UNITED
STATES


SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C.
20549


FORM
10-K


(Mark
one)


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


For the
fiscal year endedJanuary
31, 2008


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
      or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
      Employer Identification No.)701
      Koehler Ave., Suite 7, Ronkonkoma, NY
            11779(Address
      of Principal Executive Offices)
            (Zip
      Code)





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





Securities
registered pursuant to Section 12 (b) of the Act:


Common
Stock $0.01 Par Value


(Title
of Class)


Name
of Exchange on which listed - NASDAQ


Securities
registered pursuant to Section 12(g) of the Act:


Not
Applicable





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this Chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  Yesx    Noo


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





Large
      accelerated filer ⁯
            Accelerated
      filer ⁯Non-Accelerated
      filer ⁯ (Do not check if a smaller reporting company)
            Smaller
      reporting company ý





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, 2007, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $59,612,097 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
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.


Class
            
            Outstanding
      at April 10, 2008Common
      Stock, $0.01 par value per share
            
            5,443,800







1





DOCUMENTS
INCORPORATED BY REFERENCE


Document
            Parts Into Which
      IncorporatedAnnual
      Report to Stockholders for the Fiscal Year
            Parts  [I,
      II, and IV]Ended
      January 31, 2008 (Annual Report)





Portions
of the proxy statement for the annual meeting of stockholders to be held on June
18, 2008, are incorporated by reference into Part III.




2





LAKELAND INDUSTRIES, INC.


INDEX
TO ANNUAL REPORT ON FORM 10-K


PART 1:





Cautionary Statement
      regarding Forward-Looking Information
            PageItem
      1    BusinessOverview
            4Industry Overview and
    Consolidation
            5Business Strategy
            7Our
      Competitive Strengths
            9Products
            11Quality
            15Marketing and Sales
            15Research and Development
            15Suppliers and Materials
            16Internal Audit
            16Competition
            16Seasonality
            16Patents and Trademarks
            17Employees
            17Environmental Matters
            17Available Information
            17Item 1A
            Risk
      Factors
            18Item 1B
            Unresolved Staff Comments
            24Item 2
            Properties
            25Item 3
            Legal
      Proceedings
            27Item 4
            Submission of Matters to a Vote of Security
      Holders
            27PART
      II:Item 5
            Market
      for the Registrant’s Common Stock and Related Stockholder
      Matters
            28Item 6
            Selected Financial Data
            30Item 7
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            31Item 7A
            Quantitative and Qualitative Disclosure about Market
      Risk
            39Item 8
            Financial Statements and Supplementary
      Data
            40Item 9
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            68Item 9A
            Controls and Procedures
            68Item 9B
            Other
      Information
            69PART
      III:Item 10
            Directors and Executive Officers of the
      Registrant
            70Item 11
            Executive Compensation
            72Item 12
            Security Ownership of Certain Beneficial Owners and
      Management
            72Item 13
            Certain Relationships and Related
      Transactions
            72Item 14
            Principal Accounting Fees and
      Services
            72PART IV:Item 15
            Exhibits, Financial Statement Schedules and Reports on Form
      8-K
            73Signatures
            76Certification
      under Exchange Act Rules 13a – 14(b) and 15d- 14(b)
            79





3
 Index





This Annual Report on Form 10-K
contains forward-looking statements that are made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of
1995.  Forward-looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission.  All statements, other than
statements of historical facts, which address the Company’s expectations of
sources of capital or which express the Company’s expectation for the future
with respect to financial performance or operating strategies, can be identified
as forward-looking statements.  As a result, there can be no assurance
that the Company’s future results will not be materially different from those
described herein as “believed,” “anticipated,” “estimated” or “expected,” “may,”
“will” or “should,” or other similar words  which reflect the current
views of the Company with respect to future events.  We caution
readers that these forward-looking statements speak only as of the date
hereof.  The Company hereby expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any such statements
to reflect any change in the Company’s expectations or any change in events,
conditions or circumstances on which such statement is based.





PART
I





Lakeland
Industries, Inc. (the “Company” or “Lakeland,” “we,” “our,” or “us”) was
incorporated in the State of Delaware in 1986.  Our executive offices
are located at 701 Koehler Avenue, Suite 7, Ronkonkoma, New York 11779, and our
telephone number is (631) 981-9700.  Our web site is located at
www.lakeland.com.  Information contained on our web site is not part
of this report.





ITEM
1.  BUSINESS


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 1000 safety and mill supply distributors.
These distributors in turn supply end user industrial customers such as
chemical/petrochemical, automobile, steel, glass, construction, smelting,
munition plants, janitorial, pharmaceutical and high technology electronics
manufacturers, as well as hospitals and laboratories. In addition, we supply
federal, state and local governmental agencies and departments such as fire and
police departments, airport crash rescue units, the Department of Defense, the
Department of Homeland Security, and the Centers for Disease Control. In fiscal
2008, we had net sales of $95.7 million. Our net sales attributable to customers
outside the United States were $9.6 million, $11.5 million and $13.0 million, in
fiscal 2006, fiscal 2007 and fiscal 2008, respectively.




Our major
product categories and their applications are described below:




Limited Use/Disposable Protective
Clothing.  We manufacture a complete line of limited
use/disposable protective garments offered in coveralls, lab coats, shirts,
pants, hoods, aprons, sleeves and smocks. These garments are made from several
non-woven fabrics, primarily Tyvek® and
TyChem® (both
DuPont manufactured fabrics) and also our proprietary fabrics Micromax® and
Micromax NS and HBF, SafeGard® SMS,
Pyrolon® Plus 2
and Pyrolon XT, RyTex® and
ChemMax® 1 and 2
manufactured pursuant to customer order. These garments provide protection from
low-risk contaminants or irritants, such as chemicals, pesticides, fertilizers,
paint, grease and dust, and from limited exposure to hazardous waste and toxic
chemicals, including acids, asbestos, lead and hydro-carbons (or PCBs) that pose
health risks after exposure for long periods of time. Additional applications
include protection from viruses and bacteria, such as AIDS, streptococcus, SARS
and hepatitis, at hospitals, clinics and emergency rescue sites and use in clean
room environments to prevent human contamination in the manufacturing processes.
This is our largest product line.




High-End Chemical Protective Suits.  We manufacture heavy duty chemical suits made from
TyChem® SL, TK
and BR, and F, which are DuPont patented fabrics and our Pyrolon® CRFR and
ChemMax® 3. These
suits are worn by individuals on hazardous material teams to provide protection
from powerful, highly concentrated and hazardous or potentially lethal chemical
and biological toxins, such as toxic wastes at Super Fund sites, toxic chemical
spills or biological discharges, chemical or biological warfare weapons (such as
saran gas, anthrax or ricin), and hazardous chemicals and petro-chemicals
present during the cleaning of refineries and nuclear facilities. These suits
can be used in conjunction with a fire protective shell that we manufacture to
protect the user from both chemical and flash fire hazards. Homeland Security
measures and government funding of personal protective equipment for first
responders to terrorist





4
 Index








Fire Fighting and Heat Protective
Apparel.  We manufacture an extensive line of fire fighting
and heat protective apparel for use by fire fighters and other individuals that
work in extreme heat environments. Our branded fire fighting apparel
Fyrepel® is sold
to local municipalities and industrial fire fighting teams. Our heat protective
aluminized fire suits are manufactured from Nomex®, a fire
and heat resistant material, and Kevlar®, a cut
and heat resistant, high-strength, lightweight, flexible and durable material
both produced by DuPont. This apparel is also used for maintenance of extreme
high temperature equipment, such as coke ovens, kilns, glass furnaces, refinery
installations and smelting plants, as well as for military and airport crash and
rescue teams.




Gloves and Arm Guards.  We manufacture gloves and arm guards from Kevlar®,
Spectra®, and
Dyneema® cut
resistant fibers made by DuPont , Honeywell and DSM Corp. respectively as well
as engineered composite yarns with Microgard antimicrobial for food service
markets. Our gloves are used primarily in the automotive, glass, metal
fabrication and food service industries to protect the wearer’s hand and arms
from lacerations and heat without sacrificing manual dexterity or
comfort.




Reusable Woven
Garments. We manufacture a
line of reusable and washable woven garments that complement our fire fighting
and heat protective apparel offerings and provide alternatives to our limited
use/disposable protective clothing lines. Product lines include electrostatic
dissipative apparel used in the pharmaceutical and automotive industries for
control of static electricity in the manufacturing process, clean room apparel
to prevent human contamination in the manufacturing processes, and flame
resistant Nomex®and fire resistant (“FR”) cotton
coveralls used in chemical and petroleum plants and for wildland fire fighting,
and extrication suits for police and ambulance workers.




High Visibility Clothing.In
August 2005, we acquired the assets of Mifflin Valley, Inc. of Shillington,
PA.  Mifflin is a manufacturer of protective clothing specializing in
safety and visibility, largely for the Emergency Services market, but also for
the entire public safety and traffic control market.  Mifflin’s high
visibility products include flame retardant and reflective garments for the Fire
Industry, Nomex clothing for utilities, and high visibility reflective outerwear
for industrial uniforms and Departments of Transportation.  Mifflin
products are our strategic fit for our Woven and Fire Lines of garments and we
expect higher than normal sales growth out of this subsidiary as our existing
sales force starts promoting this new line.




We
believe we are one of the largest independent customers of DuPont’s Tyvek® and
TyChem® apparel
grade fabrics. We have purchased Tyvek® and
TyChem® under
North American Trademark licensing agreements and other DuPont materials, such
as Kevlar®, under
international Trademark licensing agreements. While we have operated under these
trademark agreements since 1995, we have been a significant customer of these
DuPont materials since 1982. The trademark agreements require certain quality
standards as a prerequisite for the use of DuPont trademarks and tradenames on
the finished product manufactured by us. We believe this brand identification
with DuPont and Tyvek® benefits
the marketing of our largest product line, as over the past 30 years Tyvek® has
become known as the standard for limited use/disposable protective clothing. We
believe our relationship with DuPont to be excellent.




We
maintain manufacturing facilities in Decatur, Alabama; Jerez, Mexico; AnQui
City, China; Jiaozhou, China; New Delhi, India, Shillington, PA, and St. Joseph,
Missouri, where our products are designed, manufactured and sold. We also have a
relationship with a sewing subcontractor in Mexico, which we can utilize for
unexpected production surges. Our China, Mexico, and India facilities allow us
to take advantage of favorable labor and component costs, thereby increasing our
profit margins on products manufactured in these facilities. Our China and
Mexico facilities are designed for the manufacture of limited use/disposable
protective clothing as well as our high-end chemical protective suits. We have
significantly improved our profit margins in these product lines by shifting
production to our international facilities and we continue to expand our
international manufacturing capabilities to include our gloves and reusable
woven and fire protective apparel product lines.




Industry Overview


The
industrial work clothing market includes our limited use/disposable protective
or safety clothing, our high-end chemical protective suits, our fire fighting
and heat protective apparel and our reusable woven garments.




The
industrial protective safety clothing market in the United States has evolved
over the past 35 years as a result of governmental regulations and requirements
and commercial product development. In 1970, Congress enacted the Occupational
Safety and Health Act, or OSHA, which requires employers to supply protective
clothing in certain work environments.  Almost two million workers are
subject to OSHA standards today. Certain states have also enacted worker





5
 Index








The
advent of OSHA coincided with DuPont’s development of Tyvek® which,
for the first time, allowed for the economical  production of
lightweight, disposable protective clothing. The attraction of disposable
garments grew in the late 1970s as a result of increases in labor and material
costs of producing cloth garments and the promulgation of federal, state and
local safety regulations.




In
response to the terrorist attacks that took place on September 11, 2001, the
federal government has provided for additional protective equipment funding
through programs that are part of the Homeland Security initiative.




Since
2001, federal and state purchasing of industrial protective clothing and federal
grants to fire departments have increased demand for industrial protective
clothing to protect first responders against actual or threatened terrorist
incidents. Specific events such as the anthrax letters incidents in 2001, the
2002 U.S. Winter Olympics, the SARS epidemic in 2003, the ricin letter incidents
in 2004, the spread of Avian Flu and Hurricane Karina in 2006 have also resulted
in increased peak demand for our products. In 2008 the Department of Homeland
Security has budgeted $2.1 billion to six various grant programs that allow
states and cities to fund response capabilities through planning, organization,
equipment
(including the chemical protective suits we sell) and training and exercise
activities. These include the “Urban Areas Security Initiative” ($781,630,000),
the “State Homeland Security Program” ($862,925,000), The “Metropolitan Medical
Response System Program” ($39,831,500), The “Commercial Equipment Direct
Assistance Program” ($33,700,000), and the “Chemical Stockpile Emergency
Preparedness Program (budget not published), and the “Hospital Emergency
Preparedness Program” ($450,000,000).




Standards
development, within both the U.S. and global markets continues to challenge
manufacturers as the pace of change and adoption of new standards increases.
Complex and changing international standards play to Lakeland’s strengths when
compared to smaller manufacturers.




The
Department of Homeland Security places minimum performance requirements on
garments that qualify for purchase under the various programs.  Many
of the chemical protective apparel requirements are based on certification to
NFPA 1991; NFPA 1992; and NFPA 1994 standards.  All of these have been
revised within the last 3 years, necessitating expensive recertification of many
products.  In some cases, the requirements have not been met by any
commercially available products creating a pent up demand among grant
recipients.  Additionally, the National Institute for Justice (NIJ) is
currently in the process of writing a standard on chemical protective clothing
for law enforcement based largely on the NFPA 1994 standard.  Without
this standard in place, and given the current unmet needs of law enforcement it
is difficult to determine the amount of DHS funds that will be used for chemical
protective clothing for law enforcement.




Globally,
standards for lower levels of protection are changing rapidly.  In
1996, the European Committee for Standardization (CEN) adopted a group of
standards that collectively comprised the only standard available for chemical
protective clothing for general industry.  Because these standards
established performance requirements for a wide range of chemical protective
clothing, these standards have been adopted by many countries and multinational
corporations outside of the European Union (EU) as minimum
requirements.  This is especially true in the Asian and Pacific
markets where compliance with occupational health and safety standards is being
driven by World Trade Organization (WTO) membership. Developing nations that
want WTO membership must establish worker safety laws as the USA did in 1970
with its OSHA laws. This movement is driving demand for our products
internationally, particularly in fast GDP growth countries such as China, Brazil
and India.




While
technically the CEN standards are not “international standards”, in the absence
of any other standards covering chemical protective clothing requirements for
general industry, they have been adopted as “industry best
practice”.  In order to ensure continued use of its standards
globally, the CEN has entered into an agreement with the International Standards
Organization (ISO) allowing the CEN to submit their standards for consideration
as ISO standards, effectively making them international standards after
modification by ISO.




In August
2007, ISO adopted ISO 16602 which, combined with ISO 13982-1, essentially
consolidates the CEN group of standards into two documents as an international
standard.  The adoption of this new standard will again necessitate
recertification of nearly all CE certified chemical protective clothing products
currently offered globally.  Additionally, the adoption of these
standards by ISO may result in increased acceptance of the system
globally.




6
 Index





Industry
Consolidation




The
industrial protective clothing industry is highly fragmented and consists of a
large number of small, closely-held family businesses. DuPont, Lakeland and
Kimberly Clark are the dominant disposable industrial protective apparel
manufacturers. Since 1997, the markets for manufacturing and distribution have
consolidated. A number of large distributors with access to capital have
acquired smaller distributors. The acquisitions include Vallen Corporation’s
acquisitions of Safety Centers, Inc., All Supplies, Inc., Shepco Manufacturing
Co., and Century Safety (Canada) and Hagemeyer’s acquisition of Vallen
Corporation; W.W. Grainger’s acquisitions of Allied Safety, Inc., Lab Safety
Supply, Inc., Acklands Limited, Gempler’s safety supply division and Ben
Meadows, Inc.; Air Gas’ acquisitions of Rutland Tool & Supply Co., Inc.,
IPCO Safety Supply, Inc., Lyon Safety, Inc., Safety Supply, Inc., Safety West,
Inc. and Delta Safety Supply, Inc.; and Fisher Scientifics’ acquisitions of
Safety Services of America, Cole-Parner, Retsch and Emergo. Thermo Electron
merged with Fisher Scientific. In 2007, the Hagemeyer Group was sold to Sonnepar
SP with the North American operations going to Rexel. Dantech and IDG were
purchased by private equity groups.




As these
safety distributors consolidate and grow, we believe they are looking to reduce
the number of safety manufacturing vendors they deal with and support, while at
the same time shifting the burden of end user selling to the manufacturer. This
creates a significant capital availability issue for small safety manufacturers
as end user selling is more expensive, per sales dollar, than selling to safety
distributors. As a result, the manufacturing sector in this industry is seeing
follow-on consolidation. DuPont has acquired Marmac Manufacturing, Inc.,
Kappler, Inc., Cellucup, Melco, Mfg., and Regal Manufacturing since 1998, while
in the related safety product industries Norcross Safety Products L.L.C. has
acquired Morning Pride, Ranger-Servus, Salisbury, North and Pro Warrington and
Christian Dalloz has acquired Bacou, USA which itself acquired Uvex Safety,
Inc., Survivair, Howard Leight, Perfect Fit, Biosystems, Fenzy, Titmus, Optrel,
OxBridge and Delta Protection. 3M acquired Aaero Corporation in
2008.




We
believe a larger industrial protective clothing manufacturer has competitive
advantages over a smaller competitor including:




·
            economies
      of scale when selling to end users, either through the use of a direct
      sales force or independent representation
  groups;




·
            broader
      product offerings that facilitate cross-selling
    opportunities;




·
            the
      ability to employ dedicated protective apparel training and selling
      teams;




·
            the
      ability to offer volume and growth incentives to safety distributors;
      and




·
            access
      to international sales.




We
believe we have a substantial opportunity to pursue acquisitions in the
industrial protective clothing industry, particularly because many smaller
manufacturers share customers with us.







Business Strategy





Key
elements of our strategy include:




·
            Increase International Sales
      Opportunities. We intend to aggressively increase our penetration
      of the International markets for our product lines. In FY07 and FY08, we
      have opened sales offices in Beijing, Shanghai, and Weifang China; Tokyo,
      Japan; and Santiago, Chile: Our sales in our older United Kingdom
      operations grew by 34.6% in fiscal 2008, 46.6% in 2007 and 55.9% in 2006.
      We expect our newer operations in Chile, China, and India to ramp up sales
      on a similar basis to our UK operations.  We also have a letter
      of intent to purchase Qualytextil, a Brazilian manufacturer with FY08
      sales of $10.0 million and revenue growth in the last year of 57%, with a
      closing scheduled for May 2, 2008.




·
            Acquisitions. We
      believe that the protective clothing market is fragmented and presents the
      opportunity to acquire businesses that offer comparable products or
      specialty products that we do not offer. We intend to consider
      acquisitions that afford us economies of scale, enhanced opportunity for
      cross-selling, expanded product offerings and an increased market
      presence. We acquired a facility in New Delhi, India in November 2006
      where we are producing Nitrile, Latex and Neoprene Gloves.  We
      also acquired Mifflin Valley, Inc., a manufacturer of high visibility
      protective clothing in August 2005. We intend to close in May 2008 on our
      acquisition of Qualytextil, a Brazilian manufacturer of fire protective
      clothing.







7
 Index





·
            Introduction of New
      Products. We continue our history of product development and
      innovation by introducing new proprietary products across all our product
      lines. Our innovations have included Micromax®
      disposable protective clothing line, our ChemMax®
      line of chemical protective clothing, our Despro®
      patented glove design, Microgard antimicrobial products for food service
      and our engineered composite glove products for high cut and abrasion, our
      ThermbarTM
      glove and sleeve products for heat protection, GrapolatorTM
      sleeve lines for hand and arm cut protection and our ThermbarTM
      Mock Twist glove for hand and arm heat protection. We own 21 patents on
      fabrics and production machinery and have 11 additional patents in
      application. We will continue to dedicate resources to research and
      development.




·
            Decrease Manufacturing
      Expenses by Moving Production to International Facilities. We have
      additional opportunities to take advantage of our low cost production
      capabilities in Mexico and China. Beginning in 1995, we successfully moved
      the labor intensive sewing operation for our limited use/disposable
      protective clothing lines to these facilities. Beginning January 1, 2005,
      pursuant to the United States World Trade Organization Treaty with China,
      the reduction in quota requirements and tariffs imposed by the U.S. and
      Canada on textiles goods, such as our reusable woven garments, have made
      it more cost effective to move production for some of these product lines
      to our assembly facilities in China. We completed this process in fiscal
      2008. As a result, we expect to see profit margin improvements for these
      product lines, which will allow us to compete more effectively as quota
      restrictions are removed and tariffs lowered.  We are now
      looking at Vietnam and Cambodia for any further expansion of our cut and
      sew capabilities.




·
            Improve Marketing in Existing
      Markets.  We believe significant growth opportunities are
      available to us through the better positioning, marketing and enhanced
      cross-selling of our reusable woven protective clothing, glove and arm
      guards and high-end chemical suit product lines, along with our limited
      use/disposable lines as a bundled offering.  This allows our
      customers one stop shopping using combined freight
    shipments.




·
            Increase Sales to the First
      Responder Market. Our high-end chemical protective suits meet all
      of the regulatory standards and requirements and are particularly well
      qualified to provide protection to first responders to chemical or
      biological attacks. For example, our products have been used for response
      to recent threats such as the 2001 anthrax letters, the 2003 SARS
      epidemic, the 2004 ricin letters and the 2006 Avian Flu. A portion of
      appropriations for the Fire Act of 2002 and the Bio Terrorism Act of 2002
      are available for purchase of products for first responders that we
      manufacture, and we are aggressively targeting this Homeland Security
      market.




·
            Dealing with Price Increases
      in Raw Materials.One major supplier, DuPont, increased
      the price of Tyvek®
      fabrics by 3.7% in January, 2005 by 4 to 6% in June 2005 and by 4.9% in
      November 2005.  However, in June of 2005 DuPont also published
      new garment price increases of 4% to 6%, depending on style, and again
      increased garment prices in November 2005 by approximately
      6%.  We expect further fabric increases in 2008 due to rising
      oil prices. Past increases were mostly predicated upon increases in oil
      and natural gas which are prime components in the manufacturing of
      Tyvek®.  We
      react to such increases by increasing our inventories of Tyvek®
      roll goods prior to such announced increases.  Additionally, we
      have negotiated discounts or rebates with many suppliers of roll goods
      based upon volume purchases.  Nonetheless, Tyvek®
      garment pricing to prime volume accounts was very competitive in all of
      fiscal 2008.  In order to offset any negative effect of these
      prices increases we are continuing the operating cost reduction program
      already in effect continuing the measures initiated last year. We continue
      to meet competitive pricing conditions to maintain or increase market
      shares and such actions may reduce our margins in the
    future.




For
example:




1.
            We
      continue to press our raw material and component suppliers for price
      reductions and better payment
terms.




8
 Index





2.
            We
      are sourcing more raw materials and components from our China based
      operations as opposed to sourcing in Europe and North
    America.




3.
            We
      are re-engineering many products so as to reduce the amount of raw
      materials used and reduce the direct labor in such
    products.




Last
year, we saw a strong competitive push in the marketplace for disposable
protective clothing, with a large competitor offering an aggressive rebate
program.  We are meeting competitive offers by increasing our supply and
logistic efficiencies.  We lost significant amount of our sales volume in
the Tyvek area with only a moderate net effect on our gross margins, due to
aggressive internal cost reductions.





·
            Emphasize Customer
      Service. We continue to offer a high level of customer service to
      distinguish our products and to create customer loyalty. We offer
      well-trained and experienced sales and support personnel, on-time delivery
      and accommodation of custom and rush orders. We also seek to advertise our
      brand names.




Our Competitive Strengths




Our
competitive strengths include:




·
            Industry Reputation. We
      devote significant resources to creating customer loyalty by accommodating
      custom and rush orders and focusing on on-time delivery. Additionally, our
      ISO 9001 certified facilities manufacture high-quality products. As a
      result of these factors, we believe that we have an excellent reputation
      in the industry.




·
            Long-standing Relationship
      with DuPont. We believe we are the largest independent customer for
      DuPont’s Tyvek®
      and TyChem®
      material for use in the industrial protective clothing market. Our
      trademark agreements with DuPont for Tyvek®,
      TyChem®
      and Kevlar®
      require strict quality standards as a prerequisite for using the DuPont
      trademarks and tradenames on the finished product. We believe this brand
      identification with DuPont benefits the marketing of our product lines, as
      over the past 30 years Tyvek®
      has become known as the standard for limited use/disposable protective
      clothing. We believe our relationship with DuPont to be
      excellent.




·
            International Manufacturing
      Capabilities. We have operated our own manufacturing facilities in
      Mexico since 1995 and in China since 1996. Our three facilities in China
      total 239,000 sq. ft. of manufacturing, warehousing and administrative
      space while our facility in Mexico totals over 43,000 sq. ft. of
      manufacturing, warehousing and administrative space. Our facilities and
      capabilities in China and Mexico allow access to a less expensive labor
      pool than is available in the United States and permits us to purchase
      certain raw materials at a lower cost than they are available
      domestically.




·
            India.  In
      November 2006 we purchased three facilities comprising 58,945 square feet
      in New Delhi, India where we are producing nitrile, latex and neoprene
      gloves which are being sold in South America presently.  We
      intend to enter the North American and European markets in spring 2008
      with a newly designed line of
gloves.




·
            International Sales
      Offices.  We have sales offices around the world to
      service various major markets, a greatly expanded Toronto, Canada facility
      that went on line in January 2008 for the Canadian market, an expanded
      Newport, United Kingdom office for the European Common Market that went on
      line in late 2007, and new sales offices in Beijing, Weifang and Shanghai,
      China covering China Australia, and Southeast Asia, Tokyo, Japan for Japan
      and Santiago, Chile and Jerez, Mexico for the South American market. The
      expected Brazil acquisition will complete the infrastructure for our
      strategy for South America.




·
            Comprehensive
      Inventory. We have a large product offering with numerous
      specifications, such as size, styles and pockets, and maintain a large
      inventory of each in order to satisfy customer orders in a timely manner.
      Many of our customers traditionally make purchases of industrial
      protective gear with expectations of immediate delivery. We believe our
      ability to provide timely service for these customers enhances our
      reputation in the industry and positions us strongly for repeat business,
      particularly in our limited use/disposable protective clothing
      lines.




·
            Manufacturing
      Flexibility. By locating labor-intensive manufacturing processes
      such as sewing in Mexico and China, and by utilizing sewing
      sub-contractors, we have the ability to increase production without
      substantial




9
 Index








·
            Experienced Management
      Team. We have an experienced management team. Our executive
      officers other than the CFO average greater than 21 years of experience in
      the industrial protective clothing market. The knowledge, relationships
      and reputation of our management team helps us maintain and build our
      customer base.




10
 Index




Products


The
following table summarizes our principal product lines, the raw materials used
to manufacture them, their applications and end markets:




Product
      Line
            Raw
      Material
            Protection
      Against
            End
      MarketLimited
      use/disposable protective clothing
            ·Tyvek®
      and laminates of Polyethylene, Spunlaced Polyester, SMS, Polypropylene,
      and Company Micromax, Micromax NS, ChemMax 1, ChemMax 2, Pyrolon®,
      and other non-woven fabrics
            ·Contaminants,
      irritants, metals, chemicals, fertilizers, pesticides, acids, asbestos,
      PCBs, lead, dioxin and many other hazardous chemicals
              ·Viruses and
      bacteria (AIDS, streptococcus, SARS and hepatitis)
            ·Chemical/petrochemical
      industries
              ·Automotive
      and pharmaceutical industries
              ·Public
      utilities
              ·Government
      (terrorist response)
              ·Janitorial
              ·Medical
      FacilitiesHigh-end
      chemical protective suits
            ·TyChemâQC
              ·TyChem®
      SL
              ·TyChem®
      TK
              ·TyChem®
      F
              ·TyChem®
      BR
              ·ChemMax®
      3
              ·Pyrolon®CRFR
              ·Other
      Lakeland patented co-polymer laminates
            ·Chemical
      spills
              ·Toxic
      chemicals used in manufacturing processes
              ·Terrorist
      attacks, biological and chemical warfare (anthrax, ricin and
      sarin)
            ·Hazardous
      material teams
              ·Chemical and
      nuclear industries
              ·Fire
      departments (hazmat)
              ·Government
      (first responders)Fire
      fighting and heat protective apparel
            ·Nomex®
              ·Aluminized
      Nomex®
              ·Aluminized
      Kevlar®
              ·PBI
      Matrix
              ·Millenia®
              ·Basofil®
              ·Advance
              ·Indura®
      Ultrasoft
            ·Fire, burns
      and excessive heat
            ·Municipal,
      corporate and volunteer fire departments
              ·Wildland
      fire fighting
              ·Hot
      equipment maintenance personnel and industrial fire
      departments
              ·Oil well
      fires
              ·Airport
      crash rescueGloves
      and arm guards (1)
            ·Kevlar®
      yarns
              ·Kevlar®
      wrapped steel core yarns
              ·Spectra®
      yarns
              ·Dyneema®
      yarns
            ·Cuts,
      lacerations, heat and chemical irritants
            ·Automotive,
      glass and metal fabrication industries
              ·Chemical
      plants
              ·Food
      ProcessingReusable
      woven garments
            ·Staticsorb
      carbon thread with polyester
              ·Cotton
      polyester blends
              ·Cotton
              ·Polyester
              ·Nomex®/FR
      Cottons
            ·Protects
      manufactured products from human contamination or static electrical
      charge
              ·Bacteria,
      viruses and blood borne pathogens
              ·Protection
      from flash fires
            ·Hospital and
      industrial facilities
              ·Clean room
      environments
              ·Emergency
      medical ambulance services
              ·Chemical and
      oil refiningHigh
      Visibility Clothing
              Reflective
      vests
              Jacket,
      Coats
              Jumpsuits
              “T”
      shirts, sweatshirts
            ·Polyester
      mesh
              ·Solid
      polyester
              ·FR polyester
      mesh
              ·FR solid
      polyester
            ·Lack of
      visibility
              
              ·Heat, flame,
      sparks
            ·Highway
              ·Construction
              ·Maintenance
              ·Transportation




11
 Index




Product
    Line
            Raw Material
            Protection
      Against
            End MarketRaingear
              
              70E
      Vests
              
              
              Jumpsuits
      with reflective trim
            ·Modacrylic
              ·Modacrylic
      anti-static
              
              §FR cotton
              §Nomex
              §FR
      trims
            ·Arc
      flash
              ·Static
      buildup, explosive atmospheres
              ·Fire, heat
      explosions
            ·Police
              ·Fire,
      EMS
              ·Electric
      utilities
              ·Gas
      utilities
              
              ·Extrication
              ·Confined
      space rescue





(1)
Industrial grade Nitrile, Latex, Neoprene, Buytl and other combinations thereof
will be added to our product line in the spring of 2008 resulting from the
acquisition of an Indian glove facility.  These industrial gloves are
used to protect workers from hazardous chemicals and will complement our line of
cut resistant Kevlar, Dyneema and Spectra string knit gloves, along with our
hazardous chemical line of coveralls.





Limited
Use/Disposable Protective Clothing




We
manufacture a complete line of limited use/disposable protective garments,
including coveralls, laboratory coats, shirts, pants, hoods, aprons, sleeves,
arm guards, caps, and smocks. Limited use garments can also be coated or
laminated to increase splash protection against harmful inorganic acids, bases
and other liquid chemicals. Limited use garments are made from several non-woven
fabrics, including Tyvek® and
TyChem® QC (both
DuPont fabrics) and our own trademarked fabrics such as Pyrolon® Plus 2,
XT, CRFR, Micromax®,
Micromax NS, Safegard “76”®,
Zonegard®,
RyTex®
ChemMax®1, 2 and 3, and TomTex®, which
are made of spunlaced polyester, polypropylene and polyethylene materials,
laminates, films and derivatives. We incorporate many seaming and taping
techniques depending on the level of protection needed in the end use
application.




Typical
users of these garments include chemical plants, petrochemical refineries and
related installations, automotive manufacturers, pharmaceutical companies,
construction companies, coal and oil power generation utilities and telephone
utility companies. Numerous smaller industries use these garments for specific
safety applications unique to their businesses.  Additional
applications include protection from viruses and bacteria, such as AIDS,
streptococcus, SARS and hepatitis, at hospitals, clinics and emergency rescue
sites and use in clean room environments to prevent human contamination in the
manufacturing processes.




Our
limited use/disposable protective clothing products range in unit price from
$.04 for shoe covers to approximately $14.00 for a TyChem® QC
laminated hood and booted coverall. Our largest selling item, a standard white
Tyvek®
coverall, sells for approximately $2.50 to $3.75 per garment. By comparison,
similar reusable cloth coveralls range in price from $30.00 to $60.00, exclusive
of laundering, maintenance and shrinkage expenses.




We cut,
warehouse and sell our limited use/disposable garments primarily at our Decatur,
Alabama and China facilities and warehouses in Las Vegas, NV and Shillington,
PA. The fabric is cut into required patterns at our Decatur plant and shipped to
our Mexico facility for assembly. Our assembly facilities in China or Mexico and
independent contractors sew and package the finished garments and return them
primarily to our Decatur, Alabama plant, normally within one to eight weeks, for
immediate shipment to the customer.




We
presently utilize one independent domestic sewing contractor and one
international contractor under agreements that are terminable at will by either
party. In fiscal 2007, no independent sewing contractor accounted for more than
5% of our production of limited use/disposable garments. We believe that we can
obtain adequate alternative production capacity should any of our independent
contractors become unavailable.




The
capacity of our facilities, complemented by the availability of existing and
other available independent sewing contractors, allow us to reduce, or
alternately increase, our production capacity without incurring large on going
costs typical of many manufacturing operations. This allows us to react quickly
to changing unit demand for our products.




High-End
Chemical Protective Suits




We
manufacture heavy-duty chemical suits made from DuPont TyChem® QC, SL,
F, BR and TK, fabrics and our proprietary ChemMax® 1, 2 and
3 fabrics. These suits are worn by individuals on hazardous material teams and
within general industry to provide protection from powerful, highly concentrated
and hazardous or potentially lethal chemical and biological toxins, such as
toxic wastes at Super Fund sites, toxic chemical spills or biological
discharges, chemical or biological warfare weapons (such as anthrax, ricin, or
saran and mustard gas), and chemicals and petro-chemicals present




12
 Index








·
            TyChem® TK
      – a multi-layer film laminated to a durable non woven substrate. This
      garment offers the broadest temperature range for limited use garments of
      -94°F to 194°F. This garment is an encapsulating design and is available
      in National Fire Protection Agency 1991-2005 revision certified versions
      and meets the requirements of the flash fire
  option.


·
            ChemMax® 3
      – a multi-layer film laminated to a durable spunbonded substrate. This is
      a non-encapsulating garment and meets the requirements of NFPA 1992, 2005
      Revision. In addition to NFPA certified ensembles, we also manufacture
      garments from our proprietary ChemMax® 1,
      ChemMax® 2,
      and ChemMax® 3
      fabrics that are compliant with CE types 2, 3, and 4 for the international
      markets.




We
manufacture chemical protective clothing at our facilities in Decatur, Alabama,
Mexico and China. Using fabrics such as TyChem® SL,
TyChem® TK,
TyChem F, TyChem® BR,
ChemMax® 1,
ChemMax® 2 and
ChemMax® 3, we
design, cut, glue and/or sew the materials to meet customer purchase
orders.




We derive
most of our sales from the Fire Act. The federal government, through the Fire
Act of 2002, appropriated approximately $750 million in 2003 to fire departments
in the United States and its territories to fund the purchase of, among other
things, personal protective equipment, including our fire fighting and heat
protective apparel and high-end chemical protective suits. An additional $750
million was appropriated for 2004, $650 million for 2005, $648 million for 2006
and $547 million for 2007and $560 million for 2008. The Bio Terrorism
Preparedness and Response Act of 2002 included appropriations of $3.643 billion
for Bioterrorism Preparedness and $1.641 billion for Bioterrorism Hospital
Preparedness between 2002 and 2006.  Hospital Preparedness is where we
expect to see future garment sales.




Fire
Fighting and Heat Protective Apparel




We
manufacture an extensive line of products to protect individuals who work in
high heat environments. Our heat protective aluminized fire suit product lines
include the following:




·
            Kiln
      entry suit  –  to protect kiln maintenance workers
      from extreme heat.




·
            Proximity
      suits  –  to give protection in high heat areas where
      exposure to hot liquids, steam or hot vapors is
  possible.




·
            Approach
      suits  –  to protect personnel engaged in maintenance,
      repair and operational tasks where temperatures do not exceed 200°F
      ambient, with a radiant heat exposure up to
  2,000°F.




We
manufacture fire fighter protective apparel for domestic and foreign fire
departments. We developed the popular 32 inch coat high back bib style
(Batallion) bunker gear. Crash rescue continues to be a major market for us, as
we were one of the first manufacturers to supply military and civilian markets
with airport fire fighting protection.




Our fire
suits range in price from $850 for standard fire department turn out gear to
$2,000 for certain fire proximity suits. Approximately 70% of our heat
protective clothing is currently manufactured at our facility in St. Joseph,
Missouri with the remainder being made in our China facilities. Our Fyrepel® brand of
fire fighting apparel continues to benefit from ongoing research and development
investment, as we seek to address the ergonomic needs of stressful
occupations.  Additionally, we have introduced a new line of our OSX
turnout gear manufactured in China in order to compliment our US
line.




Gloves
and Arm Guards




We
manufacture and sell specially designed gloves and arm guards made from
Kevlar®, a cut
and heat resistant material produced by DuPont, Spectra®, a cut
resistant fiber made by Honeywell, and Dyneema®, a cut
resistant fiber made by DSM Dyneema B.V. and our proprietary patented engineered
yarns. We are one of only nine companies licensed in North America to sell 100%
Kevlar® gloves,
which are high strength, lightweight, flexible and durable. Kevlar® gloves
offer a better overall level of protection and lower worker injury rates, and
are more cost effective, than traditional leather, canvas or coated work gloves.
Kevlar® gloves,
which can withstand temperatures of up to 400°F and are cut resistant enough to
allow workers to safely handle sharp or jagged unfinished sheet metal, are used
primarily in the automotive, glass and metal fabrication industries. Our higher
end string knit gloves range in price from $37 to $240





13
 Index








We
manufacture these string knit gloves primarily at our Alabama and Mexican
facilities, and we are shifting lower cost yarn production to our China
facilities. We completed our shift of glove production to Mexico last year and
will continue shifting more to our Chinese facilities and our Indian glove
facility in this fiscal year and next fiscal year.  Foreign production
will allow lower fabric and labor costs.




We have
received patents for our DesPro and Des ProPlus products on manufacturing
processes that provide greater cut and abrasion hand protection to the areas of
a glove where it wears out prematurely in various applications. For example, the
areas of the thumb crotch, and index fingers are made heavier than the balance
of the glove providing increased wear protection and longer glove life reducing
overall glove costs.  This proprietary manufacturing process allows us
to produce our gloves more economically and provide a greater value to our end
user.




Reusable
Woven Garments




We
manufacture and market a line of reusable and washable woven garments that
complement our fire fighting and heat protective apparel offerings and provide
alternatives to our limited use/disposable protective clothing lines and give us
access to the much larger woven industrial and health care-related markets.
Cloth reusable garments are favored by customers for certain uses or
applications because of familiarity with and acceptance of these fabrics and
woven cloth’s heavier weight, durability and longevity. These products allow us
to supply and satisfy a wider range of safety and customer needs.




Additionally,
we are currently working on a new line of FR and Non FR garments that will be
utilized in the Police/Swat and Emergency Medical Technician areas.




Our
product lines include the following:




·
            Electrostatic
      dissipative apparel – used primarily in the pharmaceutical and automotive
      industries.




·
            Clean
      room apparel – used in semiconductor manufacturing and pharmaceutical
      manufacturing to protect against human
  contamination.




·
            Flame
      resistant Nomex®/FR
      Cotton coveralls/pants/jackets – used in chemical and petroleum plants and
      for wild land firefighting.




·
            Cotton
      and Polycotton coveralls, lab coats, pants, and
  shirts.




Our
reusable woven garments range in price from $20 to $150 per
garment.  We manufacture and sell woven cloth garments at our
facilities in China and St. Joseph, Missouri. We are continuing to relocate
highly repetitive sewing processes for our high volume, standard product lines
such as woven protective coveralls and to our facilities in China where lower
fabric and labor costs allow increased profit margins.




High-visibility
Garments


Lakeland
Reflective manufactures and markets a comprehensive group of reflective apparel
meeting the American National Standards Institute (ANSI) requirements as
designated under standards 107-2004 and 207-2006.  The line includes
vests, T-shirts, sweatshirts, jackets, coats, raingear, jumpsuits, hats and
gloves.





Fabrics
available include solid and mesh fluorescent, polyester, both standard and fire
retardant (FR) treated, Modacrylic materials which meet ASTM 1560 Test method
for standard 70 Electric Arc Protection, are part of our offering.  We
recently introduced a breathable Modacrylic fabric. This fabric should have
great appeal in states where very hot weather affects utility workers working
outside during spring and summer (heat prostration).





In the
second quarter of this year we will be releasing a new series of High Contrast
Bomber Jackets, with a polyester shell that is waterproof, breathable, and has a
fire retardant (“FR”) treated fabric.  This product is intended to
provide visibility to the Public Safety sector.  Public Safety as a
market consists of Firemen, Police and Emergency Medical
Services.  Such personnel also contend with hazards such as hot
objects and sparks.  Hence the addition of the FR treatment makes this
garment desirable in such working environments.





With the
introduction of Lakeland’s Value Vest line, we will be in a position to enter
the commodity vest market.  Distributor prices will range between
$5.25 to $10.95 per vest depending on the fabric, trim, and vest
class.  With the onset of Federal Legislation, 23CFR634, effective
November 2008, all contractors and other groups, working on any highway which
benefits from Federal Funds, will be required to wear class 2 or class 3
vests.  This legislation will greatly




14
 Index








Our
domestic vest production occurs at Shillington, PA.  Much of the
manufacturing at this facility is focused on custom vest
requirements.  Many corporations and agencies, such as State
Departments of Transportation develop custom specifications which they feel are
more efficient in meeting their specific needs versus an off-the-shelf
product.  We also import product from China to meet the demand for
items in high volume commodity markets.





In
addition to ANSI Reflective items, Lakeland Hi-Visibility manufactures Nomex and
FR cotton garments which have reflective trim as a part of their design
criteria. These garments typically are used in rescue operations, such as those
encountered with a vehicular crash.  Garments in this group are not as
price sensitive as those in the reflective categories.  Consequently
they are made in our Shillington, PA facility, where we can react to customized
needs and offer quicker customer response.  Garments in this group can
range in price from $200.00-$350.00.





Quality


Our
Alabama, Missouri, Mexico, India and three China manufacturing facilities are
ISO 9001 certified. ISO standards are internationally recognized quality
manufacturing standards established by the International Organization for
Standardization based in Geneva, Switzerland. To obtain our ISO registration,
our factories were independently audited to test our compliance with the
applicable standards. In order to maintain registration, our factories receive
regular announced inspections by an independent certification organization.
While ISO certification is advantageous in retaining CE certification of
products, we believe that the ISO 9001 certification makes us more competitive
in the marketplace, as customers increasingly recognize the standard as an
indication of product quality.




As we are
increasingly sourcing fabrics internationally, we have installed a quality
control laboratory at our Weifang, China facility.  This laboratory is
critical for insuring that our incoming raw materials meet our quality
requirements, and we continue to add new capabilities to this facility to
further guarantee product quality and to aid in new product
development.




Marketing and Sales


We employ
an in-house sales force of 15 people, 2 regional sales managers and utilize 42
independent sales representatives. These employees and representatives call on
over 1000 safety and mill supply distributors nationwide and internationally in
order to promote and provide product information for and sell our products.
Distributors buy our products for resale and typically maintain inventory at the
local level in order to assure quick response times and the ability to service
their customers properly. Our sales employees and independent representatives
have consistent communication with end users and decision makers at the
distribution level, thereby allowing us valuable feedback on market perception
of our products, as well as information about new developments in our industry.
During fiscal 2008, no one single distributor accounted for 5% of our net
sales.




We seek
to maximize the efficiency of our established distribution network through
direct promotion of our products at the end user level. We advertise primarily
through trade publications and our promotional activities include sales
catalogs, mailings to end users, a nationwide publicity program and our Internet
web site. We exhibit at both regional and national trade shows such as the
National Safety Congress and the American Society of Safety Engineers and A
& A show in Dusseldorf, Germany.




Research and Development


We
continue to evaluate and engineer new or innovative products. In the past three
years we have purchased or introduced 139 new products, the more prominent of
which are the Micromax® line of
disposable protective clothing; newly configured lines of fire retardant work
coveralls and fire turn-out gear; a SARS protective medical gown for Chinese
hospital personnel; the Despro®,
GrapolatorTM and
Microgard® anti
microbial cut protective glove and sleeve lines for food service; our patented
ThermbarTM Mock
Twist that provides heat protection for temperatures up to 600°F; 20 new lines
of nitrile, latex, rubber, neoprene and mixed laminate gloves made in our new
India facility, and our new ChemMax® 1, 2,
and 3 fabrics for protection against intermediate chemical threats. We own 21
patents on various fabrics, patterns and production machinery. We plan to
continue investing in research and development to improve protective apparel
fabrics and the manufacturing equipment used to make apparel. Specifically, we
plan to continue to develop new specially knit and coated gloves, woven gowns
for industrial and medical uses, fire retardant cotton fabrics and protective
non-woven fabrics. During fiscal 2006, 2007 and 2008, we spent approximately
$90,000, $100,000 and $359,000 respectively, on research and
development.




To insure
that our development activities are properly directed, we are active
participants in standards writing.  We are





15
 Index








Suppliers and Materials


Our
largest supplier is DuPont, from whom we purchase Tyvek® and
TyChem® under
North American trademark licensing agreements and Kevlar® under
international trademark licensing agreements. Commencing in 1995, anticipating
the expiration of certain patents on its proprietary materials, DuPont offered
certain customers of these materials the opportunity to enter into one or two
year trademark licensing agreements. In fiscal 2008, we purchased approximately
62% of the dollar value of our materials from DuPont, and Tyvek®
constituted approximately 48% of our cost of goods sold and 58% of the dollar
value of our raw material purchases.  We believe our relationship with
DuPont to be excellent and our Tyvek/TyChem/Kevlar® trade
mark licenses with DuPont have been in place since 1995. Prior to 1995 we bought
Tyvek® from
DuPont under informal branding agreements for 13 years.




We do not
have long-term, formal trademark use agreements with any other suppliers of
non-woven fabric raw materials used by us in the production of our limited
use/disposable protective clothing product lines. Materials such as
polypropylene, polyethylene, polyvinyl chloride, spun laced polyester and their
derivatives and laminates are available from thirty or more major mills. Flame
retardant fabrics are also available from a number of both domestic and
international mills. The accessories used in the production of our disposable
garments, such as thread, boxes, snaps and elastics are obtained from
unaffiliated suppliers. We have not experienced difficulty in obtaining our
requirements for these commodity component items.




We have
not experienced difficulty in obtaining materials, including cotton, polyester
and nylon, used in the production of reusable non-wovens and commodity
gloves.  We obtain Spectra® yarn
used in our super cut-resistant Dextra Guard gloves from Honeywell, and since we
believe Honeywell will not be able to meet our supply needs for this material in
the future we reacted to these shortages by developing a new relationship with
DSM Dyneema B.V. for similar Dyneema® yarns..
We obtain Kevlar®, used in
the production of our specialty safety gloves, from independent mills that
purchase the fiber from DuPont.




Materials
used in our fire and heat protective suits include glass fabric, aluminized
glass, Nomex®,
aluminized Nomex®,
Kevlar®,
aluminized Kevlar®,
polybenzimidazole, as well as combinations utilizing neoprene coatings.
Traditional chemical protective suits are made of Viton®, butyl
rubber and polyvinyl chloride, all of which are available from multiple
sources.  Advanced chemical protective suits are made from TyChem® SL, TK
and BR fabrics, which we obtain from DuPont, and our own patented fabrics. We
have not experienced difficulty obtaining any of these materials.




Material
such as Nitrile Butadiene Rubber, Neoprene, Natural Rubber and Latex used at our
new India facilities are available from multiple sources.




Internal Audit


We have
an internal audit group consisting of a team of 2 people who have direct access
to the audit committee of our board of directors.  The team’s primary
function is to insure our internal control system is functioning
properly.  Additionally, the team is used from time to time to perform
operational audits to determine areas of business
improvements.  Working in close cooperation with the audit committee,
senior management and the external auditors, the internal audit function
supports management to ensure that we are in compliance with all aspects of the
Sarbanes-Oxley Act.




Competition


Our
business is highly competitive due to large competitors who have monopolistic
positions in the fabrics that are standards in the industry in disposable and
high end chemical suits. Thus, barriers to entry in disposable Tyvek® and
TyChem® garments
are high. We believe that the barriers to entry in the reusable garments and
gloves outside of Kevlar® are
relatively low. We face competition in some of our other product markets from
large established companies that have greater financial, research and
development, sales and technical resources. Where larger competitors, such as
DuPont, Kimberly Clark, Ansell Edmont and Sperian offer products that are
directly competitive with our products, particularly as part of an established
line of products, there can be no assurance that we can successfully compete for
sales and customers. Larger competitors outside of our Disposable and Chemical
Suit Lines also may be able to benefit from economies of scale and technological
innovation and may introduce new products that compete with our
products.




Seasonality


Our
operations have historically been seasonal, with higher sales generally
occurring in February, March, April and May when scheduled maintenance on
nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting





16
 Index









In recent
years, due to increased demand by first responders for our chemical suits and
fire gear, our historical seasonal pattern has shifted. Governmental
disbursements are dependent upon budgetary processes and grant administration
processes that do not follow our traditional seasonal sales patterns. Due to the
size and timing of these governmental orders, our net sales, results of
operations, working capital requirements and cash flows can vary between
different reporting periods. As a result, we expect to experience increased
variability in net sales, net income, working capital requirements and cash
flows on a quarterly basis. Upon the proposed acquisition of the Brazilian
facility and our exclusive supply agreement with Wesfarmers in Australia, this
seasonality may decrease as the South America Mercasor markets and Australian,
New Zealand, and South African markets experience their high season during our
summer and their low season during our winter.




Patents and Trademarks


We own 21
patents and have 11 patents in the application and approval process with the
U.S. Patent and Trademark Office. We own 18 Trademarks and have 10 Trademarks in
the application and approval process.  Additionally, a Patent
Corporation Treaty application was filed for our Unilayer Glove Fabrics which
involves technology using a robotic knitter that allows us to knit a glove using
stronger or weaker yarns in different parts of the glove, as necessary,
depending on the expected wear. Intellectual property rights that apply to our
various products include patents, trade secrets, trademarks and to a lesser
extent copyrights. We maintain an active program to protect our technology by
ensuring respect for our intellectual property rights.




Employees


As of
March 31, 2008, we had approximately 1,782 full time employees, 1,533, or 86.0%,
of who were employed in our international facilities and 249, or 14.0%, of who
were employed in our domestic facilities. An aggregate of 1,500 of our employees
are members of unions. We are not currently a party to any collective bargaining
agreements. We believe our employee relations to be excellent.  We
presently have no contracts with these unions.




Environmental Matters


We are
subject to various foreign, federal, state and local environmental protection,
chemical control, and health and safety laws and regulations, and we incur costs
to comply with those laws. We own and lease real property, and certain
environmental laws hold current or previous owners or operators of businesses
and real property responsible for contamination on or originating from property,
even if they did not know of or were not responsible for the contamination. The
presence of hazardous substances on any of our properties or the failure to meet
environmental regulatory requirements could affect our ability to use or to sell
the property or to use the property as collateral for borrowing, and could
result in substantial remediation or compliance costs. If hazardous substances
are released from or located on any of our properties, we could incur
substantial costs and damages.




Although
we have not in the past had any material costs or damages associated with
environmental claims or compliance and we do not currently anticipate any such
costs or damages, we cannot assure you that we will not incur material costs or
damages in the future, as a result of the discovery of new facts or conditions,
acquisition of new properties, the release of hazardous substances, a change in
interpretation of existing environmental laws or the adoption of new
environmental laws.




Available Information


We make available free of charge
through our Internet website, www.lakeland.com– Investor Relations ,All
SEC filings, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed in accordance
with Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission. Our filings are
also available to the public over the internet at the SEC’s website at http://www.sec.gov.  In
addition, we provide paper copies of our SEC filings free of charge upon
request.  Please contact the Corporate Secretary of the company at
631-981-9700 or by mail at our corporate address Lakeland Industries, Inc. 701-7
Koehler Avenue, Ronkonkoma, NY 11779.





17
 Index





Item 1A. Risk Factors


RISK
FACTORS


You should carefully consider the
following risks before investing in our common stock.  These are not
the only risks that we may face.  If any of the events referred to
below actually occurs, our business, financial condition, liquidity and results
of operations could suffer.  In that case, the trading price of our
common stock could decline and you may lose all or part of your
investment.  You should also refer to the other information in this
Form 10-K and Annual Report and in the documents we incorporate by reference
into this Form 10-K and Annual Report, including our consolidated financial
statements and the related notes.




Risk
Related to Our Business




We
rely on a limited number of suppliers and manufacturers for specific fabrics,
including Tyvek® and TyChem®, and we may not be able to obtain substitute
suppliers and manufacturers on terms that are as favorable, or at all, if our
supplies are interrupted.




Our business is dependent to a
significant degree upon close relationships with vendors and our ability to
purchase raw materials at competitive prices.  The loss of key vendor
support, particularly support by DuPont for its Tyvek® products, could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.  We do not have long-term supply contracts
with DuPont or any of our other fabric suppliers.  In addition, DuPont
also uses Tyvek® and TyChem ® in some of its own products which compete directly
with our products.  As a result, there can be no assurance that we
will be able to acquire Tyvek®, TyChem® and other raw materials and components
at competitive prices or on competitive terms in the future.  For
example, certain materials that are high profile and in high demand may be
allocated by vendors to their customers based upon the vendors’ internal
criteria, which are beyond our control.




In fiscal 2008, we purchased
approximately 63% of the dollar value of our raw materials from DuPont, and
Tyvek® constituted approximately 43% of our cost of goods sold.  For
periods in 1985 and 1987, DuPont placed all purchasers of Tyvek® on
“allocation.”  “Allocation” is a circumstance in which demand
outstrips supply and fabrics are sold based upon the amount a buyer purchased
the prior year.  This allocation limited our ability to meet demand
for our products during those years.  There can be no assurance that
an adequate supply of Tyvek® or TyChem® will be available in the
future.  Any shortage could adversely affect our ability to
manufacture our products, and thus reduce our net sales.




Other than DuPont’s Tyvek® and TyChem®
fabrics, we generally use standard fabrics and components in our
products.  We rely on non-affiliated suppliers and manufacturers for
the supply of these fabrics and components that are incorporated in our
products.  If such suppliers or manufacturers experience financial,
operational, manufacturing capacity or quality assurance difficulties, or if
there is a disruption in our relationships, we will be required to locate
alternative sources of supply.  We cannot assure you that we will be
able to locate such alternative sources.  In addition, we do not have
any long-term contracts with any of our suppliers for any of these
components.  Our inability to obtain sufficient quantities of these
components, if and as required in the future, may result in:




·
            Interruptions
      and delays in manufacturing and resulting cancellations of orders for our
      products;




·
            Increases
      in fabrics or component prices that we may not be able to pass on to our
      customers; and




·
            Our
      holding more inventory that normal because we cannot finish assembling our
      products until we have all of the
components






We
are subject to risk as a result of our international manufacturing
operations.




Because most of our products are
manufactured at our facilities located in China and Mexico, our operations are
subject to risk inherent in doing business internationally.  Such
risks include the adverse effects on operations from war, international
terrorism, civil disturbances, political instability, governmental activities
and deprivation of contract and property rights.  In particular, since
1978, the Chinese government has been reforming its economic and political
systems, and we expect this to continue.  Although we believe that
these reforms have had a positive effect on the economic development of China
and have improved our ability to successfully operate our facilities in China,
we cannot assure you that these reforms will continue or that the Chinese
government will not take actions that impair our operations or assets




18
 Index




Our
results of operations could be negatively affected by potential fluctuations in
foreign currency exchange rates.




Most of our assembly arrangements with
our foreign-based subsidiaries or third party suppliers require payment to be
made in U.S. dollars.  These payments aggregated $26.0 million in
fiscal 2008.  Any decrease in the value of the U.S. dollar in relation
to foreign currencies could increase the cost of the services provided to us
upon contract expirations or supply renegotiations.  There can be no
assurance that we will be able to increase product prices to offset any such
cost increases and any failure to do so could have a material adverse effect on
our business, financial condition and results of operations.




We are also exposed to foreign currency
exchange rate risks as a result of our sales in foreign
countries.  Our net sales to customers in Canada and EEC were $9.0
million USD, in fiscal 2008.  Our sales in Canada are denominated in
Canadian dollars.  If the value of the U.S. dollar increases relative
to the Canadian dollar and we are unable to raise our prices proportionally,
then our profit margins could decrease because of the exchange rate
change.  Although our labor, some fabric and component costs in China
are denominated in the Chinese Yuan, this currency has historically been largely
pegged to the U.S. dollar, which has minimized our foreign currency exchange
rate risk in China.  Recently, however the Chinese Yuan has been
allowed to float against to the U.S. dollar, and therefore, we will be exposed
to additional foreign currency exchange rate risk.  This risk will
also increase as we continue to increase our sales in other foreign
countries.  See “Management’s Discussion and Analysis of Financial
condition and Results of Operations – Quantitative and Qualitative Disclosures
about Market Risk – Foreign Currency Risk.”







Rapid
technological change could negatively affect sales of our products and our
performance.




The rapid development of fabric
technology continually affects our apparel applications and may directly impact
the performance of our products.  For example, microporous film-based
products have eroded the market share of Tyvek® in certain low end
applications.  We cannot assure you that we will successfully maintain
or improve the effectiveness of our existing products, nor can we assure you
that we will successfully identify new opportunities or continue to have the
needed financial resources to develop new fabric or apparel manufacturing
techniques in a timely or cost-effective manner.  In addition,
products manufactured by others may render our products obsolete or
non-competitive.  If any of these events occur, our business,
prospects, financial condition and operating results will be materially and
adversely affected.







Acquisitions
or future expansion could be unsuccessful.




Mifflin Valley, Inc., a Pennsylvania
company, acquired on August 1, 2005, and a portion of the assets of RFB Latex,
an Indian company, which we acquired in November 2006 currently market high
visibility clothing and chemically resistant gloves
respectively.  These two new lines may accelerate our growth in the
personal protective equipment market.  These acquisitions involve
various risks, including: difficulties in integrating these companies’
operations, technologies, and products, the risk of diverting management’s
attention from normal daily operations of the business; potential difficulties
in completing projects associated with in-process research and development;
risks of entering markets in which we have limited experience and where
competitors in such markets have stronger market positions; initial dependence
on unfamiliar supply chains; and insufficient revenues to offset increased
expenses associated with these acquisitions.




In the future, we may seek to acquire
additional selected safety products lines or safety-related businesses which
will complement our existing products.  Our ability to acquire these
businesses is dependent upon many factors, including our management’s
relationship with the owners of these businesses, many of which are small and
closely held by individual stockholders.  In addition, we will be
competing for acquisition and expansion opportunities with other companies, many
of which have greater name recognition, marketing support and financial
resources than us, which may result in fewer acquisition opportunities for us as
well as higher acquisition prices.  There can be no assurance that we
will be able to identify, pursue or acquire any targeted business and, if
acquired, there can be no assurance that we will be able to profitably manage
additional businesses or successfully integrate acquired business into our
company without substantial





19
 Index








If we proceed with the proposed
Brazilian acquisition or any other significant acquisitions for cash, we may use
a substantial portion of our available cash in order to consummate any such
acquisition.  We may also seek to finance any such acquisition through
debt or equity financings, and there can be no assurance that such financings
will be available on acceptable terms or at all.  If consideration for
an acquisition consists of equity securities, our stockholders could be
diluted.  If we borrow funds in order to finance an acquisition, we
may not be able to obtain such funds on terms that are favorable to
us.  In addition, such indebtedness may limit our ability to operate
our business as we currently intend because of restrictions placed on us under
the terms of the indebtedness and because we may be required to dedicate a
substantial portion of our cash flow to payments on the debt instead of to our
operations, which may place us at a competitive disadvantage.




Acquisitions involve a number of
special risks in addition to those mentioned above, including the diversion of
management’s attention to the assimilation of the operations and personnel of
the acquired companies, the potential loss of key employees of acquired
companies, potential exposure to unknown liabilities, adverse effects on our
reported operating results, and the amortization or write down of acquired
intangible assets.  We cannot assure you that any acquisition by us
will or will not occur, that if an acquisition does occur that it will not
materially and adversely affect our results of operations or that any such
acquisition will be successful in enhancing our business.







If
we are unable to manage our growth, our business could be adversely
affected.




Our operations and business have
expanded substantially in recent years, with a large increase in employees and
business areas in a short period of time.  To manage our growth
properly, we have been and will be required to expend significant management and
financial resources.  There can be no assurance that our systems,
procedures and controls will be adequate to support our operations as they
expand.  There can also be no assurance that our management will be
able to manage our growth and operate a larger organization efficiently or
profitably.  To the extent that we are unable to mange growth
efficiently and effectively or are unable to attract and retain additional
qualified management personnel, our business, financial condition and results of
operations could be materially and adversely affected.







We
must recruit and retain skilled employees, including our senior management, to
succeed in our business.




Our performance is substantially
dependent on the continued services and performance of our senior management and
certain other key personnel, including Christopher J. Ryan, our chief executive
officer, president, general counsel and secretary, and Gary Pokrassa, our chief
financial officer, who has 38 years of financial and accounting experience, Greg
Willis, our executive vice president, due to their long experience in our
industry.  Our executive officers, other than CFO, have an average
tenure with us of 20 years and an average of 23 years of experience in our
industry.  The loss of services of any of our executive officers or
other key employees could have a material adverse effect on our business,
financial condition and results of operations.  In addition, any
future expansion of our business will depend on our ability to identify,
attract, hire, train, retain and motivate other highly skilled managerial,
marketing, customer service and manufacturing personnel and our inability to do
so could have a material adverse effect on our business, financial condition and
results of operations.







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




Our sales are generally made on the
basis of individual purchase orders, which may later be modified or canceled by
the customer, rather than long-term commitments.  We have historically
been required to place firm orders for fabrics and components with our
suppliers, prior to receiving an order for our products, based on our forecasts
of customer demands.  Our sales process requires us to make multiple
demand forecast assumptions, each of which may introduce error into our
estimates, causing excess inventory to accrue or a lack of manufacturing
capacity when needed.  If we overestimate customer demand, we may
allocate resources to manufacturing products that we may not be able to sell
when we expect or at all.  As a result, we would have excess
inventory, which would negatively impact our financial
results.  Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity is available, we would lose sales
opportunities, lose market share and damage our customer
relationships.  On occasion, we have been unable to adequately respond
to delivery dates required by our customers because of the lead time needed for
us to obtain required




20
 Index








We
face competition from other companies, two of which have substantially greater
resources than we do.




Two of our competitors, DuPont and
Kimberly Clark, have substantially greater financial, marketing and sales
resources than we do.  In addition, we believe that the barriers to
entry in the reusable garments and gloves markets are relatively
low.  We cannot assure you that our present competitors or competitors
that choose to enter the marketplace in the future will not exert significant
competitive pressures.  Such competition could have a material adverse
effect on our net sales and results of operations.  For further
discussion of the competition we face in our business, see “Business –
Competition.”







Some
of our sales are to foreign buyers, which exposes us to additional
risks.




We derived approximately 13.5% of our
net sales from customers located in foreign countries in fiscal
2008.  We intend to increase the amount of foreign sales we make in
the future.  The additional risks of foreign sales
include:




·
            Potential
      adverse fluctuations in foreign currency exchange
  rates;




·
            Higher
      credit risks;




·
            Restrictive
      trade policies of foreign
governments;




·
            Currency
      nullification and weak banking
institutions;




·
            Changing
      economic conditions in local
markets;




·
            Political
      and economic instability in foreign markets;
and




·
            Changes
      in leadership of foreign
governments.




Some or
all of these risks may negatively impact our results of operations and financial
condition.




Covenants
in our credit facilities may restrict our financial and operating
flexibility.




We
currently have one credit facility;


·
            A
      five year, $25 million revolving credit facility which commenced July
      2005, of which we had $8.9 million of borrowings outstanding as of January
      31, 2008.




Our current credit facility requires,
and any future credit facilities may also require, that we comply with specified
financial covenants relating to interest coverage, debt coverage, minimum
consolidated net worth, and earnings before interest, taxes, depreciation and
amortization.  Our ability to satisfy these financial covenants can be
affected by events beyond our control, and we cannot assure you that we will
meet the requirements of these covenants.  These restrictive covenants
could affect our financial and operational flexibility or impede our ability to
operate or expand our business.  Default under our credit facilities
would allow the lenders to declare all amounts outstanding to be immediately due
and payable.  Our lenders have a security interest in substantially
all of our assets to secure the debt under our current credit facilities, and it
is likely that our future lenders will have security interests in our
assets.  If our lenders declare amounts outstanding under any credit
facility to be due, the lenders could proceed against our assets.  Any
event of default, therefore, could have a material adverse effect on our
business.







We
may need additional funds, and if we are unable to obtain these funds, we may
not be able to expand or operate our business as planned.




Our operations require significant
amounts of cash, and we may be required to seek additional capital, whether from
sales of equity or by borrowing money, to fund acquisitions, for the future
growth and development of our business or to fund our operations and inventory,
particularly in the event of a market downturn.  Although we have the
ability until July 7, 2010 to borrow additional sums under our $25 million
revolving credit facility, this facility contains a borrowing base provision and
financial covenants that may limit the amount we can borrow thereunder or from
other sources.  We may not be able to replace or renew this credit
facility upon its expiration on terms that are as favorable to us or at
all.  In addition, a number of factors could affect our ability to
access debt or equity financing, including;




·
            Our
      financial condition, strength and credit
rating;




·
            The
      financial markets’ confidence in our management team and financial
      reporting;




21
 Index





·
            General
      economic conditions and the conditions in the homeland security sector;
      and




·
            Capital
      markets conditions.




Even if available, additional financing
could be costly or have adverse consequences.  If additional funds are
raised through the incurrence of debt, we will incur increased debt servicing
costs and may become subject to additional restrictive financial and other
covenants.  We can give no assurance as to the terms or availability
of additional capital.  If we are not successful in obtaining
sufficient capital, it could reduce our net sales and net income and adversely
impact our financial position, and we may not be able to expand or operate our
business as planned.






A
reduction in government funding for preparations for terrorist incidents that
could adversely affect our net sales.




As a general matter, a significant
portion of our sales growth to our distributors is dependent upon resale by
those distributors to customers that are funded in large part by federal, state
and local government funding.  Specifically, approximately 20% of our
high-end chemical suit sales are dependent on government
funding.  Congress passed the 2001 Assistance to Firefighters Grant
Program and the Bioterrorism Preparedness and Response Act of
2002.  Both of these Acts provide for funding to fire and police
departments and medical and emergency personnel to respond to terrorist
incidents.  Appropriations for these Acts by the federal government
could be reduced or eliminated altogether.  Any such reduction or
elimination of federal funding, or any reductions in state or local funding,
could cause sales of our products purchased by fire and police departments and
medical and emergency personnel to decline.







We
may be subject to product liability claims, and insurance coverage could be
inadequate or unavailable to cover these claims.




We manufacture products used for
protection from hazardous or potentially lethal substances, such as chemical and
biological toxins, fire, viruses and bacteria.  The products that we
manufacture are typically used in applications and situations that involve high
levels of risk of personal injury.  Failure to use our products for
their intended purposes, failure to use our products properly or the malfunction
of our products could result in serious bodily injury to or death of the
user.  In such cases, we may be subject to product liability claims
arising from the design, manufacture or sale of our products.  If
these claims are decided against us and we are found to be liable, we may be
required to pay substantial damages and our insurance costs may increase
significantly as a result.  We cannot assure you that our insurance
coverage would be sufficient to cover the payment of any potential claim. In
addition, we cannot assure you that this or any other insurance coverage will
continue to be available or, if available, that we will be able to obtain it at
a reasonable cost.  Any material uninsured loss could have a material
adverse effect on our financial condition, results of operations and cash
flows.







Environmental
laws and regulations may subject us to significant liabilities.




Our U.S. operations, including our
manufacturing facilities, are subject to federal, state and local environmental
laws and regulations relating to the discharge, storage, treatment, handling,
disposal and remediation of certain materials, substances and wastes. Any
violation of any of those laws and regulations could cause us to incur
substantial liability to the Environmental Protection Agency, the state
environmental agencies in any affected state or to any individuals affect by any
such violation.  Any such liability could have a material adverse
effect on our financial condition and results of operations.







The
market price of our common stock may fluctuate widely.




The market price of our common stock
could be subject to significant fluctuations in response to quarter-to-quarter
variation in our operating results, announcements of new products or services by
us or our competitors, and other events or factors.  For example, a
shortfall in net sales or net income, or an increase in losses, from levels
expected by securities analysts, could have an immediate and significant adverse
effect on the market price and volume fluctuations that have particularly
affected the market prices of many micro and small capitalization companies and
that have often been unrelated or disproportionate to the operating performance
of these companies.  These fluctuations, as well as general economic
and market conditions, may adversely affect the market price for our common
stock.





22
 Index





Our
results of operations may vary widely from quarter to quarter.




Our quarterly results of operations
have varied and are expected to continue to vary in the future.  These
fluctuations may be caused by many factors, including:




·
            Our
      expansion of international
operations;




·
            Competitive
      pricing pressures;




·
            Seasonal
      buying patterns resulting from the cyclical nature of the business of some
      of our customers;




·
            The
      size and timing of individual
sales;




·
            Changes
      in the mix of products and services
sold;




·
            The
      timing of introductions and enhancements of products by us or our
      competitors;




·
            Market
      acceptance of new products;




·
            Technological
      changes in fabrics or production equipment used to make our
      products;




·
            Changes
      in the mix of domestic and international
sales;




·
            Personnel
      changes; and




·
            General
      industry and economic conditions.




These
variations could negatively impact our stock price.







Compliance
with the Sarbanes-Oxley Act of 2002 and rules and regulations relating to
corporate governance and public disclosure may result in additional expenses and
negatively impact our results of operations.




The Sarbanes-Oxley Act of 2002 and
rules and regulations promulgated by the Securities and Exchange Commission and
the Nasdaq Stock Market have greatly increased the scope, complexity and cost of
corporate governance, reporting and disclosure practices for public companies,
including our company.  Keeping abreast of, and in compliance with,
these laws, rules and regulations have required an increased amount of resources
and management attention.  In the future, this may result in increased
general and administrative expenses and a diversion of management time and
attention from sales-generating and other operating activities to compliance
activities, which would negatively impact our results of
operations.




In addition, the corporate governance,
reporting and disclosure laws, rules and regulations could also make it more
difficult for us to attract and retain qualified executive officers and members
of our board of directors.  In particular, the Nasdaq Stock Market
rules require a majority of our directors to be “independent” as determined by
our board of directors in compliance with the Nasdaq rules.  It
therefore has become more difficult and significantly more expensive to attract
such independent directors to our Board.






Our
directors and executive officers have the ability to exert significant influence
on our company and on matters subject to a vote of our
stockholders.




As of April 10, 2008, our directors and
executive officers beneficially owned approximately 20.4% of the outstanding
shares of our common stock.  As a result of their ownership of common
stock and their positions in our Company, our directors and executive officers
are able to exert significant influence on our Company and on matters submitted
to a vote by our stockholders.  In particular, as of April 10, 2008,
Raymond J. Smith, our chairman of the board, and Christopher J. Ryan, our chief
executive officer, president, general counsel and secretary and a director,
beneficially owned approximately 9.69% and 7.45% of our common stock,
respectively.  The ownership interests of our directors and executive
officers, including Messrs. Smith and Ryan, could have the effect of delaying or
preventing a change of control of our company that may be favored by our
stockholders generally.







Provisions
in our restated certificate of incorporation and by-laws and Delaware law could
make a merger, tender offer or proxy contest difficult.




Our restated certificate of
incorporation contains “super majority” voting for certain transactions and
classified board provisions, authorized preferred stock that could be utilized
to implement various “poison pill” defenses and a




23
 Index








If
we fail to maintain proper and effective internal controls or are unable to
remediate the material weakness in our internal controls, our ability to produce
accurate and timely financial statements could be impaired and investors’ views
of us could be harmed.





Ensuring
that we have adequate internal financial and accounting controls and procedures
in place so that we can produce accurate financial statements on a timely basis
involves substantial effort that needs to be re-evaluated frequently. Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles. We have documented and tested our internal controls and
procedures for compliance with Section 404 of the Sarbanes-Oxley Act of
2002, or the Sarbanes-Oxley Act, which requires annual management assessment of
the effectiveness of our internal control over financial reporting and a report
by our independent auditors on our internal control over financial reporting.
Both we and our independent auditors will be testing our internal controls in
connection with the audit of our financial statements for the year ending
January 31, 2009 and, as part of that documentation and testing,
identifying areas for further attention and improvement.





Based
upon an evaluation performed as of January 31, 2008, we and our independent
registered public accounting firm identified two material weaknesses in our
internal controls. The material weaknesses related to the Company’s period-end
financial reporting process relating to the elimination of inter-company profit
in inventory and inadequate review of inventory cutoff procedures and financial
statement reconciliations from our Chinese subsidiary. These control
deficiencies resulted in audit adjustments to our January 31, 2008 financial
statements.





The
material weakness related to the elimination of inter-company profit in
inventory resulted from a properly designed control that did not operate as
intended due to human error. In response to these material weaknesses, we have
initiated additional procedures to reduce the likelihood of future human error
and enhance the review and reconciliation process for financial information
reported by our Chinese subsidiary. With the implementation of these corrective
actions we believe that the previously reported material weaknesses will be
remediated as of the first quarter of the fiscal year 2009; however such
procedures will not be tested until our first quarter close.





Implementing
any additional required changes to our internal controls may distract our
officers and employees, entail substantial costs to modify our existing
processes and add personnel and take significant time to complete. These changes
may not, however, be effective in remediating the material weakness and
maintaining the adequacy of our internal controls, and any failure to remediate
the material weakness or maintain that adequacy, or consequent inability to
produce accurate financial statements on a timely basis, could increase our
operating costs and harm our business. In addition, investors’ perceptions that
our internal controls are inadequate or that we are unable to produce accurate
financial statements may harm our stock price and make it more difficult for us
to effectively market and sell our service to new and existing
customers.







ITEM 1B:
UNRESOLVED STAFF COMMENTS




None.





24
 Index





ITEM 2.
PROPERTIES





We
believe that our owned and leased facilities are suitable for the operations we
conduct in each of them. Each manufacturing facility is well maintained and
capable of supporting higher levels of production. The table below sets forth
certain information about our principal facilities.




Address
            
            Estimated
                Square
                Feet
            
            Annual Rent
            
            Lease Expiration
            
            Principal ActivityWeifang
      Lakeland Safety Products Co., Ltd.
              Xiao
      Shi Village
              AnQui
      City, Shandong Province
              PRC
      262100
            
            106,000
            
            Owned(1)
            
            N/A
            
            Manufacturing
      Administration EngineeringQing
      Dao Lakeland Protective Products Co., Ltd
              Yinghai
      Industrial Park
              Jiaozhou,
      Shandong Province
              PRC
      266318
            
            121,675
            
            Owned(1)
            
            N/A
            
            Manufacturing
      Administration WarehousingMeiyang
      Protective Products Co., Ltd.
              Xiao
      Shi Village
              AnQui
      City, Shandong Province
              PRC
      262100
            
            11,296
            
            $8,400
            
            12/31/11
            
            ManufacturingLakeland
      Industries, Inc.
              Woven
      Products Division
              2401
      SW Parkway
              St.
      Joseph, MO 64503
            
            44,000
            
            $96,000
            
            7/31/12
            
            Manufacturing
      Administration WarehousingLakeland
      Mexico
              Carretera
      a Santa Rita
              Calle
      Tomas Urbina #1
              Jerez
      de Garcia, Salinas, Zacatecas
              Mexico
            
            43,000
            
            $169,000
            
            3/31/10
            
            Manufacturing
      Administration WarehousingLakeland
      Protective Wear, Inc.
              5109-B7
      Harvester Road
              Burlington,
      ON L7L 5Y9
            
            12,000
            
            $55,000
            
            November
      2007
              Premises
      vacated in December 2007
            
            Sales
              Administration
      WarehousingLakeland
      Protective Real Estate
              59
      Bury Court
              Brantford,
      ON N3S 0A9
              Canada
            
            22,092
            
            Owned
            
            N/A
            
            Sales
              Administration
      WarehousingLakeland
      Industries, Inc.
              Headquarters
              701-7
      Koehler Avenue
              Ronkonkoma,
      NY 11779
            
            6,250
            
            Owned
            
            N/A
            
            Administration
              Studio
              Sales




25
 Index




Address
            
            Estimated
              Square
              Feet
            
            Annual Rent
            
            Lease Expiration
            
            Principal ActivityLakeland
      Industries, Inc.
              202
      Pride Lane
              Decatur,
      AL 35603
            
            91,788
            
            Owned
            
            N/A
            
            Manufacturing
      Administration Engineering WarehousingLakeland
      Industries, Inc.
              3428
      Valley Ave. (2011⁄2 Pride Lane)
              Decatur,
      AL 35603
            
            49,500
            
            Owned
            
            N/A
            
            Warehousing
      AdministrationLakeland
      Industries, Inc.
              (Harvey
      Pride, Jr. – officer- related party)
              201
      Pride Lane, SW
              Decatur,
      AL 35603
            
            2,400
            
            $18,000
            
            3/31/09
            
            Sales
              AdministrationLakeland
      Industries Europe Ltd.
              Wallingfen
      Park
              236
      Main Road
              Newport,
      East Yorkshire
              HU15
      2RH U United Kingdom
            
            4,550
            
            Approximately
      $57,000 (varies with exchange rates)
            
            1/31/11
            
            Warehouse
              SalesLakeland
      Industries, Inc.
              Route
      227 & 73
              Blandon,
      PA 19510
            
            12,000
            
            $36,000  (Leased
      from D. Gallen an employee)
            
            Month
      to Month
            
            WarehouseLakeland
      Industries, Inc.
              31
      South Sterley Street
              Shillington,
      PA 19607
            
            18,520
            
            $60,395
      (Leased from M. Gallen an employee)
            
            7/31/10
            
            Manufacturing
      Warehouse, Sales AdministrationLakeland
      India Private Ltd
              Plots
      81, 50 and 24
              Noida
      Special Economic Zone
              New
      Delhi, India
            
            47,408
            
            Owned
      (2)
            
            N/A
            
            Manufacturing
      WarehouseLakeland
      Industries Inc., Agencia En Chile
              Los
      Algarrobos no 2228
              Comuna
      de Santiago
              Código
      Postal 8361401
              Santiago,
      Chile
            
            542
            
            $13,000
            
            03/01/2010
            
            Warehouse
              Sales




(1)
            We
      own the buildings in which we conduct our manufacturing operations and
      lease the land underlying the buildings from the Chinese
      government.  We have 39 years and 44 years remaining under the
      leases with respect to the AnQui City and Jiaozhou facilities,
      respectively.




(2)
            The
      annual total lease for the underlying land on plots 24, 81 and 50 amounts
      to approximately $10,000 on a lease expiring October 9,
    2011.




Our
facilities in Decatur, Alabama; Jerez, Mexico; AnQui, China; Jiaozhou, China;
St. Joseph, Missouri, Shillington, Pennsylvania and New Delhi, India contain
equipment used for the design, development and manufacture and sale of our
products.  Our operations in Brantford, Canada; Newport, United
Kingdom; and Santiago, Chile are primarily sales and warehousing operations
receiving goods for resale from our manufacturing facilities around the world.
We had $3.68 million, $3.85 million and $4.223 million of gross long-lived fixed
assets, located in China and $0.85 million, $0.86 million and $0.0 million of
long-lived assets located in Mexico as of January 31, 2006, 2007 and
2008.





26
 Index





ITEM 3. LEGAL PROCEEDINGS







From time
to time, we are a party to litigation arising in the ordinary course of our
business. We are not currently a party to any litigation that we believe could
reasonably be expected to have a material adverse effect on our results of
operations, financial condition or cash flows.







ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





27
 Index





PART II





ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON
STOCK AND RELATED STOCKHOLDERS MATTERS





Our
common stock is currently traded on the Nasdaq Global Market under the symbol
“LAKE”. The following table sets forth for the periods indicated the high and
low sales prices for our common stock as reported by the Nasdaq National Market.
The stock prices in the table below have been adjusted for periods prior to July
31, 2003 to reflect our 10% stock dividends to stockholders of record on July
31, 2002, July 31, 2003, April 30, 2005 and August 1, 2006.




Price Range of
                Common StockHigh
            
            
            LowFiscal
      2009First
      Quarter (through April 10, 2008)
            
            $
            12.65
            
            
            $
            10.06Fiscal
      2008First
      Quarter
            
            $
            14.94
            
            
            $
            13.07Second
      Quarter
            
            
            14.13
            
            
            
            12.67Third
      Quarter
            
            
            14.00
            
            
            
            11.25Fourth
      Quarter
            
            
            12.02
            
            
            
            9.73Fiscal
      2007First
      Quarter
            
            $
            18.64
            
            
            $
            16.79Second
      Quarter
            
            
            17.22
            
            
            
            12.54Third
      Quarter
            
            
            13.78
            
            
            
            11.93Fourth
      Quarter
            
            
            15.25
            
            
            
            13.11






Holders




Holders
of our Common Stock are entitled to one (1) vote for each share held on all
matters submitted to a vote of the stockholders.  No cumulative voting
with respect to the election of directors is permitted by our Articles of
Incorporation.  The Common Stock is not entitled to preemptive rights
and is not subject to conversion or redemption.  Upon our liquidation,
dissolution or winding –up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
after payment of liquidation preferences, if any, on any outstanding stock that
may be issued in the future having prior rights on such distributions and
payment of other claims of creditors.  Each share of Common Stock
outstanding as of the date of this Annual Report is validly issued, fully paid
and non-assessable.




On April
10, 2008 the last reported sale price of our common stock on the Nasdaq National
Market was $12.65 per share. As of April 11, 2008, there were
approximately 69 record holders of shares of our common stock.




Dividend
Policy




In the
past, we have declared dividends in stock to our stockholders. We paid a 10%
dividend in additional shares of our common stock to holders of record on July
31, 2002, on July 31, 2003, on April 30, 2005 and on August 1,
2006.  We may pay stock dividends in future years at the discretion of
our board of directors.




We
have never paid any cash dividends on our common stock and we currently intend
to retain any future earnings for use in our business. The payment and rate of
future cash or stock dividends, if any, or stock repurchase programs are subject
to the discretion of our board of directors and will depend upon our earnings,
financial condition, capital or contractual restrictions under our credit
facilities and other factors.





28
 Index





Equity
Compensation Plans




The
following table sets forth certain information regarding Lakeland’s equity
compensation plans as of January 31, 2008.




Plan
      Category
            Number
      of securities to be
              issued
      upon exercise of
              outstanding
      options,
              warrants
      and rights (1)
            Weighted-average
      exercise
              price
      per share of
              outstanding
      options,
              warrants
      and rights (1)
            Number
      of securities
              remaining
      available for
              future
      issuance under
              equity
      compensation plans
              (excluding
      securities
              reflected
      in column (a)(1))Equity
      Compensation plans approved by security holders
            (a)
            (b)
            (c)Restricted
      stock grants-employees
            31,680
            $0
            100,320Restricted
      stock grants-directors
            12,320
            $0
            31,680Matching
      award program
            4,983
            $0
            28,017Bonus
      in stock program-employees
            5,346
            $0
            27,654Retainer
      in stock program-directors
            0
            $0
            11,000Total
      Restricted Stock Plans
            54,329
            $0
            198,671





(1) At
minimum levels





29
 Index





ITEM
6.SELECTED
CONSOLIDATED FINANCIAL DATA





The
following selected consolidated financial data as of and for our fiscal
years  2004, 2005, 2006, 2007 and 2008 have been derived from our
audited consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP as of and for the fiscal year ended January 31,
2004 and by Holtz Rubenstein Reminick LLP for 2005, 2006, 2007 and 2008. You
should read the information set forth below in conjunction with our
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related notes included
in this Form 10-K.




Year
      Ended January 31,2004
            
            
            2005
            
            
            2006
            
            
            2007
            
            
            2008(in
      thousands, except share and per share data)Income
      Statement Data:Net
      sales
            
            $
            89,717
            
            
            $
            95,320
            
            
            $
            98,740
            
            
            $
            100,171
            
            
            $
            95,740Costs
      of goods sold
            
            
            71,741
            
            
            
            74,924
            
            
            
            74,818
            
            
            
            75,895
            
            
            
            73,383Gross
      profit
            
            
            17,976
            
            
            
            20,396
            
            
            
            23,922
            
            
            
            24,276
            
            
            
            22,357Operating
      expenses:Selling
      and shipping
            
            
            7,342
            
            
            
            7,871
            
            
            
            8,301
            
            
            
            9,473
            
            
            
            9,291General
      and administrative
            
            
            4,596
            
            
            
            4,871
            
            
            
            6,119
            
            
            
            8,081
            
            
            
            8,083Impairment
      of goodwill
            
            
            249
            
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            -----Total
      operating expenses
            
            
            12,187
            
            
            
            12,742
            
            
            
            14,420
            
            
            
            17,554
            
            
            
            17,374Operating
      profit
            
            
            5,789
            
            
            
            7,654
            
            
            
            9,502
            
            
            
            6,722
            
            
            
            4,984Other
      income (expense):Interest
      expense
            
            
            (535
            )
            
            
            (207
            )
            
            
            (167
            )
            
            
            (356
            )
            
            
            (330
            )Interest
      income
            
            
            19
            
            
            
            18
            
            
            
            49
            
            
            
            20
            
            
            
            66Gain
      on Pension Plan Liquidation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            353
            
            
            
            -----Other
      income
            
            
            24
            
            
            
            98
            
            
            
            384
            
            
            
            191
            
            
            
            145Total
      other expense
            
            
            (492
            )
            
            
            (91
            )
            
            
            266
            
            
            
            208
            
            
            
            (119
            )Income
      before minority interest
            
            
            5,297
            
            
            
            7,563
            
            
            
            9,768
            
            
            
            6,930
            
            
            
            4,865Minority
      interest in net income of variable interest entities
            
            
            -----
            
            
            
            494
            
            
            
            -----
            
            
            
            -----
            
            
            
            -----Income
      before income taxes
            
            
            5,297
            
            
            
            7,069
            
            
            
            9,768
            
            
            
            6,930
            
            
            
            4,865Income
      tax expenses
            
            
            1,659
            
            
            
            2,053
            
            
            
            3,439
            
            
            
            1,826
            
            
            
            1,574Net
      Income
            
            $
            3,638
            
            
            $
            5,016
            
            
            $
            6,329
            
            
            $
            5,104
            
            
            $
            3,291Net
      income per common share (Basic)(1)
            
            $
            .92
            
            
            $
            1.02
            
            
            $
            1.15
            
            
            $
            0.92
            
            
            $
            0.60Net
      income per common share (Diluted)(1)
            
            $
            .92
            
            
            $
            1.02
            
            
            $
            1.15
            
            
            $
            0.92
            
            
            $
            0.59Weighted
      average common shares outstanding(1)Basic
            
            
            3,954,947
            
            
            
            4,918,856
            
            
            
            5,518,751
            
            
            
            5,520,881
            
            
            
            5,522,751Diluted
            
            
            3,963,356
            
            
            
            4,924,638
            
            
            
            5,524,076
            
            
            
            5,527,618
            
            
            
            5,542,245Balance
      Sheet Data (at period end):Current
      assets
            
            $
            43,285
            
            
            $
            55,128
            
            
            $
            63,719
            
            
            $
            62,114
            
            
            $
            70,269Total
      assets
            
            
            47,304
            
            
            
            60,314
            
            
            
            72,464
            
            
            
            74,198
            
            
            
            84,623Current
      liabilities
            
            
            21,509
            
            
            
            4,152
            
            
            
            3,839
            
            
            
            4,326
            
            
            
            4,997Long-term
      liabilities
            
            
            768
            
            
            
            1,695
            
            
            
            7,829
            
            
            
            3,813
            
            
            
            10,753Stockholders’
      equity
            
            
            25,027
            
            
            
            54,467
            
            
            
            60,796
            
            
            
            66,059
            
            
            
            68,873


(1)Adjusted
      for periods prior to August 1, 2006 to reflect our 10% stock dividends to
      stockholders of record as of July 31, 2002, July 31, 2003, April 30, 2005
      and August 1, 2006. Earnings per share have been restated in accordance
      with Statement of Financial Accounting Standards No. 128, “Earnings Per
      Share.”




30
 Index





Repurchase
of Securities


We did not repurchase any of our Common
Stock or other securities during our fiscal year ending January 31, 2008.
However, the Company did initiate a stock repurchase program on February 21,
2008 and has repurchased 79,488 shares as of April 10, 2008.





ITEM 7.  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





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 appear
elsewhere in this Form 10-K and Annual Report and in the documents that we
incorporate by reference into this Form 10-K. This document 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
sales force and independent sales representatives to a network of over 1,000
safety and mill supply distributors. These distributors in turn supply end user
industrial customers such as chemical/petrochemical, automobile, steel, glass,
construction, smelting, janitorial, pharmaceutical and high technology
electronics manufacturers, as well as hospitals and laboratories. In addition,
we supply federal, state and local governmental agencies and departments such as
fire and police departments, airport crash rescue units, the Department of
Defense, the Department of Homeland Security and the Centers for Disease
Control. Our net sales attributable to customers outside the United States were
$9.6 million, $11.5 million and $13.0 million, in fiscal 2006, fiscal 2007 and
fiscal 2008, respectively.




Our North
American sales of limited use/disposable protective clothing declined
approximately 10% in the year ended January 31, 2008 compared to the year ended
January 31, 2007. In FY 08 just ended, we have seen a strong competitive push in
the marketplace for disposable protective clothing, with a large competitor
offering an aggressive rebate program.  We have met competitive offers with
the help and support from a large supplier.  About 7 percentage points of
this decline in volume was lost to this competition, with the balance resulting
from an overall decline in the market.  This loss in volume was absorbed
with only a moderate net effect on our ultimate margins.




Our cost
of goods sold was impacted in Q1 and Q2 by the cost of material purchased in
FY06 with no rebates. This material was charged to our cost of goods sold under
strict FIFO accounting at the end of Q1 and the beginning of Q2, after which we
have had a smooth flow of material costs. We expect that distributors will
continue to stock inventory at historical levels as economic conditions in the
United States continue to remain slightly positive. In addition, our net sales
are driven in part by government funding and health-related events. Our net
sales attributable to chemical suits decreased 2.5% in the year ended January
31, 2008 compared to the year ended January 31, 2007. These sales decreases were
due primarily to a lull in government spending utilizing Fire Act monies and
delays by state and local governmental purchasers in spending their
Bio-Terrorism monies.  These governmental sales are driven primarily
by grants from the federal government under the Fire Act of 2002 and the Bio
Terrorism Preparedness and Response Act of 2002 as administered by the
Department of Homeland Security. During fiscal 2004, as a result of the SARS
virus outbreak in various cities in 2003, we sold approximately $1.1 million of
SARS-related garments in China, Toronto, Hong Kong and Taiwan. The Centers for
Disease Control has recommended protective garments be used to protect
healthcare workers in the fight against the spread of the SARS virus and the
Avian Flu. In the event of future outbreaks of SARS or other similar contagious
viruses, such as Avian Flu in 2005, we have positioned ourselves with increased
production capacity.





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
are close to completion of moving the production of our reusable woven garments
and gloves to these facilities and expect to complete this process by the second
quarter of fiscal 2009. As a result, we




31
 Index




expect to see
profit margin improvements for these particular product lines as well. The
Company has decided to restructure its manufacturing operations in Mexico, by
closing its previous facilities in Celaya and opening new facilities in
Jerez.  The Company estimates the costs to close, move and start up has
aggregated approximately $500,000 pretax.  This restructuring will allow
for lower occupancy and labor costs and a more efficient production
configuration.  This cost was charged to its first quarter FY2008
results




Critical
Accounting Policies and Estimates


Our
discussion and analysis of our financial condition and results of operations are
based upon our audited consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. 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.We
derive our sales primarily from our limited use/disposable protective clothing
and secondarily from our 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 to our distributors at
which time title and the risk of loss passes. 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.




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




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




Income Taxes and Valuation Reserves.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.On February 1, 2002, we adopted Statement of Financial
Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,”
which provides that goodwill and other intangible assets are no longer
amortized, but are assessed for impairment annually and upon occurrence of an
event that indicates impairment may have occurred. Goodwill impairment is
evaluated utilizing a two-step process as required by SFAS No. 142. Factors that
we consider important that could identify a potential impairment
include:  significant underperformance relative to expected historical
or projected future operating results; significant changes in the overall
business strategy; and significant negative industry or economic trends. When we
determine that the carrying value of intangibles and goodwill may not be
recoverable based upon one or more of these indicators of impairment, we measure
any potential impairment based on a projected discounted cash flow
method.  Estimating future cash flows requires our management to make
projections that can differ materially from actual results.




In August
2005 we purchased Mifflin Valley, a manufacturing facility in
Pennsylvania.  This purchase resulted in the recording of $871,297 in
goodwill as of January 31, 2006.




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





32
 Index




not reported
during such period. Our estimate of claims incurred but not reported is based
upon historical trends. If more claims are made than were estimated or if the
costs of actual claims increases beyond what was anticipated, reserves recorded
may not be sufficient and additional accruals may be required in future periods.
We maintain separate insurance to cover the excess liability over set single
claim amounts and aggregate annual claim amounts.




Results
of Operations


The
following table set forth our historical results of operations for the years
ended January 31, 2006, 2007 and 2008 as a percentage of our net
sales.




Year Ended January 31,2006
            
            
            2007
            
            
            2008Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of goods
      sold
            
            
            75.8
            %
            
            
            75.8
            %
            
            
            76.6
            %Gross
      profit
            
            
            24.2
            %
            
            
            24.2
            %
            
            
            23.4
            %Operating
      expenses
            
            
            14.6
            %
            
            
            17.5
            %
            
            
            18.1
            %Operating
      profit
            
            
            9.6
            %
            
            
            6.7
            %
            
            
            5.2
            %Interest
      expense,
      net
            
            
            0.2
            %
            
            
            .4
            %
            
            
            (0.1
            %)Income
      tax expense
            
            
            3.5
            %
            
            
            1.8
            %
            
            
            1.6
            %Net
      income
            
            
            6.4
            %
            
            
            5.1
            %
            
            
            3.4
            %





Significant
Balance Sheet fluctuation January 31, 2008 as compared to January 31,
2007





Balance Sheet
Accounts.  The increase in cash and cash equivalents of $1.5
million is primarily the result of building up a cash position in China
denominated in Chinese RMB. The increase in borrowings of $5.1 million under the
revolving credit agreement is principally due to the increase in inventories of
$7.7 million as we took advantage of discounts in purchasing of raw materials
from our major supplier and in anticipation of price increases. We have built
raw material reserves due to an anticipated increase in the cost of these raw
materials.  Plant property and equipment increased mainly as a result
of construction of a new warehouse and distribution center in Canada which
opened in December 2007.





Year
ended January 31, 2008 compared to the year ended January 31, 2007








For the
      Year
              Ended January 31,
            
            
            For the three months
              Ended January 31,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Gross
      profit
            
            
            23.4
            %
            
            
            24.2
            %
            
            
            24.7
            %
            
            
            22.0
            %Operating
      expenses
            
            
            18.1
            %
            
            
            17.5
            %
            
            
            17.8
            %
            
            
            16.5
            %Operating
      profit
            
            
            5.2
            %
            
            
            6.7
            %
            
            
            6.9
            %
            
            
            5.5
            %Income
      before tax
            
            
            5.1
            %
            
            
            6.9
            %
            
            
            6.6
            %
            
            
            6.8
            %Net
      income
            
            
            3.4
            %
            
            
            5.1
            %
            
            
            4.0
            %
            
            
            5.1
            %





Net Sales.  Net
sales decreased $4.4 million, or (4.4%), to $95.7 million for the year ended
January 31, 2008 compared to $100.2 million for the year ended January 31,
2007.The net
decrease was comprised of decreased sales in Tyvek disposable garments of $6.9
million in the U.S. and $1.0 million in Canada primarily due to competitive
market conditions, competitors rebate programs, lower government spending in the
Company’s Chemical Protective garments by $200,000 and less revenue from India
of $210,000 as a result of its shutdown for retooling during this fiscal year,
counter balanced by growth in sales in Chile and United Kingdom subsidiaries of
$1.2 million and by increased external sales from China of $1.1
million.  The Company re-opened its Indian facility in March 2008, so
the resumption of glove sales should take full effect in the second quarter of
fiscal 2009.  Sales of wovens and gloves increased by $1.3 million
compared to the same period last year. The increase in woven sales was due to
the Company’s new anti-static product, and to the increase in fire gear sales
which was due to all new NFPA standards and Underwriter’s Laboratory (UL)
certifications regarding the construction of fire gear, which negatively
impacted the entire industry in the first two quarters. The $230,000 decline in
glove sales was due to the loss of two customers, one of whom went out of
business. Wovens sales benefited from the introduction of a new line of aseptic
anti-static garments.





33
 Index





Gross Profit.Gross profit
decreased $1.9 million or 7.9% to $22.4 million for the year ended January 31,
2008 from $24.3 million for the year ended January 31, 2007.  Gross
profit as a percentage of net sales decreased to 23.4% for the year ended
January 31, 2008 from 24.2% for the year ended January 31, 2007, primarily due
to a sales rebate program to meet competitive conditions resulting in a $467,000
reduction in sales and higher Tyvek fabric costs. Such higher Tyvek costs
resulted from Tyvek purchased earlier with no rebate, charged to costs of goods
sold for the months of April, May and into early June resulting in higher costs
of approximately $510,000. The supply of this higher cost raw material has now
been exhausted, so gross margin improvement is anticipated relative to the lower
cost of materials for new sales as compared to sales in the prior periods.
Start-up expenses included in gross profits costs related to the new foreign
subsidiaries of approximately $275,000 were partially offset by ongoing cost
reduction programs in component and service-purchasing, shifting production from
the U.S. to China and Mexico, and a completion of the plant restructuring in
Mexico, rework expenses on a chemical suit contract, and reduced volumes in
lower margin fire gear and gloves.





Operating
Expenses.  Operating expenses decreased $0.2 million, or 1.0%
to $17.4 million for the year ended January 31, 2008 from $17.6 million for the
year ended January 31, 2007.  As a percent of net sales, operating
expenses increased to 18.1% for the year ended January, 2008 from 17.5% for the
year ended January 31, 2007.  The $0.2 million decrease in operating
expenses in the year ended January 31, 2008 compared to the year ended January
31, 2007 was principally due to (decreases) or increases in:





o
            ($0.25)
      million miscellaneous net expense
decreases.


o
            $(0.20)
      million net reduction of SGA costs from new entities in India, Chile and
      Japan.


o
            $(0.20)
      million of net reduction in insurance and employee benefits mainly
      resulting from a more positive experience in our self insured medical
      plan.


o
            $(0.17)
      million net reduction in sales salaries and commissions, mainly in
      disposables, chemicals and Canada and related payroll taxes.  Several
      senior level sales personnel were added to support lagging sales in
      disposables, support new product introductions and coordinate
      international sales efforts, offset by lower commissions due to lower
      volume.


o
            $0.09
      million in share-based
compensation.


o
            $0.26
      million increase in R&D spending as several projects were proven
      conceptually necessitating further investigation and development. As a
      result, FY08 R&D expenses were largely related to product testing and
      certification while FY07 R&D was primarily raw material
      evaluation.


o
            $0.28
      million in higher professional and consulting fees, largely resulting from
      engineering consultants setting up the Indian production
      facility.





Operating
Profit.Operating profit decreased by $1.7 million, or 25.9%
to $5.0 million, from $6.7 million for the prior year. Operating income as a
percent of net sales decreased to 5.2% for the year ended January31, 2008 from 6.7% for
the year ending January 31, 2007 primarily due to increased operating expenses
and lower volumes as discussed above.





Interest
Expense.  Interest expense decreased by $26,000 for the year
ended January 31, 2008 compared to the year ended January 31, 2007 because of
reduced borrowings and interest rate decreases.





Other Income -
Net.Other income net decreased $.4 million principally as a
result of a non-recurring gain on a pension plan liquidation of $.35 million in
the previous year.





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $.25 million, or 13.8%, to
$1.6 million for the year ended January 31, 2008 from $1.8 million for the year
ended January 31, 2007.  Our effective tax rate was 32.3% and 26.3%
for the year ended January 31, 2008 and 2007, respectively.  Our
effective tax rate varied from the federal statutory rate of 34% due primarily
to lower foreign tax rates, offset by the $500,000 Mexican restructuring charge
which did not result in a tax benefit.





Net Income.  Net
income decreased $1.8 million or 35.5%, to $3.3 million for the year ended
January 31, 2008 from $5.1 million for the year ended January 31, 2007. The
decrease in net income was the result of an increase in expenses related to the
new foreign facilities in India, Chile, Japan and a decrease in profit by the
domestic operations.





34
 Index





Year
ended January 31, 2007 compared to the year ended January 31, 2006





Net Sales.  Net
sales increased $1.4 million, or 1.4%, to $100.2 million for the year ended
January 31, 2007 compared to $98.7 million for the year ended January 31,
2006.  The increase was due primarily to an increase in the sales by
our new foreign subsidiaries and the acquisition of Mifflin Valley in July
2005.  Increased sales were offset by a slowing U.S. economy which
decreased demand for our products, particularly in the industrial non-woven
disposable markets we serve, and decreased demand for our chemical protective
suits and fire turnout gear for Homeland Security purposes.





Gross
Profit.  Gross Profit increased $.35 million, or 1.4%, to $24.3
million for the year ended January 31, 2007 from $23.9 million for the year
ended January 31, 2006.  Gross profit as a percent of net sales held
steady at 24.2% for the year ended January 31, 2007 and for the year ended
January 31, 2006, primarily because of cost reductions achieved by shifting
production of additional Tyvek®-based
products and chemical suits to China and Mexico and changes in the mix resulting
from sales of the higher margin chemical suits while incurring costs related to
the new facilities in India, Chile and Japan. We have increasingly shifted and
will continue to shift production to these lower-cost facilities.





Operating
Expenses.  Operating expenses increased $3.2 million, or 21.7%
to $17.6 million for the year ended January 31, 2007 from $14.4 million for the
year ended January 31, 2006.  As a percent of net sales, operating
expenses increased to 17.5% for the year ended January, 2007 from 14.6% for the
year ended January 31, 2006.  The $3.2 million increase in operating
expenses in the year ended January 31, 2007 compared to the year ended January
31, 2006 was principally due to increases in:





o
            $0.34
      million of Mifflin Valley operating expenses included for the full twelve
      months ended January 2007 in excess of the seven months through January
      included in the year ended January
2006.


o
            $0.36
      million of labor costs resulting from personnel reassigned to SGA
      departments and vacation accruals which had been assigned to COGS
      departments in the prior fiscal
year.


o
            $0.83
      million of SGA costs from new entities in India, Chile and
      Japan.


o
            $0.70
      million net increases in sales salaries and commissions, mainly in
      disposables, wovens and Canada and related payroll taxes.  Several
      senior level sales personnel were added to support lagging sales in
      disposables, support new woven product introductions and coordinate
      international sales efforts.


o
            $0.26
      million of net increases in insurance and employee benefits mainly
      resulting from a more negative experience in our self insured medical
      plan.


o
            $0.36
      million increase in administrative payroll reflecting additional staff in
      the UK and Canada, an international accountant in NY, a new employment
      contract for the CEO, and related payroll
taxes.


o
            ($0.08)
      million reduction in foreign currency fluctuation, mainly resulting form
      our hedging program commenced in June
2006.


o
            $0.15
      million in share-based
compensation.


o
            $0.05
      million in increased directors fees resulting from the new compensation
      schedule in fiscal 2007.


o
            $0.05
      million in higher professional and consulting fees, largely resulting from
      audit fees.


o
            $0.10
      million in additional depreciation mainly resulting from the purchases of
      facilities in fiscal 2006.


o
            $0.14
      million in increased bad debt expense resulting from two large accounts
      reserved against.


o
            ($0.13)
      million miscellaneous net expense
decreases.





Operating
Profit.Operating profit decreased by $2.8 million, or 29.3%
to $6.7 million, from $9.5 million for the prior year. Operating income as a
percent of net sales decreased to 6.7% for the year ended January31, 2007 from 9.6% for
the year ending January 31, 2006 primarily due to increased operating expenses
as discussed above.





Interest
Expense.  Interest expense increased by $.2 million for the
year ended January 31, 2007 compared to the year ended January 31, 2006 because
of increased borrowings and interest rate increases.





Other Income -
Net.Other income net increased $.13 million principally as a
result of a gain on a pension plan liquidation of $.35 million in the current
year and the non-recurrence of a litigation settlement in the prior year
amounting to $.26 million.





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $1.6 million, or 46.9%, to
$1.8 million for the year ended January 31, 2007 from $3.4 million for the year
ended January 31, 2006.  Our effective tax rate was 26.3% and 35.2%
for the year ended January 31, 2007 and 2006,




35
 Index









Net Income.  Net
income decreased $1.2 million or 19.4%, to $5.1 million for the year ended
January 31, 2007 from $6.3 million for the year ended January 31, 2006. The
decrease in net income was the result of an increase in expenses related to the
new foreign facilities in India, Chile, Japan and a decrease in profit by the
domestic operations.





Liquidity
and Capital Resources





Management measures our liquidity on
the basis of our ability to meet short-term and long-term operational funding
needs and fund additional investments, including
acquisitions.  Significant factors affecting the management of
liquidity are cash flows from operating activities, capital expenditures, access
to bank lines of credit and our ability to attract long-term capital under
satisfactory terms.





Internal cash generation, together with
currently available cash and investment and an ability to access credit lines if
needed are expected to be sufficient to fund operations, capital expenditures,
and any increase in working capital that we would need to accommodate a higher
level of business activity.  We are actively seeking to expand by
acquisitions as well as through organic growth of our business.  While
a significant acquisition may require additional borrowings, equity financing or
both, we believe that we would be able to obtain financing on acceptable terms
based, among other things, on our earnings performance and current financial
position.








Cash Flows




As of
January 31, 2008 we had cash and cash equivalents of $3.4 million and working
capital of $65.3 million, an increase of $1.5 million and $7 million,
respectively, from January 31, 2007. Our primary sources of funds for conducting
our business activities have been from 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
used by operating activities of $2.1 million for the year ended January 31, 2008
was due primarily to net income of $3.3 million, offset by an increase in
inventories of $7.7 million. Net cash provided by operations for the year ended
January 31, 2007 was primarily due to net income of $5.1 million and a decrease
in inventories of $4.3 million, offset by an increase in prepaid taxes and other
current assets of $1.6 million.




Net cash
used in investing activities of $3.4 million and $4.3 million in the years ended
January 31, 2008 and 2007, respectively, was due to purchases of real estate,
property and equipment, the construction of new facilities in Canada in FY08 and
the acquisitions of the India facility. Net cash used in and provided by
financing activities in the years ended January 31, 2008 and 2007 was primarily
attributable to a decreased and increased borrowing under our credit facilities,
respectively.




Credit Facilities




We
currently have one credit facility:




·
            A
      five year, $25 million revolving credit facility, of which we had
      borrowings outstanding as of January 31, 2008 amounting to $8.9
      million




Our $25
million revolving credit facility permits us to borrow up to the lower of $25
million and a borrowing base determined by reference to a percentage of our
eligible accounts receivable and inventory. Our $25 million revolving credit
facility expires on July 31, 2010.  Borrowings under this revolving
credit facility bear interest at the London Interbank Offering Rate (LIBOR) plus
60 basis points and were 3.74% at January 31, 2008. As of January 31, 2008, we
had $16.1 million of borrowing availability under this revolving credit
facility.




Our credit facility requires
that we comply with specified financial covenants relating to interest coverage,
debt coverage, minimum consolidated net worth, and earnings before interest,
taxes, depreciation and amortization. These restrictive covenants could affect
our financial and operational flexibility or impede our ability to operate or
expand our business. Default under our credit facilities would allow the lenders
to declare all amounts outstanding to be




36
 Index









We
believe that our current cash position of $3.4 million, our cash flow from
operations along with borrowing availability under our $25 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, leasehold improvement and automobiles, as well as payments
related to the construction of our facilities in China. In FY08 we added
additional dormitory, cleanroom, manufacturing and warehouse space in our
QingDao, China facility totaling 31,285 additional feet of floor space costing
$300,000. 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. We expect
our capital expenditures to be approximately $1.2 million to purchase our
capital equipment primarily computer equipment and apparel manufacturing
equipment




Contractual
Obligations


We
had no off-balance sheet arrangements at January 31, 2008. As shown below, at
January 31, 2008, our contractual cash obligations totaled approximately $11.7
million, including lease renewals entered into subsequent to January 31,
2008.









Payments
      Due by PeriodTotal
            
            
            Less
      than
                1
      Year
            
            
            1-3
      Years
            
            
            4-5
      Years
            
            
            After
      5 YearsCanada
      Facility Construction
            
            $
            1,923,000
            
            
            $
            94,000
            
            
            $
            282,000
            
            
            $
            188,000
            
            
            $
            1,359,000Operating
      leases
            
            
            943,000
            
            
            
            332,000
            
            
            
            464,000
            
            
            
            147,000
            
            
            
            -----Revolving
      credit facility
            
            
            8,871,000
            
            
            
            -----
            
            
            
            8,871,000
            
            
            
            ----
            
            
            
            -----Total
            
            $
            11,737,000
            
            
            $
            425,000
            
            
            $
            9,617,000
            
            
            $
            335,000
            
            
            $
            1,359,000





Seasonality


Our
operations have historically been seasonal, with higher sales generally
occurring in February, March, April and May when scheduled maintenance occurs on
nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting
facilities, and other heavy industrial manufacturing plants, primarily due to
cooler temperatures. Sales decline during the warmer summer and vacation months,
and generally increase from Labor Day through February with slight declines
during holidays. As a result of this seasonality in our sales, we have
historically experienced a corresponding seasonality in our working capital,
specifically inventories, with peak inventories occurring between September and
March coinciding with lead times required to accommodate the spring maintenance
schedules. We believe that by sustaining higher levels of inventory, we gain a
competitive advantage in the marketplace. Certain of our large customers seek
sole sourcing to avoid sourcing their requirements from multiple vendors whose
prices, delivery times and quality standards differ.




In recent
years, due to increased demand by first responders for our chemical suits and
fire gear, our historical seasonal pattern has shifted. Governmental
disbursements are dependent upon budgetary processes and grant administration
processes that do not follow our traditional seasonal sales patterns. Due to the
size and timing of these governmental orders, our net sales, results of
operations, working capital requirements and cash flows can vary between
different reporting periods. As a result, we expect to experience increased
variability in net sales, net income, working capital requirements and cash
flows on a quarterly basis.




Effects
of Recent Accounting Pronouncements


In June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FAS No. 109, “Accounting for Income
Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax
benefit to be recognized. First, the tax





37
 Index








In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles.  FAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value
measurements.  FAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments
that require retrospective application.  We are currently evaluating
the potential impact of FAS No. 157 on our financial position and results of
operations.




In February 2007, the FASB issued FAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS 115” (FAS No. 159”). The new statement
allows entities to choose, at specified election dates, to measure eligible
financial assets and liabilities at fair value that are not otherwise required
to be measured at fair value. If a company elects the fair value option for an
eligible item,


changes
in that item’s fair value in subsequent reporting periods must be recognized in
current earnings.  FAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the potential impact of FAS
No. 159 on our financial position and results of operations.




Statement
of Financial Accounting Standards No. 141(R), Business Combinations(“Statement 141(R)”), was issued in December 2007. Statement 141
(R) requires that upon initially obtaining control, an acquirer will
recognize 100% of the fair values of acquired assets, including goodwill, and
assumed liabilities, with only limited exceptions, even if the acquirer has not
acquired 100% of its target. Additionally, contingent consideration arrangements
will be fair valued at the acquisition date and included on that basis in the
purchase price consideration and transaction costs will be expensed as incurred.
Statement 141(R) also modifies the recognition for preacquisition contingencies,
such as environmental or legal issues, restructuring plans and acquired research
and development value in purchase accounting. Statement 141(R) amends Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
to require the acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination either in
income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. Statement 141(R) is
effective for fiscal years beginning after December 15, 2008. Adoption is
prospective and early adoption is not permitted. We expect to adopt Statement
141 (R) on February 1, 2009. Statement 141R’s impact on accounting for
business combinations is dependent upon acquisitions at that time.





In December 2007, the FASB issued
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,” which establishes new standards
governing the accounting for and reporting of noncontrolling interests (NCIs) in
partially owned consolidated subsidiaries and the loss of control of
subsidiaries. Certain provisions of this standard indicate, among other things,
that NCIs (previously referred to as minority interests) be treated as a
separate component of equity, not as a liability; that increases and decrease in
the parent’s ownership interest that leave control intact be treated as equity
transactions, rather than as step acquisitions or dilution gains or losses; and
that losses of a partially owned consolidated subsidiary be allocated to the NCI
even when such allocation might result in a deficit balance. This standard also
requires changes to certain presentation and disclosure requirements. SFAS
No. 160 is effective beginning February 1, 2009. The provisions of the
standard are to be applied to all NCIs prospectively, except for the
presentation and disclosure requirements, which are to be to applied
retrospectively to all periods presented. The Company believes that this
pronouncement will not have a material effect on the financial
statements.





In March 2008, the FASB issued
SFAS No. 161,Disclosures about
Derivative Instruments and Hedging Activities—An Amendment of FASB
Statement No. 133(“SFAS 161”).SFAS 161requires enhanced qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements.SFAS 161is effective for financial statements
issued for fiscal years and interim periods beginning after





38
 Index




SFAS 161 on its consolidated financial
statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Foreign
Currency Risk





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




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




Our
primary risk from foreign currency exchange rate changes is presently related to
non-U.S. dollar denominated sales in Canada and, to a smaller extent, in Europe.
Our sales to customers in Canada are denominated in Canadian
dollars.  If the value of the U.S. dollar increases relative to the
Canadian dollar, then our net sales could decrease as our products would be more
expensive to our Canadian customers because of changes in rate of exchange. Our
sales in China are denominated in the Chinese Yuan; however, our sales there are
presently not material. At this time, we do not manage the foreign currency risk
through the use of derivative instruments. A 10% decrease in the value of the
U.S. dollar relative to foreign currencies would increase the landed costs of
our products into the U.S., but would make our selling price for international
sales more attractive with respect to foreign currencies.  As non-U.S.
dollar denominated international purchases and sales grow, exposure to
volatility in exchange rates could have a material adverse impact on our
financial results.




Interest
Rate Risk





We are
exposed to interest rate risk with respect to our credit facilities, which have
variable interest rates based upon the London Interbank Offered Rate. At January
31, 2008, we had $8.9 million in borrowings outstanding under this credit
facility. If the interest rate applicable to this variable rate debt rose 1% in
the year ended January 31, 2008, our interest expense would have increased and
our income before income taxes would have decreased by less than
$45,000.





39
 Index





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA







Index to Consolidated
Financial Statements





Consolidated
Financial Statements:


Page
      No.Report
      of Independent Registered Public Accounting Firm
            41Consolidated
      Balance Sheets - January 31, 2008 and 2007
            43Consolidated
      Statements of Income for the years ended January 31, 2008, 2007 and
      2006
            44Consolidated
      Statement of Stockholders' Equity for the years ended January 31, 2008,
      2007 and 2006
            45Consolidated
      Statements of Cash Flows for the years ended January 31, 2008, 2007 and
      2006
            46Notes
      to Consolidated Financial Statements
            47
      to 67Schedule
      II – Valuation and Qualifying Accounts
            68


All other schedules are omitted because
they are not applicable, not required, or because the required information is
included in the consolidated financial statements or notes thereto.





40
 Index





Report
of Independent Registered Public Accounting Firm








Board of
Directors and Stockholders


Lakeland
Industries, Inc. and Subsidiaries


Ronkonkoma,
New York





We have
audited the accompanying consolidated balance sheets of Lakeland Industries,
Inc. and Subsidiaries ("Lakeland") as of January 31, 2008 and 2007 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended January 31, 2008. We
have also audited the schedule listed in Item 15(a)(2) of this Form 10-K for the
years ended January 31, 2008, 2007 and 2006. We have also audited
Lakeland’s internal control over financial reporting as of January 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Lakeland’s management is responsible for these consolidated financial statements
and schedule. Lakeland’s management is also responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying "Management's Report on Internal Control Over Financial Reporting"
in Item 9A. Our responsibility is to express an opinion on these consolidated
financial statements and the schedule and an opinion on the company's internal
control over financial reporting based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.





A
company’s internal control over financial reporting is a process 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its 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.





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.Management hasidentified two material weaknessesin its period-end financial
reporting process relating to the elimination of inter-company profit in
inventory and inadequate review of inventory cutoff procedures and financial
statement reconciliations for one of Lakeland's China subsidiaries.We considered these material weaknesses
in determining the nature, timing, and extent of audit tests applied in our
audit of the consolidated financial statements as of and for the year ended
January 31, 2008, and our opinion regarding the




41
 Index




effectiveness
of Lakeland’s internal control over financial reporting does not affect our
opinion on those consolidated financial statements.




In our opinion, because of the material
weaknesses identified above on the achievement of the objectives of the internal
control criteria,Lakelanddid not maintain effective internal
control over financial reporting as of January 31, 2008, based on criteria
established inInternal
Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).





Also in
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lakeland Industries, Inc. and Subsidiaries as of January 31, 2008 and
2007 and the results of its operations and its cash flows for each of the years
in the three-year period ended January 31, 2008 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.





As
discussed in Note 1 to the financial statements, effective
February 1, 2007, Lakeland adopted FASB Interpretation No. 48,
“Accounting for Uncertainties in Income Taxes, and Interpretation of FASB
Statement No. 109”, and changed the way it accounts for uncertain tax
positions.








/s/ Holtz
Rubenstein Reminick LLP





Melville,
New York


April 10,
2008





42
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED BALANCE
SHEETS





2008
            
            
            2007AssetsCurrent
      assetsCash
      and cash equivalents
            
            $
            3,427,672
            
            
            $
            1,906,557Accounts
      receivable, net of allowance for doubtful accounts of $45,000 and $103,000
      at January 31, 2008 and 2007, respectively
            
            
            14,927,666
            
            
            
            14,780,266Inventories,
      net of reserves of $607,000 and $306,000 at January 31, 2008 and 2007,
      respectively
            
            
            48,116,173
            
            
            
            40,955,739Deferred
      income taxes
            
            
            1,969,713
            
            
            
            1,355,364Prepaid
      income tax
            
            
            -----
            
            
            
            1,565,384Other
      current assets
            
            
            1,828,210
            
            
            
            1,550,338Total
      current assets
            
            
            70,269,434
            
            
            
            62,113,648Property
      and equipment, net
            
            
            13,324,648
            
            
            
            11,084,030Other
      assets, net
            
            
            157,474
            
            
            
            129,385Goodwill
            
            
            871,297
            
            
            
            871,297Total
      assets
            
            $
            84,622,853
            
            
            $
            74,198,360Liabilities
      and Stockholders' EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            3,312,696
            
            
            $
            3,055,339Accrued
      compensation and benefits
            
            
            406,501
            
            
            
            766,451Other
      accrued expenses
            
            
            1,183,660
            
            
            
            504,172Current
      maturity of long term debt
            
            
            94,000
            
            
            
            -----Total
      current liabilities
            
            
            4,996,857
            
            
            
            4,325,962Borrowings
      under revolving credit facility
            
            
            8,871,000
            
            
            
            3,786,000Construction
      loan payable (net of current maturity of $94,000)
            
            
            1,882,085
            
            
            
            -----Deferred
      income taxes.
            
            
            -----
            
            
            
            27,227Total
      liabilities
            
            
            15,749,942
            
            
            
            8,139,189Commitments
      and contingenciesStockholders’
      equityPreferred
      stock, $.01 par; 1,500,000 shares authorized; none issuedCommon
      stock, $.01 par; 10,000,000 shares authorized; 5,523,288 and 5,521,824
      shares issued and outstanding at January 31, 2008 and 2007,
      respectively
            
            
            55,233
            
            
            
            55,218Additional
      paid-in capital
            
            
            49,211,961
            
            
            
            48,972,025Retained
      earnings
            
            
            19,641,790
            
            
            
            17,031,928Other
      comprehensive loss
            
            
            (36,073
            )
            
            
            -----Total
      stockholders' equity
            
            
            68,872,911
            
            
            
            66,059,171Total
      liabilities and stockholders' equity
            
            $
            84,622,853
            
            
            $
            74,198,360








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





43
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF
INCOME





2008
            
            
            2007
            
            
            2006Net
      sales
            
            $
            95,740,068
            
            
            $
            100,170,942
            
            
            $
            98,740,066Cost
      of goods sold
            
            
            73,382,713
            
            
            
            75,895,066
            
            
            
            74,817,715Gross
      profit
            
            
            22,357,355
            
            
            
            24,275,876
            
            
            
            23,922,351Operating
      expensesSelling
      and shipping
            
            
            9,291,263
            
            
            
            9,473,404
            
            
            
            8,301,216General
      and administrative
            
            
            8,082,618
            
            
            
            8,080,567
            
            
            
            6,118,722Total
      operating expenses
            
            
            17,373,881
            
            
            
            17,553,971
            
            
            
            14,419,938Operating
      profit
            
            
            4,983,474
            
            
            
            6,721,905
            
            
            
            9,502,413Other
      income (expense)Interest
      expense
            
            
            (330,268
            )
            
            
            (356,331
            )
            
            
            (166,805
            )Interest
      income
            
            
            66,722
            
            
            
            20,466
            
            
            
            48,545Gain
      on pension plan liquidation
            
            
            -----
            
            
            
            352,843
            
            
            
            -----Other
      income – net
            
            
            144,870
            
            
            
            191,163
            
            
            
            383,909Total
      other income (expense)
            
            
            (118,676
            )
            
            
            208,141
            
            
            
            265,649Income
      before income taxes
            
            
            4,864,798
            
            
            
            6,930,046
            
            
            
            9,768,062Income
      tax expense
            
            
            1,573,936
            
            
            
            1,825,847
            
            
            
            3,438,698Net
      income
            
            $
            3,290,862
            
            
            $
            5,104,199
            
            
            $
            6,329,364Net
      income per common shareBasic
            
            $
            0.60
            
            
            $
            0.92
            
            
            $
            1.15Diluted
            
            $
            0.59
            
            
            $
            0.92
            
            
            $
            1.15Weighted
      average common shares outstandingBasic
            
            
            5,522,751
            
            
            
            5,520,881
            
            
            
            5,518,751Diluted
            
            
            5,542,245
            
            
            
            5,527,618
            
            
            
            5,524,076







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





44
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY





Fiscal
years ended January 31, 2008, 2007 and 2006




Common stock
            
            
            Additional
              paid-in
            
            
            Retained
            
            
            Other
              ComprehensiveShares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            Loss
            
            
            TotalBalance,
      February 1, 2005
            
            
            4,560,885
            
            
            $
            45,609
            
            
            $
            36,273,046
            
            
            $
            18,148,016
            
            
            $
            -----
            
            
            $
            54,466,671Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,329,364
            
            
            
            -----
            
            
            
            6,329,36410%
      stock dividend
            
            
            456,161
            
            
            
            4,561
            
            
            
            6,158,175
            
            
            
            (6,162,735
            )
            
            
            -----
            
            
            
            -----Balance,
      January 31, 2006
            
            
            5,017,046
            
            
            
            50,170
            
            
            
            42,431,221
            
            
            
            18,314,645
            
            
            
            -----
            
            
            
            60,796,036Exercise
      of stock options
            
            
            2,662
            
            
            
            27
            
            
            
            11,849
            
            
            
            -----
            
            
            
            -----
            
            
            
            11,876Net
      income
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            5,104,199
            
            
            
            -----
            
            
            
            5,104,19910%
      stock dividend
            
            
            502,116
            
            
            
            5,021
            
            
            
            6,381,894
            
            
            
            (6,386,916
            )
            
            
            -----
            
            
            
            -----Stock
      based compensation
            
            
            -----
            
            
            
            -----
            
            
            
            147,061
            
            
            
            -----
            
            
            
            -----
            
            
            
            147,061Balance,
      January 31, 2007
            
            
            5,521,824
            
            
            
            55,218
            
            
            
            48,972,025
            
            
            
            17,031,928
            
            
            
            -----
            
            
            
            66,059,171Net
      income
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            3,290,862
            
            
            
            -----
            
            
            
            3,290,862Effect
      of adoption of FIN 48
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            (419,000
            )
            
            
            -----
            
            
            
            (419,000
            )Effect
      of adoption of SAB No. 108
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            (262,000
            )
            
            
            -----
            
            
            
            (262,000
            )Exercise
      of stock option
            
            
            1,464
            
            
            
            15
            
            
            
            6,675
            
            
            
            -----
            
            
            
            -----
            
            
            
            6,690Other
      comprehensive loss
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            -----
            
            
            
            (36,073
            )
            
            
            (36,073
            )Stock
      based compensation
            
            
            -----
            
            
            
            -----
            
            
            
            233,261
            
            
            
            -----
            
            
            
            -----
            
            
            
            233,261Balance,
      January 31, 2008
            
            
            5,523,288
            
            
            $
            55,233
            
            
            $
            49,211,961
            
            
            $
            19,641,790
            
            
            $
            (36,073
            )
            
            $
            68,872,911








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





45
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF
CASH FLOWS





2008
            
            
            2007
            
            
            2006Cash
      flows from operating activitiesNet
      income
            
            $
            3,290,862
            
            
            $
            5,104,199
            
            
            $
            6,329,364Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activitiesReserve
      for inventory obsolescence
            
            
            300,626
            
            
            
            (58,626
            )
            
            
            (31,000
            )Provision
      for bad debts
            
            
            (58,000
            )
            
            
            55,036
            
            
            
            -----Deferred
      income taxes
            
            
            (641,576
            )
            
            
            (497,435
            )
            
            
            43,803Depreciation
      and amortization
            
            
            1,186,840
            
            
            
            1,048,380
            
            
            
            993,686Stock
      based and restricted stock compensation
            
            
            233,261
            
            
            
            147,061
            
            
            
            -----Gain
      on pension plan liquidation
            
            
            -----
            
            
            
            (352,843
            )
            
            
            -----(Increase)
      decrease in operating assets:Accounts
      receivable
            
            
            (89,400
            )
            
            
            (338,985
            )
            
            
            (726,169
            )Inventories
            
            
            (7,723,060
            )
            
            
            4,346,377
            
            
            
            (13,693,881
            )Prepaid
      income taxes and other current assets
            
            
            1,110,311
            
            
            
            (1,586,206
            )
            
            
            (1,046,265
            )Other
      assets
            
            
            (305,961
            )
            
            
            (11,056
            )
            
            
            323,427Increase
      (decrease) in operating liabilitiesAccounts
      payable
            
            
            257,357
            
            
            
            518,583
            
            
            
            (391,737
            )Accrued
      expenses and other liabilities
            
            
            319,538
            
            
            
            (31,921
            )
            
            
            (225,580
            )Pension
      liability
            
            
            -----
            
            
            
            (116,691
            )
            
            
            -----Net
      cash (used in) provided by operating activities
            
            
            (2,119,202
            )
            
            
            8,225,873
            
            
            
            (8,424,352
            )Cash
      flows from investing activitiesPurchase
      of assets in India from RFB Latex
            
            
            -----
            
            
            
            (3,464,994
            )
            
            
            -----Purchase
      of Mifflin Valley
            
            
            -----
            
            
            
            -----
            
            
            
            (1,907,680
            )Purchases
      of property and equipment
            
            
            (3,427,458
            )
            
            
            (912,651
            )
            
            
            (4,592,897
            )Net
      cash used in investing activities
            
            
            (3,427,458
            )
            
            
            (4,377,645
            )
            
            
            (6,500,577
            )Cash
      flows from financing activitiesNet
      borrowings (payments) under credit agreement
            
            
            5,085,000
            
            
            
            (3,486,000
            )
            
            
            7,272,000Net
      proceeds from construction loan
            
            
            1,976,085
            
            
            
            -----
            
            
            
            -----Proceeds
      from exercise of stock options
            
            
            6,690
            
            
            
            11,876
            
            
            
            -----Net
      cash provided by (used in) financing activities
            
            
            7,067,775
            
            
            
            (3,474,124
            )
            
            
            7,272,000Net
      increase (decrease) in cash and cash equivalents
            
            
            1,521,115
            
            
            
            374,104
            
            
            
            (7,652,929
            )Cash
      and cash equivalents at beginning of year
            
            
            1,906,557
            
            
            
            1,532,453
            
            
            
            9,185,382Cash
      and cash equivalents at end of year
            
            $
            3,427,672
            
            
            $
            1,906,557
            
            
            $
            1,532,453





See note
for Supplemental Cash Flow information.





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





46
 Index





Lakeland
Industries, Inc.


and
Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
–  BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES





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
market.  The principal market for the company’s products is in the
United States. No customer accounted for more than 10% of net sales during the
fiscal years ended January 31, 2008, 2007 and 2006.





Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and
Subsidiary MeiYang Protective Products Co. Ltd., (a Chinese corporation),
Lakeland Protective Wear, Inc. and Lakeland Protective Real Estate (Canadian
corporations), Weifang Lakeland Safety Products Co., Ltd. (a Chinese
corporation), Qingdao Lakeland Protective Products Co., Ltd. (a Chinese
corporation), Lakeland Industries Europe Ltd. (a British corporation), Lakeland
Industries Inc. Agencia en Chile, (a Chilean corporation), Lakeland Japan, Inc.
(a Japanese corporation), Lakeland India Private, Ltd and Lakeland Gloves and
Safety Apparel Private Limited (Indian corporations) and Lakeland de Mexico S.A.
de C.V. and Industrias Lakeland S.A. de C.V. (Mexican
corporations).  All significant intercompany accounts and transactions
have been eliminated. On February 23, 2007, Lakeland Gloves and Safety Apparel
Private Limited was formed to hold the assets of the Company’s recently
purchased Indian business. On March 27, 2007, Industrias Lakeland de S.A. de
C.V. was formed to operate the new facilities in Jerez, Mexico.





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.  Domestic and international sales are as
follows:





Fiscal
      Years Ended January 31,2008
            
            
            2007
            
            
            2006Domestic
            
            $
            82,773,000
            
            
            
            86.5
            %
            
            $
            88,667,000
            
            
            
            88.5
            %
            
            $
            89,107,000
            
            
            
            90.2
            %International
            
            
            12,967,000
            
            
            
            13.5
            %
            
            
            11,504,000
            
            
            
            11.5
            %
            
            
            9,633,000
            
            
            
            9.8
            %Total
            
            $
            95,740,000
            
            
            
            100.0
            %
            
            $
            100,171,000
            
            
            
            100.0
            %
            
            $
            98,740,000
            
            
            
            100.0
            %





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.





Property
and Equipment





Property
and equipment are stated at cost. Depreciation and amortization are provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, on a straight-line
basis.  Leasehold improvements and leasehold costs are amortized over
the term of the lease or service lives of the improvements, whichever is
shorter. The costs of additions and improvements which substantially extend the
useful life of a particular asset are capitalized. Repair and maintenance costs
are charged to expense.  When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are removed from the account
and the gain or loss on disposition is reflected in operating
income.





47
 Index





Lakeland
Industries, Inc.


and
Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006


1.
(continued)





Goodwill





In
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets,” goodwill and other indefinite life
intangible assets are no longer amortized, and are assessed for impairment
annually upon occurrence of an event that indicates impairment may have
occurred.  Goodwill impairment is evaluated, utilizing a two-step
process as required by SFAS No. 142.  Factors that the Company
considers important that could identify a potential impairment include:
significant under performance relative to expected historical or projected
future operating results; significant changes in the overall business strategy;
and significant negative industry or economic trends. When the Company
determines that the carrying value of intangibles and goodwill may not be
recoverable based upon one or more of these indicators of impairment, the
Company measures any potential impairment based 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.





On August
1, 2005, the Company purchased Mifflin Valley, Inc, a Pennsylvania
manufacturer.  This acquisition resulted in the recording of $871,297
in goodwill as of January 31, 2006.  Management has determined there
is no impairment of this goodwill at January 31, 2008 and 2007.





Self-Insured
Liabilities





The
Company has 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. This estimate is based upon historical trends and amounted to $120,000
for each of the years ended January 31, 2008 and 2007. The Company maintains
separate insurance to cover the excess liability over set single claim amounts
and aggregate annual claim amounts.





Stock-Based
Compensation





Effective
February 1, 2006, the Company accounts for share based compensation in
accordance with the recognition and measurement provisions of Statement of
Financial Accounting Standards “Share-based Payment” (“FAS” No. 123 (R)”), which
replaced FAS No. 123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued
to Employees, and related interpretations.  FAS  No. 123(R)
requires compensation costs related to share-based payment transactions
including employee stock options, to be recognized in the financial
statements.  In addition, the Company adheres to the guidance set
forth within Securities and Exchange Commission (“SEC”) Staff Accounting
Bulletin (“SAB”) No. 107, which provides the Staff’s views regarding the
interaction between FAS No. 123(R) and certain SEC rules and regulations and
provides interpretations with respect to the valuation of share-based payments
for public companies.





Prior to
February 1, 2006, the Company accounted for similar transactions in accordance
with APB No. 25 which employed the intrinsic value method of measuring
compensation cost.  Accordingly compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant
date.





While FAS
No. 123 encouraged recognition of the fair value of all stock-based awards on
the date of grant as expense over the vesting period, companies were permitted
to continue to apply the intrinsic value-based method of accounting prescribed
by APB No. 25 and disclose certain pro-forma amounts as if the fair value
approach of SFAS No. 123 had been applied.  In December 2002, FAS No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure, an
amendment of  SFAS No. 123, was issued, which, in addition to
providing alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation, required more
prominent pro-forma disclosures in both the annual and interim financial
statements.  The Company complied with





48
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
(continued)





these
disclosure requirements for all applicable periods prior to February 1,
2006.





In
adopting FAS No. 123(R), the Company applied the modified prospective approach
to transition.  Under the modified prospective approach, the
provisions of FAS No. 123(R) are to be applied to new awards and to
awards


modified,
repurchased, or cancelled after the required effective
date.  Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
required effective date shall be recognized as the requisite service is rendered
on or after the required effective date.  The compensation cost for
that portion of awards shall be based on the grant-date fair value of those
awards as calculated for either recognition or pro-forma disclosures under FAS
No. 123.





The
following table illustrates the effect on net income and earnings per share as
if the fair value recognition provisions of FAS No. 123 had been applied to all
outstanding and unvested awards in the year ended January 31, 2006.





2006Net
      incomeAs
      reported
            
            $
            6,329,364Less:Stock
      –based employee compensation expense determined under fair value based
      method, net of related tax benefit
            
            
            9,627Net
      income, Pro forma
            
            $
            6,319,737Basic
      earnings per common shareAs
      reported
            
            $
            1.15Pro
      forma
            
            $
            1.15Diluted
      earnings per common shareAs
      reported
            
            $
            1.15Pro
      forma
            
            $
            1.15





Allowance
for Doubtful Accounts





The
Company establishes an allowance for doubtful accounts to provide for accounts
receivable that may not be collectible.  In establishing the allowance
for doubtful accounts, the Company analyzes the collectability of individual
large or past due accounts customer-by-customer.  The Company
establishes reserves for accounts that it determines to be doubtful of
collection.





Shipping
and Handling Costs





For
larger orders, except in its Fyrepel product line, the Company absorbs the cost
of shipping and handling.  For those customers who are billed the cost
of shipping and handling fees, such amounts are included in net
sales.  Shipping and handling costs associated with outbound freight
are included in selling and shipping expenses and aggregated approximately
$2,452,000, $2,461,000, and $2,411,000, in the fiscal years ended January 31,
2008, 2007 and 2006, respectively.





49
 Index





Lakeland
Industries, Inc.


and Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
(continued)





Research
and Development Costs





Research
and development costs are expensed as incurred and included in general and
administrative expenses.  Research and development expenses aggregated
approximately $359,000, $100,000, and $90,000 in the fiscal years ended January
31, 2008, 2007 and 2006, respectively, and was largely for testing and
certification of new products in 2008 and for development of new raw materials
in 2007 and 2006.





Income
Taxes





The
Company is required to estimate its income taxes in each of the jurisdictions in
which it operates as part of preparing the 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 the Company’s balance sheet. A judgment must then be
made of the likelihood that any deferred tax assets will be recovered from
future taxable income. A valuation allowance may be required to reduce deferred
tax assets to the amount that is more likely than not to be realized. In the
event the Company determines that it may not be able to realize all or part of
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 income in the period of such
determination.





Uncertain
Tax Positions





Effective February 1,
2007, the first day of fiscal 2008, the Company adopted the provisions of
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes recognition
thresholds that must be met before a tax benefit is recognized in the financial
statements and provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. Under FIN
48, an entity may only recognize or continue to recognize tax positions that
meet a "more likely than not" threshold. The Company recorded the cumulative
effect of applying FIN 48 as a $419,000 decrease to the opening balance of
retained earnings as of February 1, 2007, the date of adoption.





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 average common stock equivalents for the years ended January
31, 2008, 2007 and 2006 were 19,494, 7,459, and 5,325, respectively,
representing the dilutive effect of stock options and restricted stock awards.
The diluted earnings per share calculation takes into account the shares that
may be issued upon exercise of stock options, reduced by shares that may be
repurchased with the funds received from the exercise, based on the average
price during the fiscal year (as adjusted for the 10% stock dividend to holders
of record on April 30, 2005 and August 1, 2006).





Advertising
Costs





Advertising
costs are expensed as incurred.  Advertising costs (income) amounted
to $(75,798), $30,433, and $(43,104), in the fiscal years ended January 31,
2008, 2007 and 2006, respectively, net of co-op advertising allowance received
from a supplier.  These reimbursements include some costs which are
classified in categories other than advertising, such as payroll.





50
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
(continued)








Statement
of Cash Flows





The
Company considers highly liquid temporary cash investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of money market funds. The market value of the cash equivalents
approximates cost. Foreign denominated cash and cash equivalents were
approximately $3,575,000 and $1,752,000 at January 31, 2008 and 2007,
respectively.





Supplemental
cash flow information for the years ended January 31 is as follows:





2008
            
            
            2007
            
            
            2006Interest
      paid
            
            $
            330,268
            
            
            $
            356,331
            
            
            $
            166,805Income
      taxes paid
            
            $
            699,456
            
            
            $
            3,744,519
            
            
            $
            3,402,723





Concentration
of Credit Risk





Financial
instruments, which potentially subject the Company to concentration of credit
risk, consist principally of trade receivables. Concentration of credit risk
with respect to these receivables is generally diversified due to the large
number of entities comprising the Company’s customer base and their dispersion
across geographic areas principally within the United States. The Company
routinely addresses the financial strength of its customers and, as a
consequence, believes that its receivable credit risk exposure is
limited.  The Company does not require customers to post
collateral.





The
largest foreign cash balances are deposited in HSBC in China and the UK and in
the TD Canada Trust Bank in Canada.  The utilization of these larger
banking institutions minimizes risk of deposits held in foreign
countries.





Foreign
Operations and Foreign Currency Translation





The
Company maintains manufacturing operations and uses independent contractors in
Mexico, India and the People’s Republic of China. It also maintains sales and
distribution entities located in Canada, the U.K., Chile and Japan. There is
also a Canadian subsidiary which owns a warehouse facility. The Company is
vulnerable to currency risks in these countries. The functional currency of
foreign subsidiaries is the U.S. dollar, except for the Canadian Real Estate
subsidiary.





The
monetary assets and liabilities of the Company’s foreign operations are
translated into U.S. dollars at current exchange rates, while non-monetary items
are translated at historical rates. Revenues and expenses are generally
translated at average exchange rates for the year. Transaction gains and
(losses) that arise from exchange rate fluctuations on transactions denominated
in a currency other than the functional currency are included in the results of
operations as incurred and aggregated losses of  approximately
$72,000, $29,000, and $66,000 for the fiscal years ended January 31, 2008, 2007
and 2006, respectively.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and




51
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
(continued)









Fair
value of Financial Instruments





The
Company's principal financial instrument consists of its outstanding revolving
credit facility and term loan. The Company believes that the carrying amount of
such debt approximates the fair value as the variable interest rates approximate
the current prevailing interest rate.





Effects
of Recent Accounting Pronouncements





In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles.  FAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value
measurements.  FAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments
that require retrospective application.  We are currently evaluating
the potential impact of FAS No. 157 on our financial position and results of
operations.




In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-including an amendment of FAS 115” (FAS No.
159”). The new statement allows entities to choose, at specified election dates,
to measure eligible financial assets and liabilities at fair value that are not
otherwise required to be measured at fair value. If a company elects the fair
value option for an eligible item, changes in that item’s fair value in
subsequent reporting periods must be recognized in current
earnings.  FAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating the potential impact of FAS No.
159 on our financial position and results of operations.





Statement
of Financial Accounting Standards No. 141(R), Business Combinations(“Statement 141(R)”), was issued in December 2007. Statement 141
(R) requires that upon initially obtaining control, an acquirer will
recognize 100% of the fair values of acquired assets, including goodwill, and
assumed liabilities, with only limited exceptions, even if the acquirer has not
acquired 100% of its target. Additionally, contingent consideration arrangements
will be fair valued at the acquisition date and included on that basis in the
purchase price consideration and transaction costs will be expensed as incurred.
Statement 141(R) also modifies the recognition for preacquisition contingencies,
such as environmental or legal issues, restructuring plans and acquired research
and development value in purchase accounting. Statement 141(R) amends Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
to require the acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination either in
income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. Statement 141(R) is
effective for fiscal years beginning after December 15, 2008. Adoption is
prospective and early adoption is not permitted. We expect to adopt Statement
141 (R) on February 1, 2009. Statement 141R’s impact on accounting for
business combinations is dependent upon acquisitions at that time.





In December 2007, the FASB issued
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,” which establishes new standards
governing the accounting for and reporting of noncontrolling interests (NCIs) in
partially owned consolidated subsidiaries and the loss of control of
subsidiaries. Certain provisions of this standard indicate, among other things,
that NCIs (previously referred to as minority interests)




52
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





1.
(continued)




be treated as a separate
component of equity, not as a liability; that increases and decrease in the
parent’s ownership interest that leave control intact be treated as equity
transactions, rather than as step acquisitions or dilution gains or losses; and
that losses of a partially owned consolidated subsidiary be allocated to the NCI
even when such allocation might result in a deficit balance. This standard also
requires changes to certain presentation and disclosure requirements. SFAS
No. 160 is effective beginning February 1, 2009. The provisions of the
standard are to be applied to all NCIs prospectively, except for the
presentation and disclosure requirements, which are to be to applied
retrospectively to all periods presented. The Company believes that this
pronouncement will not have a material effect on the financial
statements.




In March 2008, the FASB issued
SFAS No. 161,Disclosures about
Derivative Instruments and Hedging Activities—An Amendment of FASB
Statement No. 133(“SFAS 161”). SFAS 161 requires
enhanced qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the impact of
SFAS 161 on itsconsolidated financial statements.




Comprehensive
income (loss)





Comprehensive
income (loss) refers to revenue, expenses, gains and losses that under generally
accepted accounting principles are included in comprehensive income but are
excluded from net income as these amounts are recorded directly as an adjustment
to stockholders' equity. Such amount was a loss of $36,073 at January 31, 2008
as a result of foreign exchange hedging. At January 31, 2007 and 2006, there
were no such adjustments required or such amounts were de minimus.





2
–INVENTORIES





Inventories
consist of the following at January 31:





2008
            
            
            2007Raw
      materials
            
            $
            25,035,569
            
            
            $
            19,051,284Work-in-process
            
            
            2,873,001
            
            
            
            2,760,196Finished
      goods
            
            
            20,207,603
            
            
            
            19,144,259$
            48,116,173
            
            
            $
            40,955,739





3
-PROPERTY, PLANT AND EQUIPMENT





Property
and equipment consist of the following at January 31:


Useful life in years
            
            
            2008
            
            
            2007Machinery
      and equipment
            
            3 –
      10
            
            
            $
            6,960,835
            
            
            $
            6,965,360Furniture
      and fixtures
            
            3 –
      10
            
            
            
            316,592
            
            
            
            255,949Leasehold
      improvements
            
            Lease
      term
            
            
            
            654,097
            
            
            
            941,002Land
      and building  (China)
            
            20
            
            
            
            2,412,115
            
            
            
            2,073,665Land,
      building and equipment (India)
            
            7 -
      39
            
            
            
            3,949,612
            
            
            
            3,464,994Land
      and building (Canada)
            
            30
            
            
            
            2,434,059
            
            
            
            122,395Land
      and buildings (USA)
            
            39
            
            
            
            3,652,252
            
            
            
            3,967,97320,379,562
            
            
            
            17,791,338Less
      accumulated depreciation and amortization
            
            
            
            
            
            
            (7,054,914
            )
            
            
            (6,707,308
            )$
            13,324,648
            
            
            $
            11,084,030




53
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006


3.
(continued)





Depreciation
and amortization expense for fiscal 2008, 2007 and 2006 amounted to $1,186,840,
$1,048,380, and
$993,686, respectively.  Net fixed assets in China were approximately
$2.2 million as of January 31, 2008 and 2007.  Net fixed assets in
India were approximately $3.8 million and $3.5 million at January 31, 2008 and
2007, respectively. Net fixed assets in Canada were approximately $2.6 million
and $0.3 million at January 31, 2008 and 2007, respectively.





In
November 2006, the Company purchased the Industrial Glove assets of RFB Latex,
Ltd. (RFB) of New Delhi, India for a purchase price of approximately $3.4
million, subject to reconciliation of operations over the prior year and an
audit.  Such assets consist of long term land leases, buildings and
equipment.  This purchase price is in addition to the cumulative
outlay of approximately $1.5 million through November 15, 2006 which consists of
the cost of the purchase option, inventory, receivables, operating losses to
date and working capital. Such additional amount has been charged to expense in
Fiscal 2007. The Company is in the process of, subject to Indian law,
liquidating its existing subsidiary and setting up a new subsidiary which will
consummate the purchase transaction. The Company has purchased the assets in
question directly and has hired a new Chief Operating Officer to manage and
control the Indian operations. Management has begun shipping gloves to the USA
in March 2008.





4-BUSINESS
COMBINATIONS





On August
1, 2005, the Company acquired the assets and operations and assumed certain
liabilities of Mifflin Valley, Inc., (“Mifflin”) of Shillington, PA for an
initial purchase price of $1.6 million, subject to certain
adjustments.  Final payment was made in November 2005 following the
audit of the closing date balance sheet.  The final price amounted to
$1.9 million and included adjustments for the payoff of a revolving loan of $0.2
million and adjustments for inventory, fixed asset values and allowances for
doubtful accounts. Mifflin is a manufacturer of protective clothing specializing
in safety and visibility, largely for the Emergency Services market, and also
for the entire public safety and traffic control market.  Mifflin
specializes in customized garments to suit customers’ needs, coupled with
quality, service, price and delivery.  Mifflin’s products include
flame retardant garments for the Fire Industry, Nomex clothing for utilities,
and high visibility reflective outerwear for Departments of
Transportation.





The
purchase was effective as of July 1, 2005 and the results of Mifflin’s
operations have been included since July 1, 2005 in the Company’s reported
results , adding approximately $1.8 million in sales for the seven months ended
January 31, 2006 and $.02 to earnings per share to the actual reported results.
This acquisition resulted in $871,000 of goodwill, which is deductible for tax
purposes to be amortized over a 15 year life.





5
-LONG-TERM DEBT





Revolving
Credit Facility





In July
2005 the Company entered into a $25 million five year revolving credit facility
with Wachovia Bank, N.A.  At January 31, 2008, the balance outstanding
under this revolving credit facility amounted to $8.9 million.  The
credit facility is collateralized by substantially all of the assets of the
Company.  The credit facility contains financial covenants, including,
but not limited to, fixed charge ratio, funded debt to EBIDTA ratio, inventory
and accounts receivable collateral coverage ratio, with respect to which the
Company was in compliance at January 31, 2008 and for the year  then
ended.





The
maximum amounts borrowed under the credit facilities during the fiscal years
ended January 31, 2008, 2007 and 2006 were $9,900,000, $10,000,000, and
$17,000,000, respectively, and the weighted average interest rates during the
periods were 5.51%, 5.74% and 3.67%, respectively.





54
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006







6.
– STOCKHOLDERS’ EQUITY AND STOCK OPTIONS







The
Non-employee Directors’ Option Plan (the “Directors’ Plan”) provides for an
automatic one-time grant of options to purchase 5,000 shares of common stock to
each non-employee director elected or appointed to the Board of Directors. Under
the Directors’ Plan, 60,000 shares of common stock have been authorized for
issuance. Options are granted at not less than fair market value, become
exercisable commencing six months from the date of grant and expire six years
from the date of grant. In addition, all non-employee directors re-elected to
the Company’s Board of Directors at any annual meeting of the stockholders will
automatically be granted additional options to purchase 1,000 shares of common
stock on each of such dates.





Restricted
Stock Plan and Performance Equity Plan (“2006 Equity Incentive
Plan”)





On June 21, 2006, the shareholders of
the Company approved a restricted stock plan.  A total of 253,000
shares of restricted stock were authorized under this 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, minimum, 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 three to four years after issuance,
subject to continuous employment and certain other
conditions.  Restricted stock have the same voting rights as other
common stock.  Restricted stock awards do not have voting rights, and
the underlying shares are not considered to be issued and outstanding until
vested.





The Company has granted up to a maximum
of 141,559 restricted stock awards as of January 31, 2008.  All of
these restricted stock awards are non-vested at January 31, 2008 (97,449 shares
at “baseline” and 54,329 shares at “minimum”) and have a weighted average grant
date fair value of $12.83.  The Company recognizes expenses 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 January 31, 2008, unrecognized
stock-based compensation expense related to restricted stock awards
totaled  $643,331 and $1,503,061 and $360,348 at the baseline,
maximum, and minimum performance levels, respectively.  The cost of
these non-vested awards is expected to be recognized over a weighted-average
period of three years.  The board has estimated its current
performance level to be at the minimum level and expenses have been recorded
accordingly.  The performance based awards are not considered stock
equivalents for EPS purposes.





The
Company recognized total stock-based compensation costs of $233,261 and
$147,061, of which $233,261 and $125,711 results from the 2006 Equity Incentive
Plan, and $0 and $21,350 results from the Directors Plan Directors Option Plan
for the years ended January 31, 2008 and 2007, respectively. Stock compensation
expense and tax benefit recorded under APB 25 in the Consolidated Statements of
Income for the year ended January 31, 2006 was $0. These amounts are reflected
in selling, general and administrative expenses.  The total income tax
benefit recognized for stock-based compensation arrangements was $83,974 and
$52,942 for the years ended January 31, 2008 and 2007,
respectively.





The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions for the year ended January
31, 2007: expected volatility of 87%; risk-free interest rate of 3.6%; expected
dividend yield of 0.0%; and expected life of six years. All stock-based option
awards were fully vested at January 31, 2008, 2007 and 2006.  During
fiscal 2007, 2,200 option shares were granted to two Directors (1,100 each) upon
re-election in June 2006.  No options were granted in fiscal 2006 or
2008.  Earnings per share have been adjusted to reflect the 10% stock
dividends to stockholders of record as of August 1, 2006 and April 30,
2005.





55
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006


6.
(continued)





Additional
information with respect to the Directors’ Plan for the fiscal year ended
January 31, 2008 is summarized as follows:





Directors’
              PlanNumber
              of
              shares
            
            
            Weighted
              average
              exercise
              price
            
            
            Weighted
              average
              remaining
              term(years)
            
            
            Aggregate
              Intrinsic
              ValueShares
      under optionOutstanding
      at beginning of year
            
            
            19,031
            
            
            $
            12.79Exercised
            
            
            (1,464
            )
            
            
            4.57
            
            
            
            
            
            $
            13,791Outstanding
      and exercisable at end of year
            
            
            17,567
            
            
            $
            13.48
            
            
            
            2.6
            
            
            $
            8,618Weighted-average
      fair value per share of  options granted during
    2008
            
            
            
            
            
            
            N/AWeighted-average
      fair value per share of options exercised during 2008
            
            
            
            
            
            $
            4.57





Reserved
      Shares:Directors
      Plan
            
            
            32,936




56
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





7.
– INCOME TAXES





The
provision for income taxes is based on the following pre-tax
income:








2008
            
            
            2007
            
            
            2006Domestic
            
            $
            3,642,522
            
            
            $
            5,132,063
            
            
            $
            7,896,736Foreign
            
            
            1,222,276
            
            
            
            1,797,983
            
            
            
            1,871,326Total
            
            $
            4,864,798
            
            
            $
            6,930,046
            
            
            $
            9,768,062








The
provision for income taxes is summarized as follows:








2008
            
            
            2007
            
            
            2006CurrentFederal
            
            $
            1,680,298
            
            
            $
            1,669,922
            
            
            $
            2,563,836State
            
            
            174,369
            
            
            
            180,999
            
            
            
            448,656Foreign
            
            
            343,864
            
            
            
            429,343
            
            
            
            382,4032,198,531
            
            
            
            2,280,264
            
            
            
            3,394,895Deferred
            
            
            (624,595
            )
            
            
            (454,417
            )
            
            
            43,803$
            1,573,936
            
            
            $
            1,825,847
            
            
            $
            3,438,698








The
following is a reconciliation of the effective income tax rate to the Federal
statutory rate:








2008
            
            
            2007
            
            
            2006Statutory
      rate
            
            
            34.0
            %
            
            
            34.0
            %
            
            
            34.0
            %State
      income taxes, net of Federal tax benefit
            
            
            2.4
            %
            
            
            1.7
            %
            
            
            2.0
            %Permanent
      differences
            
            
            (.7
            )%
            
            
            (.7
            )%
            
            
            (.2
            )%Repatriation
      of foreign earnings
            
            
            -----
            
            
            
            -----
            
            
            
            1.7
            %Foreign
      tax rate differential
            
            
            (5.4
            )%
            
            
            (7.6
            )%
            
            
            (2.7
            )%Other
            
            
            2.0
            %
            
            
            (1.0
            )%
            
            
            .4
            %Effective
      rate
            
            
            32.3
            %
            
            
            26.4
            %
            
            
            35.2
            %




57
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





7.
(continued)





The tax
effects of temporary differences which give rise to deferred tax assets at
January 31, 2008, 2007 and 2006 are summarized as follows:








2008
            
            
            2007
            
            
            2006Deferred
      tax assetsInventories
            
            $
            1,120,426
            
            
            $
            766,662
            
            
            $
            688,800Accounts
      receivable
            
            
            17,100
            
            
            
            39,140
            
            
            
            120,703Accrued
      compensation and other
            
            
            66,742
            
            
            
            150,895
            
            
            
            108,181Depreciation
            
            
            35,666Stock
      based compensation
            
            
            130,000
            
            
            
            -----
            
            
            
            -----Losses
      in India prior to restructuring effective February 1, 2008
            
            
            599,779
            
            
            
            398,667
            
            
            
            -----Gross
      deferred tax assets
            
            
            1,969,713
            
            
            
            1,355,364
            
            
            
            917,684Deferred
      tax liabilitiesDepreciation
      and other
            
            
            -----
            
            
            
            27,227
            
            
            
            86,982Gross
      deferred tax liabilities
            
            
            -----
            
            
            
            27,227
            
            
            
            86,982Net
      deferred tax asset
            
            $
            1,969,713
            
            
            $
            1,328,137
            
            
            $
            830,702








In January 2006, the company
repatriated through dividends to the parent, approximately $3.2 million of
cumulative earnings from its Chinese subsidiaries, thereby incurring
approximately $164,000 of additional US taxes.





Tax
Audit/Adoption of FIN 48





The
following table summarized the activity related to our gross unrecognized tax
benefits from February 1, 2007 to January 31, 2008:





Balance
      as of February 1, 2007
            
            $
            419,000Increases
      related to prior year tax position – accrued interest
            
            
            20,000Balance
      as of January 31, 2008
            
            $
            439,000





The
Company’s policy is to recognize interest and penalties related to income tax
issues as components of income tax expense. The Company had approximately
$60,000 of accrued interest as of February 1, 2007, which was included in the
above $419,000 charge pursuant to FIN 48, and has accrued $20,000 additional
interest to date.





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 limited number of foreign
jurisdictions.   The Company’s Federal Income Tax returns for the
fiscal years ended January 31, 2003, 2004 and 2005 have been audited by the
Internal Revenue Service. Such audits are complete with one issue in dispute
relating to deductions taken by the Company for charitable contributions of its
stock in trade, and one other issue in dispute which would result in a timing
difference. Such issues are in the Appellate Division of the Internal Revenue
Service. Several meetings have been held in 2007.  Since the final result
of these issues cannot be estimated by management at this time, management has
recorded a charge of $439,000 representing the government’s position plus
interest.





58
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





7.
(continued)





In March
2008, the Company received notice that the IRS will audit the tax return for the
fiscal year ended January 2007.





Our major
foreign tax jurisdiction is China. China tax authorities have no such thing as a
statute of limitation in writing. However, the general practice is going back
two years.  Two out of three China subsidiaries were audited in tax year
2007 for tax year 2006 and 2005. No significant findings were noted; the
other China subsidiary's tax years through 2004 were audited with no significant
findings. We do not anticipate significant tax liability upon any upcoming tax
audit for any of the China subsidiaries.








8.
– BENEFIT PLANS





Defined
Benefit Plan





On
January 30, 2007, Lakeland purchased a Single Premium Group Annuity Contract
from the John Hancock Life Insurance Company (“John Hancock”) to cover all
participants in the Fireland Pension Fund in connection with Lakeland’s
termination of the plan.  The cost of such annuity contract was
approximately $1,421,000 for which John Hancock set up a Single Premium
Non-participation Group Annuity plan to cover all participants in the
plan.  The termination of the plan was approved by the Pension Benefit
Guarantee Corporation (“PBGC”). Such cost of $1,421,000 was funded by plan
assets of approximately $1,303,000 and net cash contributed by Lakeland
Industries, Inc. of approximately $118,000.  After the completion of this
transaction, the company had a remaining accrued benefit cost liability of
approximately $353,000, recognized as a pre-tax gain of approximately
$353,000.  This transaction meets the definition of “settlement” pursuant
to FAS 88.  The Fireland Pension Fund was a frozen defined benefit
pension plan that covered former employees of an entity acquired in fiscal
1987.





The
components of net periodic pension (benefit) cost for the fiscal year January
31, 2006 is summarized as follows:





2006Interest
      cost
            
            $
            81,214Expected
      Return on Plan Assets
            
            
            (93,353
            )Net
      amortization and deferral
            
            
            (13,657
            )Net
      periodic benefit
            
            $
            (25,796
            )








Defined
Contribution Plan





Pursuant to the terms of the Company’s
401(k) plan, substantially all U.S. employees over 21 years of age with a
minimum period of service are eligible to participate.  The 401(k)
plan is administered by the Company and provides for voluntary employee
contributions ranging from 1% to 15% of the employee’s compensation. The Company
made discretionary contributions of $216,283, $197,075, and $126,547 in the
fiscal years ended January 31, 2008, 2007, and 2006, respectively.





59
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





9.
– MAJOR SUPPLIER





The
Company purchased approximately 62.0%, 62.6%, and 74.0% of its raw materials
from one supplier under licensing agreements for the fiscal years ended January
31, 2008, 2007 and 2006, respectively.  The Company expects this
relationship to continue for the foreseeable future. Required similar raw
materials could be purchased from other sources; although, the Company’s
competitive position in the marketplace could be affected.





10.
– COMMITMENTS AND CONTINGENCIES





Employment
Contracts





The
Company has employment contracts with six principal officers and the Chairman of
the Board of Directors, expiring through January 31, 2010.  Pursuant
to such contracts, the Company is committed to aggregate annual base
remuneration of $905,000 and $370,000 for the fiscal years ended January 31,
2009 and 2010.





Leases





On
April 1, 2004, the Company entered into a five-year lease agreement (expiring
March 31, 2009) with River Group Holding Co., L.L.C. for a 49,500 sq. ft.
warehouse facility located next to the existing facility in Decatur,
Alabama.  River Group Holding Co., L.L.C. is a limited liability
company consisting of five directors and one officer of the
Company.  The annual rent for this facility is $199,100 and the
Company was the sole occupant of the facility. The Company purchased this
facility from River Group on May 25, 2005.





On March
1, 1999, the Company entered into a one-year (renewable for four additional one-
year terms) lease agreement with Harvey Pride, Jr., an 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 March 1, 2004 through March 31, 2009 at the same rental rate and
terms.





The
Company believes that all rents paid to Harvey Pride, Jr. by the Company are
comparable to what would be charged by an unrelated party, as three different
rent fairness appraisals were performed in 1999, 2002 and 2004.  The
total rent paid to Harvey Pride, Jr. by the Company for use of the customer
service office for each of the years ended January 31, 2008, 2007 and 2006
amounted to $18,000.  The Company paid $74,808 to Luis Gomez Guzman,
(an employee in Mexico until December 2005), for rent on a building pursuant to
a lease which expired on July 7, 2007 and in fiscal 2006 a 12,853 square foot
addition was built for additional annual rent of $46, 416. Further related party
rentals are discussed in Note 13.





Total
rental costs under all operating leases is summarized as follows:





Gross rental
            
            
            Rentals paid to related
    partiesYear
      ended January 31,2008
            
            $
            566,845
            
            
            $
            167,9042007
            
            $
            769,101
            
            
            $
            226,5602006
            
            $
            540,162
            
            
            $
            328,420




60
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006


10.
(continued)





Minimum annual rental
commitments for the remaining term of the Company’s non-cancelable operating
leases relating to manufacturing facilities, office space and equipment rentals
at January 31, 2008 including lease renewals subsequent to year-end are
summarized as follows:





Year
      ending January 31,2009
            
            $
            330,9972010
            
            
            299,9562011
            
            
            164,4862012
            
            
            99,4162013
            
            
            48,000





Real
Estate Purchases





Building
purchase in India:





On
November 22, 2006 the Company closed on its contract to buy the Industrial glove
assets of RFB Latex, Ltd. of New Delhi, India. Included in this contract is a
building of 58,945 square feet and three land plots which has an appraised value
of $3.5 million.





Canadian
building:





In June
2006, the Company entered into an agreement to construct a distribution facility
in Brantford, Ontario at a fixed cost of approximately $2,400,000 USD. In order
to finance the acquisition, the Company has arranged a term loan in the amount
of $2,000,000 (Canadian) bearing interest at the Business Development Bank of
Canada’s floating base rate minus 1.25% (currently equal to 6.75%) and is
repayable in 240 monthly principal installments of $8,350 (Canadian) plus
interest. The Company has drawn down the full amount of this loan, and has
included $33,899 CAD as capitalized interest reflected in the asset cost. Such
building was completed, and the Company took occupancy in December 2007. The
term loan is collateralized by the land and buildings in Brantford, Ontario, as
well as certain personal property of our Canadian subsidiaries. In addition,
$700,000 CAD of the term loan is guaranteed by the parent Company.





Litigation





The
Company is involved in various litigation arising during the normal course of
business which, in the opinion of the management of the Company, will not have a
material effect on the Company’s financial position, results of operations, or
cash flows.





Mexican
Tax Situation




In August
2001, Guanajuato Mexico, Secretaria de Hacienda Credito Publico (“Hacienda”)
began an audit of our wholly-owned subsidiary Lakeland de Mexico de SA de
CV.  The audit resulted in a claim by Hacienda for 9,195,254 Mexican
Pesos (approximately $800,000 USD), in December 2002.  In June 2003
Hacienda’s own Legal Department, in an administrative opinion, dismissed this
deficiency in total.  In December 2003 the Hacienda Audit Department
changed tactics and reinstated the deficiency based on new legal
theories.  In response to this second claim, in March 2004 Lakeland de
Mexico filed a Nullity Proceeding against Hacienda at the Tribunal Federal de
Justica Fiscal Administrativa, Celaya, Guanajuato to nullify Hacienda’s tax
liens and deficiencies.  On August 4, 2006 we were officially notified
that the above described legal proceedings were decided in Lakeland’s favor by a
three judge panel. The Hacienda tax authority then asked for a review from a
higher court of the lower court’s holding. The higher Mexican court upheld the
lower court’s holding on May 4, 2007 and this tax deficiency issue has been
closed in Lakeland’s favor.





61
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





11.
– RESTRUCTURING





The
Company closed its Celaya, Mexico manufacturing facility and opened a new and
larger facility in Jerez, Mexico. The change in facilities is primarily to
reduce the unit cost of production. Jerez presents better labor, rental and
transportation values than did our Celaya plant and the Company believes it will
ultimately realize savings of approximately $500,000 annually. In December 2007,
the production move was fully implemented. The new Jerez facility will also
double our capacity in Mexico and will be used for specialty woven items that
are not made in China due to high tariffs and/or quotas imposed by most customs
departments in North and South America on such goods, but not dutiable if made
in Mexico under the NAFTA and other Latin American Trade Treaties. The Company
has recorded a $506,000 pretax expense in Fiscal 2008, which is included in
“Cost of goods sold” primarily attributable to $275,000 in legally mandated
severance costs to its Celaya employees, $134,000 in other termination costs and
$97,000 in moving and start-up costs.





12.DERIVATIVE
INSTRUMENTS AND FOREIGN CURRENCY EXPOSURE




The
Company has foreign currency exposure, principally through sales in Canada 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, Euro and Great Britain Pound.  Such contracts for
the Euro and Pound are largely timed to expire with the last day of the fiscal
quarter, with a new contract purchased on the first day of the following
quarter, to match the operating cycle of the Company. Management has decided not
to hedge its long position in the Chinese Yuan.





The
Company accounts for its foreign exchange derivative instruments under Statement
of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended.  This standard requires
recognition of all derivatives as either assets or liabilities at fair value and
may result in additional volatility in both current period earnings and other
comprehensive income as a result of recording recognized and unrecognized gains
and losses from changes in the fair value of derivative
instruments.





The
Company had one derivative instrument outstanding at January 31, 2008 which was
treated as a cash flow hedge intended for forecasted purchases of merchandise by
the Company’s Canadian subsidiary.  The Company had no derivative
instruments outstanding at January 31, 2007.  The change in the fair market
value of the effective hedge portion of the foreign currency forward exchange
contracts was an unrealized loss of $36,073, for the year ended January 31, 2008
and was recorded in other comprehensive loss. It will be released into
operations over the remaining 9 months of the contract based on the timing of
the sales of the underlying inventory.  The release to operations will be
reflected in cost of products sold.During the year ended
January 31, 2008, the Company recorded a loss in cost of goods sold for the
remaining portion of the foreign currency forward exchange contract that did not
qualify for hedge accounting treatment.  The derivative instrument was
in the form of a foreign currency “participating forward” exchange contract. The
“participating forward” feature affords the Company full protection on the
downside and the ability to retain 50% of any gains, in exchange for a premium
at inception.  Such premium is built into the contract in the form of
a different contract rate in the amount of $0.0160.





13.
OTHER RELATED PARTY TRANSACTIONS





In July
2005 as part of the acquisition of Mifflin Valley Inc., (merged into Lakeland
Industries, Inc. on September 1, 2006) the Company entered into a five year
lease with Michael Gallen (an employee) to lease an 18,520 sq. ft. manufacturing
facility in Shillington, PA for $55,560 annually or a per square foot rental of
$3.00 with an annual increase of 3.5%.  This amount was obtained prior
to the acquisition from an independent appraisal of the fair market rental value
per square foot.  In addition the Company, commencing January 1, 2006
is renting 12,000 sq





62
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006


13.
(continued)





ft of
warehouse space in a second location is Pennsylvania from this employee, on a
month by month basis, for the monthly amount of $3,350 or $3.35 per square foot
annually.  Mifflin Valley utilizes the services of Gallen Insurance
(an affiliate of Michael & Donna Gallen) to provide certain insurance in
Pennsylvania.  Such payments for insurance aggregated of approximately
$34,000, $27,000 and $23,000 in fiscal 2008, 2007 and 2006,
respectively








Related
Party-outside contractor




The
Company leased its facility in Mexico from Louis Gomez Guzman, an employee in
Mexico until December
2005 in FY06, pursuant to a lease which expired July 31, 2007 at an annual
rental of $121,224.  Mr. Guzman is also acting as a contractor for our
Mexican facility.  His company, Intermack, enables our Mexican
facility to increase or decrease production as required without the Company
needing to expand its facility.  During fiscal 2008, 2007 and 2006,
Lakeland de Mexico paid Intermack $518,968, $721,748, and $938,755,
respectively, for services relating to contract production.





63
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006








14.
MANUFACTURING SEGMENT DATA




The
Company manages its operations by evaluating its geographic locations. The
Company’s North American operations include its facilities in Decatur, Alabama
(primarily disposables, chemical suit and glove production), Celaya, Mexico
(primarily disposables, chemical suit and glove production) and St. Joseph,
Missouri (primarily woven products).  The Company also maintains
contract manufacturing facilities in China (primarily disposable and chemical
suit production).  The Company’s China facilities and Celaya, Mexico
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.  The Company evaluates the performance of these entities
based on operating profit, which is defined as income before income taxes and
other income and expenses.  The Company has a small sales force in
Canada and Europe who distribute products shipped from the United States and
China, the table below represents information about reported manufacturing
segments for the years noted therein:





2008
            
            
            2007
            
            
            2006Net
      Sales:North
      America and other foreign
            
            $
            97,922,742
            
            
            $
            104,804,921
            
            
            $
            104,041,223China
            
            
            14,823,755
            
            
            
            12,007,656
            
            
            
            9,205,660India
            
            
            132,350
            
            
            
            449,022
            
            
            
            60,446Less
      inter-segment sales
            
            
            (17,138,779
            )
            
            
            (17,090, 657
            )
            
            
            (14,567,263
            )Consolidated
      sales
            
            $
            95,740,068
            
            
            $
            100,170,942
            
            
            $
            98,740,066Operating
      Profit:North
      America & other foreign
            
            $
            3,262,062
            
            
            $
            5,879,388
            
            
            $
            8,355,869China
            
            
            2,082,988
            
            
            
            1,858,226
            
            
            
            1,151,340India
            
            
            (624,042
            )
            
            
            (974,
      678
            )
            
            
            (16,428
            )




Less
      intersegment profit
            
            
            262,466
            
            
            
            (41,031
            )
            
            
            11,632Consolidated
      operating profit
            
            $
            4,983,474
            
            
            $
            6,721,905
            
            
            $
            9,502,413Identifiable
      Assets:North
      America and other foreign
            
            $
            76,306,269
            
            
            $
            63,479,434
            
            
            $
            65,734,096China
            
            
            9,904,174
            
            
            
            4,353,599
            
            
            
            5,717,192India
            
            
            (1,587,590
            )
            
            
            6,365,327
            
            
            
            1,012,564Consolidated
      assets
            
            $
            84,622,853
            
            
            $
            74,198,360
            
            
            $
            72,463,852Depreciation:North
      America and other foreign
            
            $
            665,182
            
            
            $
            633,754
            
            
            $
            548,868China
            
            
            352,009
            
            
            
            402,233
            
            
            
            444,818India
            
            
            169,649
            
            
            
            12,393
            
            
            
            ---------------Consolidated
      depreciation
            
            $
            1,186,840
            
            
            $
            1,048,380
            
            
            $
            993,686





64
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006








15.  UNAUDITED
QUARTERLY RESULTS of OPERATIONS (In thousands, except for per share
amounts):






1/31/08
            
            
            10/31/07
            
            
            7/31/07
            
            
            4/30/07Net
      Sales
            
            $
            24,959
            
            
            $
            23,453
            
            
            $
            21,732
            
            
            $
            25,596Cost
      of Sales
            
            
            18,789
            
            
            
            17,749
            
            
            
            16,538
            
            
            
            20,307Gross
      Profit
            
            $
            6,170
            
            
            $
            5,704
            
            
            $
            5,194
            
            
            $
            5,289Net
      Income
            
            $
            998
            
            
            $
            930
            
            
            $
            767
            
            
            $
            596Basic
      and Diluted income per common Share*:Basic
      (a)
            
            $
            .18
            
            
            $
            .17
            
            
            $
            .14
            
            
            $
            .11Diluted
      (a)
            
            $
            .18
            
            
            $
            .17
            
            
            $
            .14
            
            
            $
            .111/31/07
            
            
            10/31/06
            
            
            7/31/06
            
            
            4/30/06Net
      Sales
            
            $
            25,599
            
            
            $
            23,263
            
            
            $
            24,087
            
            
            $
            27,222Cost
      of Sales
            
            
            19,958
            
            
            
            17,627
            
            
            
            17,621
            
            
            
            20,689Gross
      Profit
            
            $
            5,641
            
            
            $
            5,636
            
            
            $
            6,466
            
            
            $
            6,533Net
      Income
            
            $
            1,307
            
            
            $
            980
            
            
            $
            1,355
            
            
            $
            1,462Basic
      and Diluted income per common share*:Basic
      (a)
            
            $
            .23
            
            
            $
            .18
            
            
            $
            .25
            
            
            $
            .26Diluted
      (a)
            
            $
            .23
            
            
            $
            .18
            
            
            $
            .25
            
            
            $
            .26


(a) The
sum of earnings per share for the four quarters may not equal earnings per share
for the full year due to changes in the average number of common shares
outstanding.





*Adjusted,
retroactively, for the 10% stock dividends to shareholders of records on August
1, 2006, and April 30, 2005.








Fourth
quarter adjustment





During the quarter ended
January 31, 2008, the Company identified an adjustment to accrue for the
purchase of inventory by one of our Chinese subsidiaries. The adjustment
resulted in a $254,000 charge to cost of sales with a tax impact of $38,000 for
a net after-tax effect of $216,000. Management evaluated the adjustment and
determined that it is not significant to any one quarter of fiscal year 2008 as
reported. This evaluation was based on management’s best estimate of the effect
of the adjustment on each quarter of fiscal year 2008.





16.           ADOPTION
OF SAB NO. 108




In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.”  The transition provisions of SAB 108 permit the Company to
adjust for the cumulative effect on retained earnings of immaterial errors
relating to prior years. SAB 108 also requires the adjustment of any prior
quarterly







65
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2008, 2007 and 2006





16.
(continued)




financial
statements within the fiscal year of adoption for the effects of such errors on
the quarters when the information is next presented. Such adjustments do not
require previously filed reports with the SEC to be amended. The Company adopted
SAB 108 at the end of fiscal 2007. In accordance with SAB 108, the Company has
adjusted beginning retained earnings for fiscal 2008 in the accompanying
consolidated financial statements for the items described under “Elimination of
Intercompany Profit in Inventory” below. The Company considers these adjustments
to be immaterial to prior periods.






Elimination
of Intercompany Profit in Inventory




As part
of the Company’s routine testing for Sarbanes-Oxley compliance, it was
determined that a report used for the calculation of the elimination of
intercompany profit in inventory did not include finished goods inbound in
transit, thereby serving to understate the amount of intercompany profit to
be eliminated.




The
Company analyzed the effect of this adjustment on prior years to fiscal 2005 and
has quantified an adjustment of $262,000, net of taxes, over the effected period
through fiscal 2007.  In accordance with the provisions of SAB 108, the
Company decreased beginning retained earnings for fiscal year 2008 by $262,000
within the accompanying Condensed Consolidated Financial
Statements.




The
Company does not believe that the net effect of this adjustment was material,
either quantitatively or qualitatively, in any of the years covered by the
review. In reaching that determination, the following quantitative measures were
considered:




(in thousands)
              
              Fiscal Year
            
            Net
      Decrease to
              Net
      Income
            
            
            Net Income
              As Reported
            
            
            Net Adjustment, After
              Tax as a
      % of Net
              Income As Reported2007
            
            $
            154
            
            
            $
            5,104
            
            
            
            3.02
            %2006
            
            
            20
            
            
            
            6,329
            
            
            
            0.32
            %2005
            
            
            88
            
            
            
            5,016
            
            
            
            1.75
            %Total
            
            $
            262
            
            
            
            16,449
            
            
            
            1.59
            %




Impact of Adjustments -The
impact of each of the items noted above, net of tax, on fiscal 2008 beginning
balances are presented below:




(in thousands)
            
            TotalInventory
            
            $
            (262)Retained
      Earnings
            
            (262)Total
            
            $
            —





17.
SUBSEQUENT EVENT – POTENTIAL ACQUISITION OF QUALYTEXTIL, S.A.




In
February 2008, the company signed a letter of intent to acquire Brazilian
protective apparel supplier Qualytextil S.A., subject to the negotiation and
execution of final documentation.  Qualytextil, based in Salvador
Bahia, Brazil, was founded in 1999 and serves the Brazil Protective Clothing
market in the following areas:  firemen’s turnout gear, conductive and
electric arc garments, chemical protective garments, occupational, multilayer
and waterproof operational garments, aluminized and molten metal lines of
protective clothing.





66
 Index





Pursuant
to the letter of intent, it is anticipated that, upon the signing of definitive
documentation, the initial purchase price to be paid by Lakeland would be
approximately USD$12.5 million.  The purchase price is also
anticipated to include an earnout based on Qualytextil’s 2010
EBITDA.  The acquisition is expected to be accretive to Lakeland’s
earnings per share. Adjusted Proforma EBITDA, as defined in the agreement, for
the twelve months ended December 2007 is approximately USD$1.8 million. Sales
for this period was approximately USD$9.8 million, with current gross margins of
50%.





Qualytextil
is located in Salvador Bahia, Brazil in the northeastern part of the country,
where the State provides tax incentives, labor rates are favorable and is
conveniently located to transport garments economically throughout the
country.





67
 Index





SCHEDULE II – VALUATION AND
QUALIFYING ACCOUNTS





Column
      A
            
            Column
      B
            
            Column
      C
            
            Column
      D
            
            
            Column
      EAdditionsBalance
      at
              Beginning
              of
      period
            
            Charge
      to
              costs
      and
              expenses
            Charged
              to
      other
              accounts
            
            Additions/(Deductions)
            
            
            Balance
      at
              end
      of
              periodYear
      ended January 31, 2008Allowance
      for doubtful accounts (a)
            
            $
            103,000
            
            
            
            
            $
            (58,000
            )
            
            $
            45,000Allowance
      for slow moving inventory
            
            $
            306,000
            
            
            
            
            $
            301,000
            
            
            $
            607,000Year
      ended January 31, 2007Allowance
      for doubtful accounts (a)
            
            $
            323,000
            
            
            
            
            $
            (220,000
            )
            
            $
            103,000Allowance
      for slow moving inventory
            
            $
            365,000
            
            
            
            
            $
            (59,000
            )
            
            $
            306,000Year
      ended January 31, 2006Allowance
      for doubtful accounts (a)
            
            $
            323,000
            
            
            
            
            
            
            
            
            $
            323,000Allowance
      for slow moving inventory
            
            $
            396,000
            
            
            
            
            $
            (31,000
            )
            
            $
            365,000





(a)
Deducted from accounts receivable.





ITEM 9. CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE





None





ITEM 9A. CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures







We
conducted an evaluation, under the supervision and with the participation of the
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of January 31, 2008. 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 the our evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were not effective
as of January 31, 2008 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.





68
 Index





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 January 31, 2008. 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 not effective as of January 31, 2008. Our Chief
Executive Officer and Chief Financial Officer have concluded that we have
material weaknesses in our internal control over financial
reporting.




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.




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




Remediation




In
response to these material weaknesses, we have initiated additional review
procedures to reduce the likelihood of future human error and will use internal
accounting staff with greater knowledge of U.S. GAAP to improve the accuracy of
the financial reporting of our Chinese subsidiary.  With the
implementation of these corrective actions we believe that the previously
reported material weaknesses will be remediated as of the first quarter of the
fiscal year 2009; however such procedures will not be tested until our first
quarter close.




Holtz Rubenstein Reminick LLP, the
Company's independent registered public accounting firm has issued a report on
management’s assessment of the Company’s internal control over financial
reporting. That report dated April 10, 2008 is included
herein.




Changes
in Internal Control over Financial Reporting





During our fourth fiscal quarter, our
controller of many years has retired.






ITEM 9B. OTHER INFORMATION





None





69
 Index





PART III











ITEM 10. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT





The
following is a list of the names and ages of all of our directors and executive
officers, indicating all positions and offices they hold with us as of April 10,
2008. Our directors hold office for a three-year term and until their successors
have been elected and qualified. Our executive officers hold offices for one
year or until their successors are elected by our board of
directors.




Name
            Age
            PositionRaymond
      J. Smith
            69
            Chairman
      of the Board of DirectorsChristopher
      J. Ryan
            56
            Chief
      Executive Officer, President,  Secretary, General Counsel and
      DirectorGary
      Pokrassa
            60
            Chief
      Financial OfficerGregory
      D. Willis
            51
            Executive
      Vice PresidentHarvey
      Pride, Jr.
            61
            Senior
      Vice President - ManufacturingPaul
      C. Smith
            41
            Vice
      PresidentGregory
      Pontes
            47
            Vice
      President - ManufacturingJohn
      J. Collins
            65
            DirectorEric
      O. Hallman
            64
            DirectorMichael
      E. Cirenza
            52
            DirectorJohn
      Kreft
            57
            DirectorStephen
      M. Bachelder
            57
            Director





Raymond J. Smith, one of our
co-founders of Lakeland, has been Chairman of our Board of Directors since our
incorporation in 1982 and was President from 1982 to January 31,
2004.  Prior to starting Lakeland, Mr. Smith was first the National
Sales Manager then the President of Abandaco, Inc. from 1966 to 1982, and a
Sales Executive at International Paper from 1961 to 1966. Mr. Smith received his
B.A. from Georgetown University in 1960. Mr. Smith as served as a director since
1982 and his term as a director will expire at our annual meeting of stockholder
in 2010.




Christopher J. Ryan has
served as our Chief Executive Officer and President of Lakeland since February
1, 2004, Secretary since April 1991, General Counsel since February 2000 and a
director since May 1986.  Mr. Ryan was our Executive Vice President -
Finance from May 1986 until becoming our President on February 1, 2004 and his
term as director will expire at our annual meeting of stockholders in 2008. Mr.
Ryan also worked as a Corporate Finance Partner at Furman Selz Mager Dietz &
Birney, Senior Vice President-Corporate Finance at Laidlaw Adams & Peck,
Inc., Managing-Corporate Finance Director of Brean Murray Foster Securities, Inc
and Senior Vice President-Corporate Finance of Rodman & Renshaw,
respectively between 1983-1990. Mr. Ryan has served as a Director of Lessing,
Inc. since 1995, a privately held restaurant chain based in New York. Mr. Ryan
received his MBA from Columbia Business School and his J.D from Vanderbilt Law
School. Mr. Ryan is a member of the National Association of Corporate Directors
(NACD)




Gary Pokrassais a CPA with
38 years experience in both public and private accounting. Mr. Pokrassa was the
CFO for Gristedes Foods, Inc. (AMEX-GRI) from 2000-2003 and Syndata Technologies
from 1997-2000. Mr. Pokrassa received a BS in Accounting from New York
University and is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public
Accountants.




Gregory D. Willis has served
as our Executive Vice President since May 1, 2005 and has held the position
of National Sales Manager for us since November 1991. Prior to
joining Lakeland he held the positions of National Sales Manager and Global
Marketing Manager for Kappler Inc. from 1983 to 1991.  Mr. Willis received
his BBA degree in Business from Faulkner University and is currently a member of
International Safety Equipment Association (ISEA) and National Fire Protection
Agency (NFPA).




Harvey Pride, Jr. has been
our Vice President of manufacturing since May 1986 and was promoted to Senior
Vice President of manufacturing in 2006. He was Vice President of Ryland (our
former subsidiary) from May 1982 to June 1986 and President of Ryland until its
merger into Lakeland on January 31, 1990.




70
 Index





Gregory D. Pontes has served
as Vice President of Manufacturing since September of 2006.  He served
as the Operations Manager from 2003-2006; and worked as Lakeland’s Senior
Engineer from 1994-2003.  Prior to joining Lakeland Mr. Pontes worked
at Kappler Inc. as their Project/Cost Engineer from 1989-1994.




Paul C. Smith, son of Raymond
J. Smith, has served as Vice President since February 1, 2004. Prior to that,
Mr. Smith was our Northeast Regional Sales Manager since September 1998. From
April 1994 until September 1998, Mr. Smith was a sales representative for the
Metropolitan Merchandising and Sales Co.




John J. Collins, Jr. was
Executive Vice President of Chapdelaine GSI, a government securities firm, from
1977 to January 1987. He was Senior Vice President of Liberty Brokerage, a
government securities firm, between January 1987 and November 1998. Presently,
Mr. Collins is self employed, managing a direct investment portfolio of small
business enterprises for his own accounts. Mr. Collins has served as one of our
directors since 1986 and his term as a director will expire at our annual
meeting of stockholders in June 2009.




Eric O. Hallman was President
of Naess Hallman Inc., a ship brokering firm, from 1974 to 1991. Mr. Hallman was
also affiliated between 1991 and 1992 with Finanshuset (U.S.A.), Inc., a ship
brokering and international financial services and consulting concern, and was
an officer of Sylvan Lawrence, a real estate development company, between 1992
and 1998. Between 1998 and 2000, Mr. Hallman was President of PREMCO, a real
estate management company, and currently is Comptroller of the law firm Murphy,
Bartol & O’Brien, LLP. Mr. Hallman has served as one of our directors since
our incorporation in 1982 and his term as a director will expire at our annual
meeting of stockholders in June 2009.




Michael E. Cirenza has been a
Partner at the accounting firm of Anchin, Block and Anchin since March 2007, and
was the Executive Vice President and Chief Financial Officer of Country Life
LLC, a manufacturer and distributor of vitamins and nutritional supplements,
from September 2002 until March 2007. Mr. Cirenza was the Chief Financial
Officer and Chief Operating Officer of Resilien, Inc., an independent
distributor of computers, components and peripherals from January 2000 to
September 2002. He was an Audit Partner with the international accounting firm
of Grant Thornton LLP from August 1993 to January 2000 and an Audit Manager with
Grant Thornton LLP from May 1989 to August 1993. Mr. Cirenza was employed by the
international accounting firm of Price Waterhouse from July 1980 to May 1989.
Mr. Cirenza is a Certified Public Accountant in the State of New York and a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants. Mr. Cirenza has served as
one of our directors since June 18, 2003 and his term as a director will expire
at our annual meeting of stockholders in 2008. Mr. Cirenza received his MBA from
the Cornell University Johnson School of Management in 1980.




A. John Kreft has been
President of Kreft Interests, a Houston based private investment firm, since
2001. Between 1998 and 2001, he was CEO of Baker Kreft Securities, LLC, a NASD
broker-dealer. From 1996 to 1998, he was a co-founder and manager of TriCap
Partners, a Houston based venture capital firm. From 1994 to 1996 he was
employed as a director at Alex Brown and Sons. He also held senior positions at
CS First Boston including employment as a managing director from 1989 to
1994.  Mr. Kreft has served as a director since November 17, 2004 and
his term as a director will expire at our annual meeting of Stockholders June
2008. Mr. Kreft received his MBA from the Wharton School of Business in 1975.
Mr. Kreft is a member of the National Association of Corporate Directors
(NACD).




Stephen M. Bachelder was with
Swiftview, Inc. a Portland, Oregon based software company since 1999-2007 and
President since 2002. Swiftview, Inc. was sold to a private equity firm in
October 2006. Mr. Bachelder is currently working on plans for a new venture.
From 1991 to 1999 Mr. Bachelder ran a consulting firm advising technology
companies in the Pacific Northwest. Mr. Bachelder was the president and owner of
an apparel company, Bachelder Imports, from 1982 to 1991 and worked in executive
positions for Giant Foods, Inc. and Pepsico, Inc. between 1976 and 1982. Mr.
Bachelder is a 1976 Graduate of the Harvard Business School.  Mr.
Bachelder has served as a director since 2004 and his term as a director will
expire at our annual meeting of stockholders in June 2009.







Committees
of the Board


Our board
of directors has a designated Audit Committee that reviews the scope and results
of the audit and other services performed by our independent accountants. The
Audit Committee is comprised solely of independent directors and consists of
Messrs. Cirenza, Kreft, Bachelder, Hallman and Collins. The board of directors
has also designated a Compensation Committee that establishes objectives for our
senior executive officers, sets the compensation of directors, executive
officers and our other employees and is charged with the administration of our
employee benefit plans. The Compensation Committee is comprised solely of
independent directors and consists of Messrs. Cirenza, Kreft, Bachelder, Collins
and Hallman. There is also a Nominating Committee comprised of the independent
directors.




71
 Index





Compensation
of Directors


Each
non-employee director receives a fee of $6,250 (committee chairman receive an
additional $500) per quarter plus per-meeting fees of $1500 for in-person
attendance or $500 for telephone attendance. Non-employee directors are
reimbursed for their reasonable expenses incurred in connection with attendance
at or participation in such meetings. In addition, under our 1995 Director Plan,
each non-employee director who becomes a director is granted an option to
purchase 5,000 shares of our common stock. Messrs. Hallman and Collins were each
granted an option to purchase 5,000 shares of our common stock under our
previous 1986 Plan at the time of their respective appointments or reelections
to the board of directors. Such grants and the terms thereof were renewed on
April 18, 1997, May 5, 1996 and May 5, 1996, respectively, in accordance with
stockholder approval of the 1995 Director Plan at our 1995 annual meeting of
stockholders. Mr. Cirenza received an option to purchase 5,000 shares of our
common stock upon his election to our board of directors in June
2003.  Messrs. Kreft and Bachelder each received an option to purchase
5,000 shares of our Common Stock upon appointment to our Board of Directors in
November 2004.




Directors
who are employees of Lakeland receive no additional compensation for their
service as directors. However, such directors are reimbursed for their
reasonable expenses incurred in connection with travel to or attendance at or
participation in meetings of our board of directors or committees of the board
of directors.








ITEM 11.  EXECUTIVE COMPENSATION





See
information under the caption "Compensation of Executive Officers" in the
Company's Proxy Statement, which information is incorporated herein by
reference.





ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT





See the
information under the caption "Voting Securities and Stock Ownership of
Officers, Directors and Principal Stockholders" in the Company's Proxy
Statement, which information is incorporated herein by reference.





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS





Related
Party Leases


On March
1, 1999, we entered into a one year (renewable for four additional one year
terms) lease agreement with Harvey Pride, Jr., our Vice President –
Manufacturing, for a 2,400 sq. ft. customer service office located next to our
existing Decatur, Alabama facility. We paid an annual rent of $18,000 for this
facility under the lease agreement in fiscal 2004 and 2005. This lease was
renewed on March 1, 2004 through March 31, 2009 at the same rental
rate.




Related
Party-outside contractor




The
Company leased its facility in Mexico from Louis Gomez Guzman, an employee in
Mexico until December 2005, pursuant to a lease which expired on July 31, 2007
at an annual rental of $121,224.  Mr. Guzman also acted as a
contractor for our Mexican facility in FY07 and part of FY08.  During
fiscal 2008 and 2007, Lakeland de Mexico paid Intermack $518,968 and $721,748
for services relating to contract production. In August 2008, the Company moved
to a larger leased facility in Jerez, Mexico, and leases this property from an
unaffiliated landlord.







ITEM 14.  PRINCIPAL ACCOUNTING FEES AND
SERVICES





See the information under the caption
“Report of the Audit Committee” in the Company’s Proxy Statement, which
information is incorporated herein by reference.





72
 Index





PART IV





ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8 – K





(a)  The following
documents are filed as part of this report:





1
            Consolidated
      Financial Statements (See Page 40 of this report which includes an
      index to the consolidated financial
statements)





2
            Financial
      Statement Schedules:


Schedule
II- Valuation and Qualifying Accounts


All
other schedules are omitted because they are not applicable, not required, or
because the requiredinformation is included in the Consolidated Financial
Statements or Notes thereto.





3.
            Exhibits:





Exhibit
            Description3.1
            Restated
      Certificate of Incorporation of Lakeland Industries, Inc. (Incorporated by
      reference to Exhibit 3(a) of Lakeland Industries, Inc.’s Registration
      Statement on Form S-18 (File No. 33-7512 NY))3.2
            Bylaws
      of Lakeland Industries Inc., as amended (Incorporated by reference to
      Exhibit 3(b) of Lakeland Industries, Inc.’s Registration Statement on Form
      S-18 (File No. 33-7512 NY))10.1
            Lease
      Agreement, dated August 1, 2001, between Southwest Parkway, Inc., as
      lessor, and Lakeland Industries, Inc., as lessee (Incorporated by
      reference to Exhibit 10(b) of Lakeland Industries, Inc.’s Annual Report on
      Form 10-K for the year ended January 31, 2002)10.2
            Lakeland
      Industries, Inc. Stock Option Plan (Incorporated by reference to Exhibit
      10(n) of Lakeland’s Registration Statement on Form S-18 (File No. 33-7512
      NY))10.3
            Employment
      Agreement, dated April 16, 2007, between Lakeland Industries, Inc. and
      Raymond J. Smith (Incorporated by reference to Exhibit 10-4 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.4
            Employment,
      dated February 1, 2006, agreement between Lakeland Industries, Inc. and
      Harvey Pride, Jr.10.5
            Employment
      Agreement, dated February 1, 2006, between Lakeland Industries, Inc. and
      Christopher J. Ryan10.6
            Lease
      Agreement, dated March 1, 2004, between Harvey Pride, Jr., as lessor, and
      Lakeland Industries, Inc., as lessee10.7
            Term
      Loan and Security Agreement, dated July 7, 2005, between Lakeland
      Industries, Inc. and Wachovia Bank, N.A. (Incorporated by reference to
      Exhibit 10.11 of Lakeland Industries, Inc.’s Quarterly Report on Form 10-Q
      filed September 7, 2005)10.8
            Employment
      Agreement, dated April 18, 2007, between Lakeland Industries, Inc. and
      James M. McCormick (Incorporated by reference to Exhibit 10-12 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.9
            Employment
      Agreement, dated April 18, 2007, between Lakeland Industries, Inc. and
      Paul C. Smith (Incorporated by reference to Exhibit 10-13 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.10
            Employment
      Agreement, dated January 31, 2008, between Lakeland Industries, Inc. and
      Gary Pokrassa, CPA.  (Incorporated by reference to exhibit 10.1
      of Lakeland Industries, Inc. Form 8-K filed February 6,
    2008)




73
 Index




10.11
            Employment
      Agreement, dated April 16, 2007, between Lakeland Industries Inc., and
      Gregory D. Willis (Incorporated by reference to exhibit 10.15 of Lakeland
      Industries, Inc. Quarterly Report on Form 10-Q filed June 7,
      2007)10.12
            Asset
      Purchase Agreement, dated July, 2005 between Lakeland Industries, Inc. and
      Mifflin Valley, Inc. and Lease Agreement and Employment Contract between
      Lakeland Industries, Inc., and Michael Gallen (Incorporated by reference
      to exhibit 10.15, 10.16, and 10.17 of Lakeland Industries, Inc.’s
      Quarterly Report on form 10-Q filed September 7, 2005)10.13
            Lease
      Agreement, dated March 1, 2006, between Carlos Tornquist Bertrand, as
      lessor, and Lakeland Industries, Inc., as lessee (Incorporated by
      reference to exhibit 10.21 of Lakeland Industries, Inc.’s 10-K for the
      year ended January 31, 2007)10.14
            Lease
      Agreement, dated 2006, between Michael Robert Kendall, June Jarvis, and
      Barnett Waddingham Trustees Limited, as lessor, and Lakeland Industries,
      Inc., as lessee (Incorporated by reference to exhibit 10.22 of Lakeland
      Industries, Inc.’s 10-K for the year ended January 31,
    2007)10.15
            Lease
      Agreement Amendment, dated February 1, 2007, between Southwest Parkway,
      Inc., as lessor, and Lakeland Industries, Inc., as
  lessee.14.1
            Lakeland
      Industries, Inc. Code of Ethics ???21.1
            Subsidiaries
      of Lakeland Industries, Inc. (wholly-owned):
              Lakeland
      Protective Wear, Inc.
              Lakeland
      Protective Real Estate
              Lakeland
      de Mexico S.A. de C.V.
              Laidlaw,
      Adams & Peck, Inc. and Subsidiary (Meiyang Protective Products Co.,
      Ltd.)
              Weifang
      Lakeland Safety Products Co., Ltd.
              Qing
      Dao Lakeland Protective Products Co., Ltd.
              Lakeland
      Industries Europe Ltd.
              Lakeland
      India Private Limited
              Lakeland
      Industries, Inc. Agencia en Chile
              Lakeland
      Japan, Inc.


23
              Consent
      of Independent Registered Public Accounting Firm31.1
              Certification
      of Christopher J. Ryan, Chief Executive Officer, President, Secretary and
      General Counsel, pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      of Gary Pokrassa, Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              Certification
      of Christopher J. Ryan, Chief Executive Officer, President, Secretary and
      General Counsel, Pursuant to 18 U.S.C. Section of 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              Certification
      of Gary Pokrassa, Chief Financial Officer, Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section906 of the Sarbanes-Oxley Act of
      2002.


(b)
            Reports
      on Form 8 - K.




The
documents which we incorporate by reference consist of the documents listed
below that we have previously filed with the SEC:




A
      –
              On
      November 22, 2006 the Company filed a Form 8-K announcing the closing on
      its contract to buy the Industrial Glove assets of RFB Latex, Ltd. in
      India.
 B –
              On
      November 30, 2006 the Company filed a Form 8-K reporting notice of a
      teleconference call on December 7, 2006 to discuss the results of the
      Company’s third quarter ended October 31,
2006.
 C
      –
              On
      December 7, 2006 the Company filed a Form 8-K regarding the results for
      operations of the Company’s third quarter ended October 31,
      2006.
 D
      –
              On
      January 30, 2007 the Company filed a Form 8-K regarding the settlement and
      termination of the Fireland Pension
Fund.
 E
      –
              On
      April 12, 2007 the Company filed a Form 8-K regarding the Company's FY
      2007 financial results for the reporting period ended January 31,
      2007.
 F
      –
              On
      May 2, 2007 the Company filed a Form 8-K regarding the closure of its
      Celaya, Mexico plant and the opening of its new Jerez, Mexico plant. The
      Company also announced the award of a significant chemical suit
      contract.
 G
      –
              On
      June 7, 2007 the Company filed a Form 8-K regarding the Company's Q1 FY08
      financial results for the reporting period ended April 30,
      2007
 H
      –
              On
      September 6, 2007 the Company filed a Form 8-K regarding the Company's Q2
      FY08 financial results for the reporting period ended July 31,
      2007.
  74
 Index
  I
      –
              On
      December 6, 2007 the Company filed a Form 8-K regarding Company's Q3 FY08
      financial results for the reporting period ended October 31,
      2007.
 J
      –
              On
      February 6, 2008 the Company filed a Form 8-K regarding the employment
      agreement, dated January 31, 2008, between Lakeland Industries, Inc. and
      Gary Pokrassa.
 K
      –
              On
      February 19, 2008 the Company filed a Form 8-K regarding the signing of a
      letter of intent to acquire Brazilian protective apparel supplier
      Qualytextil S.A., based in Salvador Bahia,
  Brazil.
 L
      –
              On
      February 21, 2008 the Company filed a Form 8-K regarding the agreement
      letter from Wachovia Bank, N.A., dated February 15, 2008, to amend
      Lakeland’s $25,000,000 Revolving Line of Credit dated July 7, 2005. The
      Company also announced the approval by the Lakeland Board of Directors of
      a Stock Repurchase Plan.
 M
      –
              On
      March 19, 2009, the Company filed a Form 8-K regarding the press release
      in connection with the notice it received from the Holtzman Opportunity
      Fund, L.P.
 N  –
              On
      March 31, 2008, the Company filed a Form 8-K regarding the completion of
      all the contract conditions under which it entered into an exclusive
      product distribution agreement which in turn was signed January 21, 2008
      (the “Product Distribution Agreement”) between Wesfarmers Industrial and
      Safety and Lakeland Industries















75
 Index





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.





Dated:  April
14, 2008


LAKELAND
      INDUSTRIES, INC.By:
            / s
      / Christopher J. RyanChristopher
      J. Ryan,Chief
      Executive Officer and President





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:





Name
            Title
            Date/s/ Raymond J.
      Smith
            Chairman
      of the Board
            April
      14, 2008Raymond
      J. Smith/s/ Christopher J.
      Ryan
            Chief
      Executive Officer, President,
            April
      14, 2008Christopher
      J. Ryan
            General
      Counsel, Secretary and Director/s/ Gary
      Pokrassa
            Chief
      Financial Officer
            April
      14, 2008Gary
      Pokrassa/s/  Teri
      Hunt
            Controller
      and Treasurer
            April
      14, 2008Teri
      Hunt/s/ Eric O.
      Hallman
            Director
            April
      14, 2008Eric
      O. Hallman/s/ John J. Collins,
      Jr.
            Director
            April
      14, 2008John
      J. Collins, Jr./s/ Michael E.
      Cirenza
            Director
            April
      14, 2008Michael
      E. Cirenza/s/ John
      Kreft
            Director
            April
      14, 2008John
      Kreft/s/ Stephen M.
      Bachelder
            Director
            April
      14, 2008Stephen
      M. Bachelder







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