of approximately $3.3 million. Lakeland
intends to apply for amnesty and make any necessary payments upon the
forthcoming amnesty periods imposed by the local Brazilian authorities. Of this
$3.3 million exposure, $1.9 million is eligible for future credit.
The              $1.3
million balance is subject to indemnification from the Seller, and the Company
intends to pursue this claim, and $0.1 million our attorney informs us this is a
mistake made by the state auditor which he believes will be successfully
defended.




Possible
Recourse Actions




The
Company’s counsel has reviewed potential actions against sellers under
indemnification proceedings, including possible claims on postacquisition
exposure resulting from misrepresentations, and has begun arbitration
proceedings against two of the selling shareholders.




The
Company is also evaluating potential action for recourse against other parties
involved in the original transactions.




When the
Company receives the remaining funds from escrow, this will be recorded as a
gain at such time. Any further indemnifications from the sellers and potential
other parties will also be recorded as a gain at such time as
received.




The
Company has also asserted indemnification rights under its Share Purchase
Agreement with the sellers and has other legal avenues for recoupment of these
monies against both the Sellers and will in the future against negligent third
parties. Such recoupment, if successful, will be reported as profits over future
periods when and if collected.




Balance
Sheet Treatment




In
accordance with GAAP, the Company has reflected the above items on its balance
sheet as follows:




(R$
      millions)
                  
                  
                  US$
      millionsCurrent
      assets
                  Prepaid
      taxes
                  
                  $
                  2.1
                  
                  
                  $
                  1.1Noncurrent
      assets
                  Deferred
      taxes
                  
                  $
                  3.5
                  
                  
                  $
                  1.9Long-term
      liabilities
                  Taxes
      payable
                  
                  $
                  6.0
                  
                  
                  $
                  3.3




14.
            License
      Agreement with DuPont




Effective
May 17, 2010, a trademark License Agreement was signed which will change the
commercial relationship between E.I. du Pont de Nemours and Company (“DuPont”)
and Lakeland with regard to the sale of Tyvek® and Tychem®.




Historically,
pursuant to a Trademark License Agreement with DuPont, Lakeland utilized DuPont
trademark logos to market DuPont Tyvek® and Tychem® fabrics made into garments
by Lakeland. Lakeland bought its Tyvek® and Tychem® fabrics from DuPont directly
and processed these fabrics into protective garments. Pursuant to new contracts
with DuPont, Lakeland will no longer buy fabrics from DuPont to make garments
but has agreed to buy instead finished garments directly from DuPont and market
and sell DuPont garments as a wholesale distributor.




16


Nonetheless,
in certain instances where Lakeland makes customized garments not made by
DuPont, DuPont will continue to sell Tyvek® and Tychem® fabrics to Lakeland.
These new agreements are transition agreements until Lakeland sells the
remainder of its Tyvek® and Tychem® raw material and finished goods inventories,
estimated to be by this fiscal year-end. Thereafter, DuPont and Lakeland intend
to sign a multi-year agreement which would be similar to the above arrangement
with potential modifications between the parties based upon experience during
this interim period.




15.
              Stock-out
      Conditions, Backlog and Deferred
Profits




The
Company has been working to reduce or eliminate its inventory of Tyvek® and
Tychem® in anticipation of the above-referenced License Agreement. Throughout
much of the period ended October 31, 2010, the Company has experienced
significant “stock-out” conditions until newly ordered finished goods arrive
from DuPont. The Company’s backlog for domestic disposables is down to $3.4
million as of  October 31, 2010. The Company has always followed the
practice of eliminating (deferring) any manufacturing profits on items sold to
affiliated companies and still held in inventory. This amount has previously
fluctuated within a range which has not been material. For the quarter ended
October 31, 2010, due to the unusually high production levels in China due to
the aforementioned backlog, a pretax profit amount of $694,074 ($0.10EPS) has
been deferred since it is still in consolidated inventory. This profit will be
recognized when the items are sold to third-parties.




16.
              Brazil
      Management and Share Purchase
Agreement




On May
19, 2010, the President and V.P. of Operations (the “two terminated sellers”) of
Qualytextil, S.A. (“QT”), Lakeland’s Brazil subsidiary, were terminated for
cause as a result of numerous documented breaches of their Management Agreements
(“MA”) with QT and misrepresentations in their Share Purchase Agreement (“SPA”)
with Lakeland. As a result of these breaches and misrepresentations, Lakeland
has taken the position that it is not obligated to pay their share or 65% of any
Supplemental Purchase Price (“SPP”) due in 2011 pursuant to the SPA. These two
sellers’ shares constitute 35% and 30%, respectively, of the SPP totals, if any,
which may be due under the SPA. The CFO of QT has been promoted to President of
QT. He holds the remaining 35% of the SPA and SPP totals.




Lakeland
and the two terminated sellers unsuccessfully attempted to negotiate a
settlement. The SPA provides for arbitration to settle disputes, and Lakeland
has asserted further damages in such arbitration proceeding. There has been a
charge of US$175,000 in Q2 and $50,000 in Q3 for the legal and professional fees
incurred in this matter. Lakeland filed a formal request for arbitration on
October 29, 2010. All future legal fees are contingency based upon the
successful judgments by the Arbitration Panel.




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





You
should read the following summary together with the more detailed business
information and consolidated financial statements and related notes that
appeared in our Form 10-K and Annual Report and in the documents that were
incorporated by reference into our Form 10-K for the year ended January 31,
2010.  This Form 10-Q may contain certain “forward-looking”
information within the meaning of the Private Securities Litigation Reform Act
of 1995.  This information involves risks and
uncertainties.  Our actual results may differ materially from the
results discussed in the forward-looking statements.





Overview


We
manufacture and sell a comprehensive line of safety garments and accessories for
the industrial protective clothing market. Our products are sold by our in-house
customer service group, our regional sales managers and independent sales
representatives to a network of over 1,000 safety and mill supply distributors.
These distributors in turn supply end user industrial customers, such as
integrated oil, chemical/petrochemical, utilities, automobile, steel, glass,
construction, smelting, munition plants, janitorial, pharmaceutical, mortuaries
and high technology electronics manufacturers, as well as scientific and medical
laboratories. In addition, we supply federal, state and local governmental
agencies and departments, such as fire and law enforcement, airport crash rescue
units, the Department of Defense, the Department of Homeland Security and the
Centers for Disease Control.


17





We have
operated manufacturing facilities in Mexico since 1995 and in China since 1996.
Beginning in 1995, we moved the labor intensive sewing operation for our limited
use/disposable protective clothing lines to these facilities. Our facilities and
capabilities in China and Mexico allow access to a less expensive labor pool
than is available in the United States and permit us to purchase certain raw
materials at a lower cost than they are available domestically. As we have
increasingly moved production of our products to our facilities in Mexico and
China, we have seen improvements in the profit margins for these products. We
continue to move production of our reusable woven garments and gloves to these
facilities and expect to continue this process through fiscal 2011. As a result,
we expect to see continuing profit margin improvements for these product lines
over time.





Critical
Accounting Policies and Estimates


The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, net sales and
expenses and disclosure of contingent assets and liabilities. We base estimates
on our past experience and on various other assumptions that we believe to be
reasonable under the circumstances, and we periodically evaluate these
estimates.





We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.





Revenue Recognition.The
Company derives its sales primarily from its limited use/disposable protective
clothing and secondarily from its sales of high-end chemical protective suits,
fire fighting and heat protective apparel, gloves and arm guards and reusable
woven garments. Sales are recognized when goods are shipped at which time title
and the risk of loss passes to the customer. Sales are reduced for sales returns
and allowances. Payment terms are generally net 30 days for United States sales
and net 90 days for international sales.





Substantially
all the Company’s sales outside Brazil are made through distributors. There are
no significant differences across product lines or customers in different
geographical areas in the manner in which the Company’s sales are
made.





Rebates
are offered to a limited number of our distributors who participate in a rebate
program. Rebates are predicated on total sales volume growth over the previous
year. The Company accrues for any such anticipated rebates on a pro-rata basis
throughout the year.





Our sales
are generally final; however, requests for return of goods can be made and must
be received within 90 days from invoice date. No returns will be accepted
without a written authorization. Return products may be subject to a restocking
charge and must be shipped freight prepaid. Any special made-to-order items are
not returnable. Customer returns have historically been
insignificant.





Customer
pricing is subject to change on a 30-day notice; exceptions based on meeting
competitors’ pricing are considered on a case-by-case basis.





Inventories.Inventories
include freight-in, materials, labor and overhead costs and are stated at the
lower of cost (on a first-in, first-out basis) or market. Provision is made for
slow-moving, obsolete or unusable inventory.





Allowance for Doubtful Accounts.We establish an allowance for doubtful accounts to provide for accounts
receivable that may not be collectible. In establishing the allowance for
doubtful accounts, we analyze the collectability of individual large or past due
accounts customer-by-customer. We establish reserves for accounts that we
determine to be doubtful of collection.




18


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





Valuation of Goodwill and Other
Intangible Assets.Goodwill and indefinite lived intangible assets are
tested for impairment at least annually; however, these tests may be performed
more frequently when events or changes in circumstances indicate the carrying
amount may not be recoverable. Goodwill impairment is evaluated utilizing a
two-step process as required by U.S. GAAP.  Factors that the Company
considers important that could identify a potential impairment include:
significant underperformance relative to expected historical or projected future
operating results; significant changes in the overall business strategy; and
significant negative industry or economic trends. The Company measures any
potential impairment based market quotes, if available or on a projected
discounted cash flow method. Estimating future cash flows requires the Company’s
management to make projections that can differ materially from actual
results.





Impairment of Long-Lived
Assets.The Company
evaluates the carrying value of long-lived assets to be held and used when
events or changes in circumstances indicate the carrying value may not be
recoverable. The carrying value of a long-lived asset is considered impaired
when the total projected undiscounted cash flows from the asset are separately
identifiable and are less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the long-lived asset.




Self-Insured Liabilities.We
have a self-insurance program for certain employee health benefits. The cost of
such benefits is recognized as expense based on claims filed in each reporting
period and an estimate of claims incurred but not reported during such period.
Our estimate of claims incurred but not reported is based upon historical
trends. If more claims are made than were estimated or if the costs of actual
claims increase beyond what was anticipated, reserves recorded may not be
sufficient, and additional accruals may be required in future periods. We
maintain separate insurance to cover the excess liability over set single claim
amounts and aggregate annual claim amounts.





Significant Balance Sheet Fluctuation
October 31, 2010 As Compared to January 31, 2010


Cash
increased by $0.4 million as borrowings under the revolving credit facility
decreased by $3.7 million at October 31, 2010. Accounts receivable increased by
$1.6 million.  Accounts payable increased
by           $3.5 million
mainly due to local vendors in China as we source domestically in China,
accruals of sales rebates, larger payables in Brazil and resumption of purchases
from DuPont.





As a
result of the VAT tax issue in Brazil as disclosed herein, as of October 31,
2010, we have recorded additional current assets for prepaid taxes of US$1.1
million and noncurrent deferred taxes asset and long-term liability-VAT tax
payable of US$3.3 million.





At
October 31, 2010, the Company had an outstanding loan balance of $5.9 million
under its facility with TD Bank, N.A. compared with $9.5 million at January 2010
which has been reclassified as a long-term liability at October 31, 2010. Total
stockholders’ equity increased $1.8 million principally due to the net loss for
the period of $(0.1) million offset by the changes in foreign exchange
translations in other comprehensive income of $1.3 million and the equity
compensation of $0.6 million.





Three
Months Ended October 31, 2010 As Compared to the Three Months Ended October 31,
2009


Net Sales.Net sales
increased $4.0 million, or 18%, to $26.3 million for the three months ended
October 31, 2010, from $22.3 million for the three months ended October 31,
2009.  The net increase was due to an increase of $1.2 million in
foreign sales, and $2.8 million in domestic sales. External sales from China
increased by $2.3 million, or 129%, driven by sales to the new Australian
distributor and domestic sales in China. Canadian sales increased by $0.1
million, or 9.9%, UK sales decreased by 2%, Chile sales decreased by $0.1
million, or 17%, in part resulting from the earthquake but, additionally,
Argentina sales were subtracted from Chile as the Argentina sales and operations
became a new subsidiary. U.S. domestic sales of disposables were up $1.4
million, chemical suit sales increased by $0.1 million, wovens increased
by      $0.5 million, reflective sales were up
$0.3 million and glove sales were flat. Sales in Brazil were down 8% mainly from
lack of large bid sales in Q3 this year.


19




Gross Profit.Gross profit
increased $1.5 million, or 27.1%, to $7.2 million for the three months ended
October 31, 2010, from $5.7 million for the three months ended October 31, 2009.
Gross profit as a percentage of net sales increased to 27.3% for the three
months ended October 31, 2010, from 25.4% for the three months ended October 31,
2009. Major factors driving the changes in gross margins were:





o
            Disposables
      gross margin increased by $1.1 million this year compared with last year.
      This increase was mainly due to higher margins in Q3 resulting from lower
      fabric costs, the industry wide shortages prevailing and price
      increases.


o
            Brazil’s
      gross margin was 41.7% this year compared with 41.1% last year. This
      increase was largely due to the sales
mix.


o
            Breakeven
      at the gross level from India in Q3
FY11.


o
            Chemical
      division gross margin increased 5.3 percentage points resulting from sales
      mix.


o
            Canada
      gross margin increased 4.8 percentage points due to higher volume and
      favorable exchange rates.


o
            Elimination
      of intercompany profit in inventory (deferral) reduced the Q3 gross profit
      by             $0.7
      million $(.10 EPS) due to the unusually high production in China in Q3,
      which is mostly in transit at October 31 or included in inventory. This
      profit will be recognized when sold to third
  parties.





Operating Expenses.Operating
expenses increased $0.9 million, or 16.3%, to $6.4 million for the three months
ended October 31, 2010, from $5.5 million for the three months ended October 31,
2009.  As a percentage of sales, operating expenses decreased to 24.2%
for the three months ended October 31, 2010 from 24.5% for the three months
ended October 31, 2009.  The $0.9 million increase in operating
expenses in the three months ended October 31, 2010 as compared to the three
months ended October 31, 2009 was comprised of:





o
            $0.2
      million increase in sales salaries resulting from increased sales
      personnel in Argentina, China and the U.S. wovens
  division.


o
            $0.2
      million miscellaneous increases.


o
            $0.2
      million increase in professional fees resulting from the terminations in
      Brazil and international tax
planning.


o
            $0.2
      million increase in freight out shipping costs, in part due to higher
      volume and the need for multiple shipments to fulfill one order as stock
      arrived in part due to use of air freight in some cases resulting from
      stock-out conditions.


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


o
            $0.1
      million increase in equity compensation resulting from the 2009 restricted
      stock plan treated at the baseline performance
  level.


o
            $0.1
      million in increased operating costs in China were the result of the large
      increase in direct international sales made by China, now allocated to
      SG&A costs, previously allocated to cost of goods
  sold.


o
            $(0.2)
      million decrease in administrative payroll mainly resulting from earlier
      terminations in Canada and the U.S.





Operating Profit. Operating
profit increased 340% to $0.8 million for the three months ended October 31,
2010 from $0.20 million for the three months ended October 31,
2009.  Operating margins were 3.1% for the three months ended October
31, 2010 compared to 0.8% for the three months ended October 31,
2009.





Interest
Expenses.  Interest expenses decreased by $0.5 million for the
three months ended October 31, 2010 as compared to the three months ended
October 31, 2009 due to lower borrowing levels outstanding and lower rates, and
the buyout of the interest rate swap in Q3 last year.




20


Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes.  Income tax expenses increased $0.3 million, to
$0.1 million for the three months ended October 31, 2010
from       $(0.2) million for the three
months ended October 31, 2009.  Our effective tax rates were 15.1% for
Q3 FY11 and 49.6% for the three months ended October 31, 2009, mainly resulting
from losses in India in the prior year with no tax benefit. Our effective tax
rate for Q3 FY11 was due to goodwill write-offs in Brazil and tax benefits from
India resulting from  a “check the box” tax status in the
U.S.





Net
Income.  Net income increased $0.8 to $0.6 million for the
three months ended October 31, 2010 from $(0.2) million for the three months
ended October 31, 2009. The increase in net income primarily resulted from
higher volumes and higher margins resulting from relief from the stock-out
conditions prevailing in Q2 FY11, offset by the elimination (deferral) of
intercompany profits of $.10 EPS due to unusually high production in China
mostly in transit as of October 31, 2010. This profit will be recognized when
the product is sold to third parties.





Nine
Months Ended October 31, 2010 As Compared to the Nine Months Ended October 31,
2009


Net Sales.Net sales
increased $6.9 million, or 9.9%, to $76.2 million for the nine months ended
October 31, 2010, from $69.3 million for the nine months ended October 31, 2009.
The net increase was due to an increase of $6.4 million in foreign sales and an
increase of $0.5 million in domestic sales. External sales from China increased
by $5.6 million, or 80%, driven by sales to the new Australian distributor and
domestic sales in China. Canadian sales increased by $0.8 million, or 19.6%, UK
sales increased by $0.6 million, or 18.8%, Chile sales decreased by $0.6
million, or 38%, in part resulting from the earthquake, but Argentina sales were
subtracted from Chile as the Argentina sales and operations became a new
subsidiary, U.S, domestic sales of disposables increased by $0.3 million,
chemical suit sales decreased by $0.8 million, wovens increased by $0.2 million,
reflective sales were flat and glove sales increased by $0.9 million. Sales in
Brazil were flat.





Gross Profit.Gross profit
increased $4.0 million, or 22.1%, to $21.9 million for the nine months ended
October 31, 2010, from $17.9 million for the nine months ended October 31, 2009.
Gross profit as a percentage of net sales increased to 28.7% for the nine months
ended October 31, 2010 from 25.8% for the nine months ended October 31, 2009.
Major factors driving the changes in gross margins were:





o
            Disposables
      gross margin increased by 5.4 percentage points this year compared with
      last year. This increase was mainly due to higher margins in Q3 resulting
      from the lower fabric prices industry wide shortages
      prevailing.


o
            Brazil’s
      gross margin was 45.9% this year compared with 42.5% last year. This
      increase was largely due to the volume provided by a larger bid contract
      earlier this year.


o
            Continued
      gross losses of $0.2 million from India in FY11, although India managed to
      reach breakeven gross margins for
Q3.


o
            Chemical
      division gross margin increased 0.2 percentage points resulting from lower
      volume and sales mix prevailing earlier in the year and more favorable
      conditions and mix in Q3.


o
            Canada
      gross margin increased 6.1 percentage points due to higher volume and
      favorable exchange rates.





Operating Expenses.Operating
expenses increased $3.1 million, or 18.3%, to $19.9 million for the nine months
ended October 31, 2010, from $16.8 million for the nine months ended October 31,
2009.  As a percentage of sales, operating expenses increased to 26.1%
for the nine months ended October 31, 2010 from 24.3% for the nine months ended
October 31, 2009.  The $3.1 million increase in operating expenses in
the nine months ended October 31, 2010 as compared to the nine months ended
October 31, 2009 was comprised of:





o
            $0.5
      million in increased operating costs in China were the result of the large
      increase in direct international sales made by China, now allocated to
      SG&A costs, while previously allocated to cost of goods
      sold.


o
            $0.5
      million increase in freight out shipping costs, due to higher volume and
      to stock-out conditions, and the need for multiple shipments to fulfill
      one order as stock arrived late from
DuPont.


o
            $0.4
      million increase in equity compensation resulting from the 2009 restricted
      stock plan treated at the baseline performance level and the resulting
      cumulative charge.


21





o
            $0.3
      million increase in foreign exchange costs resulting from unhedged losses
      against the Euro in China. The Company has since commenced a hedging
      program for the Euro.


o
            $0.3
      million increase in professional fees resulting from the terminations,
      commencement of arbitration in Brazil and international tax
      planning.


o
            $0.2
      million increase in administrative payroll mainly resulting from $0.4
      million severance pay from terminations in Canada and the U.S., offset by
      $0.2 million resulting in lower payroll costs for the partial
      year.


o
            $0.2
      million increase in sales salaries resulting from increased sales
      personnel in Argentina, China and the U.S. wovens
  division.


o
            $0.2
      million in increased sales commissions resulting from higher
      volume.


o
            $0.2 million miscellaneous
      increases.


o
            $0.1
      million increase in advertising resulting in lower Co-op advertising
      rebates received from suppliers.


o
            $0.1
      million increase in donations resulting from donations of inventory to
      Chile’s earthquake relief effort.


o
            $0.1 million increase in one-time increases in
      Delaware Franchise
Taxes.




Operating Profit. Operating
profit increased $0.9 million to $2.0 million for the nine months ended October
31, 2010 from $1.1 million for the nine months ended October 31,
2009.  Operating margins were 2.6% for the nine months ended October
31, 2010 compared to 1.6% for the nine months ended October 31,
2009.





Interest
Expenses.  Interest expenses decreased by $0.7 million for the
nine months ended October 31, 2010 as compared to the nine months ended October
31, 2009 due to lower borrowing levels outstanding and lower rates and the
buyout of the interest rate swap in Q3 last year.





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes.  Income tax expenses increased $0.1 million to
$0.3 million for the nine months ended October 31, 2010 from $0.2 million for
the nine months ended October 31, 2009.  Our effective tax rates were
not meaningful for this year or last year. Our effective tax rate for Q1FY10 was
affected by a $350,000 allowance against deferred taxes resulting from the India
restructuring, losses in India and UK with no tax benefit, tax benefits in
Brazil resulting from government incentives and goodwill write-offs and credits
to prior year’s taxes in the U.S. not previously recorded. Our effective tax
rate for nine months FY11 was due to goodwill write-offs in Brazil and tax
benefits from India resulting from a “check the box” tax status in the U.S and
the $1.6 million charge for VAT tax expense in Brazil.





Net Income
(Loss).  Net income decreased to a loss of $0.1 million for the
nine months ended October 31, 2010 from a loss of $0.1 million for the nine
months ended October 31, 2009. The decrease in net income primarily resulted
from the $1.6 million charge for VAT tax expense in Brazil. Excluding the
Brazilian VAT tax expense, the Company would have reported net income of $1.4
million in the nine months ended October 31, 2010, as compared to a loss of $0.1
million to the same period in fiscal 2010. The improved profitability before VAT
tax expense reflects an increase in sales, increases in gross margins in
disposables and a $350,000 allowance against deferred taxes in the prior year
resulting from the India restructuring.





Liquidity
and Capital Resources


Cash Flows.As of October 31,
2010, we had cash and cash equivalents of $5.5 million and working capital of
$57.0 million. Cash and cash equivalents increased $0.4 million, and working
capital increased $8.1 million from January 31, 2010. Our primary sources
of funds for conducting our business activities have been cash flow provided by
operations and borrowings under our credit facilities described
below.  We require liquidity and working capital primarily to fund
increases in inventories and accounts receivable associated with our net sales
and, to a lesser extent, for capital expenditures.





Net cash
provided by operating activities of $5.3 million for the nine months ended
October 31, 2010 was due primarily to net loss from operations of $(0.1)
million, an increase in inventories of $.5 million, an increase in accounts
receivable of $1.6 million, and a decrease in deferred tax liability of $3.1
million and an increase in other assets of $(2.7) million, largely resulting
from the Brazil VAT tax issues, offset by an increase in payables of $4.8
million. The increase in payables results mainly from local vendors in China as
we source domestically in China, the resumption of purchases from DuPont,
accruals of sales rebates and overall increases in Brazil. Net cash used in
investing activities of $1.2 million in the nine months ended October 31, 2010
was due to purchases of property and equipment and plant expansion in Brazil and
the building purchase in Decatur.


22




We
currently have one credit facility, a $23.5 million revolving credit, of which
$5.9 million of borrowings were outstanding as of October 31,
2010.  Our credit facility requires that we comply with specified
financial covenants relating to fixed charge ratio, funded debt to EBIDTA
coverage and inventory and accounts receivable collateral coverage
ratios.  These restrictive covenants could affect our financial and
operational flexibility or impede our ability to operate or expand our
business.  Default under our credit facility would allow the lender to
declare all amounts outstanding to be immediately due and
payable.  Our lender has a security interest in substantially all of
our assets to secure the debt under our credit facility.  As of
October 31, 2010, we were in compliance with all covenants contained in our
credit facility.





We
believe that our current cash position of $5.5 million and our cash flow from
operations, along with borrowing availability under our $23.5 million revolving
credit facility, will be sufficient to meet our currently anticipated operating,
capital expenditures and debt service requirements for at least the
next       12 months.





Capital Expenditures. Our
capital expenditures principally relate to purchases of manufacturing equipment,
computer equipment and leasehold improvements. Our facilities in China are not
encumbered by commercial bank mortgages and, thus, Chinese commercial mortgage
loans may be available with respect to these real estate assets if we need
additional liquidity. Our capital expenditures are expected to be approximately
$1.5 million for plant expansion in Brazil and capital equipment, primarily
computer equipment and apparel manufacturing equipment in fiscal
2012.





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





Health Care
Reform.  During March 2010, a comprehensive health care reform
legislation was signed into law in the U.S. under the Patient Protection and
Affordable Care Act, as amended  by the Health Care and Education
Reconciliation Act of 2010 (the “Acts”).  Included among the major
provisions of the law is a change in tax treatment of the federal drug subsidy
paid with respect to Medicare-eligible retirees.  This change did not have
a significant impact because the Company operates its principal drug plan for
Medicare-eligible retirees as secondary to Medicare and manages Medicare Part D
reimbursement through a third-party administrator.  The effect of the Acts
on the Company’s other long-term employee benefit obligation and cost depends on
finalization of related regulatory requirements.  The Company will continue
to monitor and assess the effect of the Acts as the regulatory requirements are
finalized.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





There
have been no significant changes in market risk from that disclosed in our
Annual Report on      Form 10-K for the fiscal
year ended January 31, 2010.





Item
4. Controls and Procedures


We
conducted an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of October
31, 2010. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on their evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of October 31, 2010 for the
reasons discussed below, to ensure them that information relating to the Company
(including our consolidated subsidiaries) required to be included in our reports
filed or submitted under the Exchange Act are recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.


23




Management’s
Report on Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. Our internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.





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





Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of October 31, 2010. In making this assessment, management used the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, management has concluded that the Company’s internal control
over financial reporting was effective as of October 31, 2010.





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.





Since the
Company now qualifies as a smaller reporting company, there is no longer an
attestation requirement for management’s assessment of internal control by the
Company’s independent auditors.





Changes
in Internal Control over Financial Reporting





Lakeland
Industries, Inc.’s management, with the participation of Lakeland Industries,
Inc.’s Chief Executive Officer and Chief Financial Officer, has evaluated
whether any change in the Company’s internal control over financial reporting
occurred during the third quarter of fiscal 2011.  Based on that
evaluation, management concluded that there have not been changes in Lakeland
Industries, Inc.’s internal control over financial reporting during the third
quarter of 2011 that have materially affected, or is reasonably likely to
materially affect, Lakeland Industries, Inc.’s internal control over financial
reporting.





PART
II           OTHER
INFORMATION





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




Item
6.  Exhibits




Exhibits:




31.1
                      Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                      Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
                      Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
                      Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of
2002




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_________________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
      13, 2010
                /s/ Christopher J. RyanChristopher
      J. Ryan,Chief
      Executive Officer, President,Secretary
      and General Counsel(Principal
      Executive Officer and Authorized Signatory)Date:
      December 13, 2010
                /s/ Gary PokrassaGary
      Pokrassa,Chief
      Financial Officer(Principal
      Accounting Officer and Authorized
Signatory)




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