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, 2010


OR


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


For the
transition period from _____________ to ______________





Commission
File Number: 0 – 15535


LAKELAND INDUSTRIES,
INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
              
              13-3115216(State 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.


Yes ̈    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  ̈   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
 ̈


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    No ̈


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


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





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


Yes ̈   No
x


As of
July 31, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $32,361,028 based on the closing price
of the common stock as reported on the National Association of Securities
Dealers Automated Quotation System National Market System.




Indicate
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 14,
    2010Common
      Stock, $0.01 par value per share
                
                5,439,410





DOCUMENTS
INCORPORATED BY REFERENCE





Document
                Parts Into Which
    IncorporatedAnnual
      Report to Stockholders for the Fiscal Year
                Parts
      [I, II, and IV]Ended
      January 31, 2010 (Annual Report)





Portions of the proxy statement for the
annual meeting of stockholders to be held on June 16, 2010, are incorporated by
reference into Part III.





LAKELAND
INDUSTRIES, INC.


INDEX
TO ANNUAL REPORT ON FORM 10-K




PagePART
      1:Cautionary Statement
      regarding Forward-Looking InformationItem
      1
                                  Business
                                  
                                  3Overview
                                  
                                  3Industry
      Overview
                                  
                                  4International and
      Domestic Standards
                                  
                                  5Industry
      Consolidation
                                  
                                  6Business
      Strategy
                                  
                                  6Our Competitive
      Strengths
                                  
                                  8Products
                                  
                                  9Quality
                                  
                                  13Marketing and
      Sales
                                  
                                  14Research and
      Development
                                  
                                  14Suppliers and
      Materials
                                  
                                  14Internal
      Audit
                                  
                                  15Competition
                                  
                                  15Seasonality
                                  
                                  15Patents and
      Trademarks
                                  
                                  15Employees
                                  
                                  16Environmental
      Matters
                                  
                                  16Available
      Information
                                  
                                  16Item
      1A
                                  Risk
      Factors
                                  
                                  16Item
      1B
                                  Unresolved Staff
      Comments
                                  
                                  24Item
      2
                                  Properties
                                  
                                  24Item
      3
                                  Legal
      Proceedings
                                  
                                  27Item
      4
                                  [Removed and
      Reserved]
                                  
                                  27PART
      IIItem
      5
                                  Market for the
      Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                  
                                  27Item
      6
                                  Selected Financial
      Data
                                  
                                  29Item
      7
                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  
                                  30Item
      7A
                                  Quantitative and
      Qualitative Disclosures 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
                                  
                                  70PART
      IIIItem
      10
                                  Directors, Executive
      Officers and Corporate Governance
                                  
                                  70Item
      11
                                  Executive
      Compensation
                                  
                                  72Item
      12
                                  Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters
                                  
                                  72Item
      13
                                  Certain Relationships
      and Related Transactions, and Director Independence
                                  
                                  72Item
      14
                                  Principal Accounting
      Fees and Services
                                  
                                  72PART
      IVItem
      15
                                  Exhibits
      and  Financial Statement Schedules
                                  
                                  73Signatures
                                  
                                  76Certification under
      Exchange Act Rules 13a – 14(b) and 15d – 14(b)
  2


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 1,000 safety and mill supply distributors.
These distributors in turn supply end user industrial customers such as
integrated oil, chemical/petrochemical, utilities, automobile, steel, glass,
construction, smelting, munition plants, janitorial, pharmaceutical, mortuaries
and high technology electronics manufacturers, as well as scientific and medical
laboratories. In addition, we supply federal, state and local governmental
agencies and departments such as fire and law enforcement, airport crash rescue
units, the Department of Defense, the Department of Homeland Security, and the
Centers for Disease Control. In fiscal 2010, we had net sales of $94.1 million.
Our net sales attributable to customers outside the United States were $13.0
million, $25.6 million and $32.6 million in fiscal 2008, fiscal 2009 and fiscal
2010, 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 our premium lines of 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® ,
Zonegard 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 international 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
product lines. 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 threats or
attack have since September 11, 2001 resulted in increased demand for our
high-end chemical suits, and we believe a reasonable demand for these suits will
continue in the future as state and local Bioterrorism grants are
spent.


3




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®and
Spectra®cut resistant fibers made by DuPont and
Honeywell,  respectively, as well as engineered composite yarns of our
Microgard antimicrobial yarns for food service markets. Our gloves are used
primarily in the automotive, glass, metal fabrication and food service
industries to protect the wearer’s hands 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.




We have
purchased DuPont’s Tyvek® and
TyChem® apparel
grade fabrics under North American Trademark licensing agreements and other
DuPont materials, such as Kevlar®, under
Trademark licensing agreements. 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
maintain manufacturing facilities in Decatur, Alabama; Jerez, Mexico; Salvador
Bahia, Brazil; 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 relationships with sewing subcontractors in
Mexico and China, 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 primarily limited use/disposable protective clothing as
well as our high-end chemical protective suits. However, they have recently
installed capabilities to manufacture all our products except chemically
resistant gloves, which are made solely in our India facility. 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, gloves and our reusable woven
garments.




The
industrial protective safety clothing market in the United States has evolved
over the past 40 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 safety
laws that further supplement OSHA standards and requirements.


4


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 Katrina in 2006 have also
resulted in increased peak demand for our products. In FY 2010, the Department
of Homeland Security (DHS) budgeted more than two billion dollars 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” ($832,500,000), the “State
Homeland Security Program” ($842,000,000), The “Metropolitan Medical Response
System Program” ($39,360,000), The “Commercial Equipment Direct Assistance
Program” ($17,600,000), and the “Chemical Stockpile Emergency Preparedness
Program ($67,800,000), and the “Hospital Emergency Preparedness Program”
($426,000,000). Although the FY 2011 DHS budget is not out yet, the above
programs are expected to exceed $3 billion for 2010, within the same broader
grant programs generically known as AFG (Assistance to Fire Fighters Grants) and
SAFER (Staffing for Adequate Fire and Emergency Response) which are primarily
utilized by our customer base, the fire departments.




International
and Domestic Standards




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




Globally,
standards for lower levels of protection are also changing rapidly.  In
1996, the European Committee for Standardization (CEN) adopted a group of
standards that collectively comprised the only standards 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. In addition to CEN, ASTM International and the
National Fire Protection Association (NFPA) are increasing the numbers of
‘Memorandums of Understanding” (MOUs) they have in place with foreign countries
as they vie for relevance on the international stage.  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.




A number
of developing nations are now becoming active in their own standards development
based on existing international standards.  However the primary goal of
their standards writing activity is not focused on worker protection (that is
provided for by the use of international standards), rather they are attempting
to establish their own certification criteria that will protect their domestic
markets or favor specific regional suppliers. This presents a new challenge in
that now not only are we faced with multiple test methods and standards, but we
have the potential for multiple certification processes.  While this adds
to product development and sales expenses, the additional cost is only
incremental. The real challenge is in navigating the certification process
itself.  Lakeland Industries, by virtue of its international manufacturing
and sales operations, is in a unique position to capitalize on this new
dynamic.


5


Industry
Consolidation


The
industrial protective clothing industry remains 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. Current economic conditions have brought a lull in consolidation
activities at both the manufacturing and distribution
levels.  Lakeland anticipates that this will be a temporary respite as
stronger manufacturers and distributors will be in a better position to acquire
smaller, heavily leveraged companies as the market begins to
recover.   Smaller, financially distressed companies that cannot
attract buyers will likely go out of business leaving their customers to the
remaining companies.  In either case, the end result equates to
continued consolidation.




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 also
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.
(Norcross) 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. In spring of 2008, Honeywell then
acquired Norcross and, in a separate transaction, 3M acquired Aaero
Corporation.




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
      opened sales offices in Beijing, Shanghai, Chongqing, Guangzhou and
      Weifang, China; Tokyo, Japan; and Santiago, Chile. In FY10, we opened
      sales offices in Argentina and began the process of opening in Russia and
      Kazakhstan, and sales in our older United Kingdom operation were flat in
      FY2010 but increased 18% in 2009, 34.6% in fiscal 2008, and 46.6% in 2007.
      We expect our newer operations in Chile, China, and India to ramp up sales
      on a similar basis to our UK operations.  We also acquired
      Qualytextil, a Brazilian manufacturer with FY08 sales of $10.0 million and
      revenue growth of $8.4 million for the nine months in FY09 in which we
      owned Qualytextil and a growth in the full year of FY10 of 18% (38.4% in
      Q4). This strategy is driven by the fact that many Asian and South
      American countries have adopted legislation similar to the 1970 U.S.
      Occupational Health and Safety Act (OSHA) in order to facilitate their
      entry into the World Trade Organization (WTO) which has as a requisite for
      entry worker safety laws (like OSHA), social security, environmental and
      tax laws similar to that of the USA and Europe. These new worker safety
      laws have driven the demand for our products in these rapidly growing
      economies.




·
            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 gloves.  We also acquired Mifflin
      Valley, Inc., a manufacturer of high visibility protective clothing in
      August 2005. We closed on our acquisition of Qualytextil, a Brazilian
      manufacturer of fire protective clothing in May 2008. We continue to
      entertain other opportunities but with an eye to increase
      earnings.


6


·
            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
      protection, 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 16 patents on
      fabrics and production machinery and have 6 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 Brazil, Mexico and China. Beginning in 1995, we
      successfully moved the labor intensive sewing operation for our limited
      use/disposable protective clothing lines to the facilities in Mexico and
      China. Beginning January 1, 2005, pursuant to the United States World
      Trade Organization Treaty with China and the North American Free Trade
      Agreement (“NAFTA”), 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 and
      Mexico. 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 on China were
      removed as of January 1, 2009 and tariffs
      lowered.  Additionally, due to the overcapacity resulting from
      the recent drop in demand globally:




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




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.




·
            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
      with continuing funding through 2009 are available for purchase of
      products for first responders that we manufacture, and we are aggressively
      targeting this Homeland Security
market.




·
            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
      DuPont branded tradenames.


7


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 and 9002 certified facilities manufacture high-quality products.
      As a result of these factors, we believe that we have an excellent
      reputation in the industry.




·
            International Manufacturing
      Capabilities. We have operated our own manufacturing facilities in
      Mexico since 1995 and in China since 1996. Our four facilities in China
      total 454,000 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 47,408 square feet
      in New Delhi, India where we are producing nitrile gloves which were sold
      internationally in FY10.  We have continued to enter the North
      American and European markets in calendar 2009 with a newly designed line
      of gloves, after a complete redesign and rebuild of the India machinery
      and equipment during FY08 and FY09.




·
            Brazil. In May 2008, we
      acquired Qualytextil, S.A., a Brazilian manufacturer of fire protective
      clothing which opens up the tariff protected Mercosur markets of Brazil,
      Argentina, Uruguay, Paraguay and soon, by membership, Venezuela, for not
      only Qualytextil’s fire protective products, but also many of the products
      we make in the USA, China and
Mexico.




·
            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, Guangzhou,
      Chongqing 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 Brazil acquisition in May 2008 completed the
      infrastructure for our strategy for South America. In FY10, we opened a
      sales office in Argentina as a spin off from our Chile
      operations.




·
            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 Brazil, Mexico, China, and India and by utilizing sewing
      sub-contractors, we have the ability to increase production without
      substantial additional capital expenditures. Our manufacturing systems
      allow us flexibility for unexpected production surges and alternative
      capacity in the event any of our independent contractors become
      unavailable.




·
            Experienced Management
      Team. We have an experienced management team. Our executive
      officers, other than the CFO, average greater than 23 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.


8


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)
                          
                          ·Integrated
      oil
                            ·Chemical
      industries
                            ·Public
      utilities
                            ·Automotive
      and pharmaceutical industries
                            ·Government
      (terrorist response)
                            ·Janitorial
                            ·LaboratoriesHigh-end
      chemical protective suits
                          
                          ·TyChemâQC
                            ·TyChem®
      SL
                            ·TyChem®
      TK
                            ·TyChem®
      F
                            ·     TyChem®
      BR
                            ·ChemMax® 3
      and 4
                            ·     Pyrolon®CRFR
                            ·Tencate®FR
      cottons
                            ·Other
      Lakeland patented co-polymer laminates
                          
                          ·Chemical
      spills
                            ·Toxic
      chemicals used in many varied manufacturing processes
                            ·Terrorist
      attacks, biological and chemical warfare (anthrax, ricin and
      sarin)
                          
                          ·Integrated
      oil chemical and nuclear industries
                            ·Hazardous
      material teams
                            ·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 rescueHand
      & Arm Protective Products
                          
                          ·Kevlar®
      yarns
                            ·Kevlar®
      wrapped steel core yarns
                            ·Spectra®
      yarns
                            ·Composite
      engineered yarns
                            ·Nitrile,
      latex, natural rubber, neoprene compounds and mixtures
    thereof
                          
                          ·Cuts,
      lacerations, heat, hazardous chemicals and dermatological
      irritants
                          
                          ·Integrated
      oil
                            ·Automotive,
      glass and metal fabrication industries
                            ·Chemical
      plants
                            ·Food
      processing
                            ·Electronic
      industries


9





Product Line
              
              Raw Material
              
              Protection Against
              
              End MarketReusable
      woven garments
              
              ·Staticsorb
      carbon thread with polyester
                ·Cotton
      polyester blends
                ·Cotton
                ·Polyester
                ·Nomex®/FR
      Cottons
                ·Nylon
              
              ·Protects
      manufactured products from human contamination or static electrical
      charge
                ·Bacteria,
      viruses and blood borne pathogens
                ·Protection
      from flash fires
              
              ·General
      industrial applications
                ·Household
      uses
                ·Clean
      room environments
                ·Emergency
      medical ambulance services
                ·Chemical
      and oil refining
                ·Medical
      and laboratory facilitiesHigh
      Visibility Clothing
                Reflective
      vests
                Jacket,
      Coats
                Jumpsuits
                “T”
      shirts, sweatshirts
                
                ·Raingear
                ·70E
      Vests
                ·Jumpsuits
      with reflective trim
              
              ·Polyester
      mesh
                ·Solid
      polyester
                ·FR
      polyester mesh
                ·FR
      solid polyester
                ·Modacrylic
                ·Modacrylic
      anti-static
                §     FR
      cotton
                §     Nomex
                §     FR
      trims
              
              ·Lack
      of visibility
                ·Heat,
      flame, sparks
                ·Arc
      flash
                ·Static
      buildup, explosive atmospheres
                ·Fire,
      heat explosions
              
              ·Highway
                ·Construction
                ·Maintenance
                ·Transportation
                ·Airports
                ·Police
                ·Fire,
      EMS
                ·Electric,
      coal and gas utilities
                ·Extrication
                ·Confined
      space rescue





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 hazardous liquid and dry chemicals. Limited use garments are made from
several non-woven fabrics, including our premium lines of Tyvek® and
TyChem® QC (both
DuPont fabrics which are the standard or benchmark from which all other fabrics
are measured) and our own trademarked fabrics such as Pyrolon® Plus 2,
XT, CRFR, Micromax®,
Micromax NS, Safegard® “76”,
Zonegard®,
RyTex®
ChemMax®1 and 2, and TomTex®, which
are made of spunlaced polyester, polypropylene and nano-polyethylene filaments,
laminates, micropourous 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 integrated oil/petrochemical refineries,
chemical plants, and related installations, automotive manufacturers,
pharmaceutical companies, construction companies, coal, gas and oil power
generation utilities and telephone utility companies, laboratories, mortuaries
and governmental entities. 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 international 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 $40.00 to $90.00, exclusive
of laundering, maintenance and shrinkage expenses.




We
warehouse and sell our limited use/disposable garments primarily at our Decatur,
Alabama, and China facilities, warehouses in Las Vegas, NV and Shillington, PA.
The fabric is cut and sewn into required patterns at our four Chinese and one
Mexican plant and shipped to all our sales points around the world. Our assembly
facilities in China and Mexico cut, sew and package the finished garments and
return them primarily to our Decatur, Alabama plant, normally within one to ten
weeks, for immediate shipment to our North American customers.




In fiscal
2010, there is no independent sewing contractor that accounts for more that 5%
of our production of the limited use disposable garments. We believe that we can
obtain adequate alternative production capacity should any of our independent
contractors become unavailable.


10




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® 3 and 4
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 during the
cleaning of refineries and nuclear facilities. Our line of chemical suits range
in cost from $14 per coverall to $1,192. The chemical 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. We have also introduced two garments
approved by the National Fire Protection Agency (NFPA) for varying levels of
protection:




·
            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
a significant percentage of our sales from the Department for Homeland Security.
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, $547 million for 2007, $560
million for 2008, $500-600 million for 2009 and $780 million for 2010. 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 2008.  Hospital Preparedness
($426 million for FY 2010) 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 $795 for standard fire department turn out gear to
$2,000 for certain fire proximity suits and heat protective apparel.
Approximately 7% of our heat protective clothing is currently manufactured at
our facility in St. Joseph, Missouri, 15% in our China facilities and the
remaining 78% in our Brazil facility. 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 NFPA certified
line of our OSX turnout gear manufactured in China. Orders continue to increase
as it complements our US product offering.


11




In order
to enhance our sales, complement our existing woven products line and broaden
our product offering, we have initiated a completely new product line that will
be branded Fyrban. The Fyrban product offering will enable us to sell more to
the fire service as well as open the doors regarding woven clothing in the
electrical and industrial markets. The products that we are introducing for the
fire service are as follows:




·
            Fire
      service station wear in multiple protective
  fabrics




·
            Fire
      service extrication suits in FR
cotton




·
            Additional
      wildland firefighting apparel in multiple
  fabrics




The
products that we are introducing for the electrical and industrial markets are
as follows:




·
            Flame
      resistant arc/flash protective suits in FR
  cotton




·
            Flame
      resistant shirts and pants in multiple protective
  fabrics




·
            Flame
      resistant jackets in FR cotton




The
products range in price from approximately $35.00 for a standard certified pant
to $375.00 for a certified arc protective suit. Approximately 75% will be
manufactured in our China facilities. Approximately 20% will be manufactured in
our Mexico facilities, and approximately 5% will be manufactured in our St.
Joseph, MO facility. The St. Joe facility will also be utilized as a finishing
location for garments that need to be altered.




Hand
& Arm Protective Products




We
manufacture and sell specially designed hand & arm protective products made
from Kevlar®, a cut
and heat resistant material produced by DuPont, Spectra®, a cut
resistant fiber made by Allied Signal/Honeywell 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 for a dozen
pair.




We
manufacture these string knit gloves primarily at our Mexican facility and
chemical protective (Nitrile, natural rubber and neoprene) products at our
Indian facility. We completed our shift of knitted glove production to Mexico in
FY08 allowing for lower production and labor costs. 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.




In FY11,
we will continue to combine the Indian made chemically resistant line of gloves
in other lines to further broaden our new product offerings on a global basis.
Further, this chemically resistant line of gloves fits well with our chemically
resistant line of disposable and higher end chemical protective line of apparel,
as many of the users of these suits also use these same gloves. To further
enhance the hand protection product offering in FY11, a relationship has begun
with a Chinese manufacturer of knit gloves with polymer (Nitrile, natural
rubber, polyurethane) coatings. These new products further enhance Lakeland’s
product offering in a segment of the market that is increasing
quickly.




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, longevity and comfort. These products
allow us to supply and satisfy a wider range of safety and customer
needs.


12


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 $30 to $150 per
garment.  We manufacture and sell woven cloth garments at our
facilities in China, Mexico 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 fire retardant coveralls to
our facilities in China and Mexico 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).





Last year
we released 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
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 has
greatly expanded the market for economically priced vests, which we manufacture
in China.





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 can import a significant amount of 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, Pennsylvania, Brazil, Mexico, India and four China
manufacturing facilities are ISO 9001 or 9002 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 9001and ISO 9002
certifications makes  us more competitive in the marketplace, as
customers increasingly recognize the standard as an indication of product
quality.


13


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


Domestically,
we employ an in-house sales force of 16 people, 3 regional sales managers and
utilize 42 independent sales representatives. These employees and
representatives call on over 1,000 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. In fiscal 2010, there is no independent
sewing contractor that accounts for more that 5% of our production of the
limited use disposable garments. We believe that we can obtain adequate
alternative production capacity should any of our independent contractors become
unavailable.




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. Internationally, we employ an in-house
sales force of approximately 36 people and utilize approximately 32 independent
sales representatives who primarily sell directly to end users thereby attaining
significantly higher margins than we obtain domestically.




Research
and Development


We
continue to evaluate and engineer new or innovative products. In the past five
years we have acquired or introduced 139 new products, the more prominent of
which are the Micromax® line of
disposable protective clothing; multiple new configured lines of fire retardant
work coveralls and fire turn-out gear in Brazil, China and the USA;
approximately 40 new lines of Hi-Visibility products; 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 gloves and our new ChemMax® 1, 2, 3
and 4 fabrics for protection against intermediate chemical threats. We own 16
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 laboratory uses, fire retardant cotton fabrics and protective
non-woven fabrics. During fiscal 2008, 2009 and 2010, we spent approximately
$359,000, $321,000 and $305,000, respectively, on research and
development.




To insure
that our development activities are properly directed, we are active
participants in standards writing.  We are represented on a number of
relevant ASTM International and the International Safety Equipment Association
(ISEA) committees and participate in NFPA standards writing
meetings.  Internationally, we participate in the U.S. Technical
Advisory Group (TAG) to ISO through the ASTM and monitor CEN activities through
our European offices.




Suppliers
and Materials


Our
largest supplier is DuPont, from whom we purchase Tyvek®,
TyChem® and
Kevlar® under
North American 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 2010, we purchased approximately
17.5% of the dollar value of our materials from DuPont, and Tyvek®
constituted approximately 13% of our cost of goods sold and 5% of the dollar
value of our raw material purchases.  Our Tyvek/TyChem/Kevlar®
trademark licenses with DuPont have been in place since 1995. Prior to 1995 we
bought Tyvek® and
Kevlar 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, melt
blown polyproylene 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.


14


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. 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 a
domestic internal audit group consisting of a manager and outside consultants
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
facilities, and other heavy industrial manufacturing plants occurs, primarily
due to moderate spring temperatures and low energy demands. Sales decline during
the warmer summer and vacation months and gradually increase from Labor Day
through February with slight declines during holidays such as Christmas. 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 December and May 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. With our acquisition of the Brazilian facility and
our exclusive supply agreement with Wesfarmers in Australia, this seasonality
may decrease as the South America Mercosur markets Chile, Australian, New
Zealand, and South African markets experience their high season during our
slower summer months and their low season during our winter months.





Patents
and Trademarks


We own 16
patents and have 6 patents in the application and approval process with the U.S.
Patent and Trademark Office. We own 25 Trademarks and have 6 Trademarks in the
application and approval process. 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.


15


Employees


As of
March 31, 2010, we had approximately 1,700 full time employees, 1,500, or 89%,
of whom were employed in our international facilities and 180, or 11%, of whom
were employed in our domestic facilities. An aggregate of 1,300 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.





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® and Tychem® 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 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.  Such a change in our relationship with DuPont would adversely
affect us financially. 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 times of
shortage.


16


In fiscal 2010, we purchased
approximately 5% of the dollar value of our raw materials from DuPont, and
Tyvek® constituted approximately 26% of our cost of goods
sold.  Between 2006-2008 there were shortages in DuPont Nomex fabrics
due to substantial military demand for the fabric in Iraq and Afghanistan. This
reduced allocation limited our ability to meet demand for our products during
those years.  Also, 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®, TyChem® and
Kevlar® 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 than 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, Brazil 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 in China.  In addition, periods of
international unrest may impede our ability to manufacture goods in other
countries such as Mexico presently or India and could have a material adverse
effect on our business and results of operations.




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 $13.5 million in
fiscal 2010.  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 South America, Canada, Asia
and EEC were $32.6 million USD, in fiscal 2010.  Our sales in these
countries are usually denominated in the local currency.  If the value
of the U.S. dollar increases relative to these local currencies, 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 the U.S. dollar and,
therefore, we may 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.”


17





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.




We acquired Mifflin Valley, Inc., a
Pennsylvania company, on August 1, 2005, and a portion of the assets of RFB
Latex, an Indian company, in November 2006, and Qualytextil, S.A. in May 2008,
which currently market high visibility clothing, chemically resistant gloves and
fire protective clothing, respectively.  These three new lines should
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 costs, delays and other operational or financial
problems.




If we proceed with additional
acquisitions for cash, we may use a substantial portion of our available line of
credit 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 manage 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.


18





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, Gary Pokrassa, our chief
financial officer, who has 40 years of financial and accounting experience and
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 23 years and an average of 26 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 materials or to send fabrics to our
assembly facilities in China, India and Mexico.





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 34.7% of our
net sales from customers located in foreign countries in fiscal
2010.  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
      one year, $23.5 million revolving credit facility which commenced January
      2010, of which we had $9.5 million of borrowings outstanding as of January
      31, 2010.


19


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 January 14, 2011 to borrow additional sums under our $23.5 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;




·
            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, depending on the year,
approximately 20-50% 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.


20




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 affected 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.




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 a greatly 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.




21


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 14, 2010, 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 14, 2010,
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 9.44% and 7.61% 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 classified board provisions, authorized preferred stock
that could be utilized to implement various “poison pill” defenses and a
stockholder authorized, but as yet unused, Employee Stock Ownership Plan, all of
which may have the effect of discouraging a takeover of Lakeland which is not
approved by our board of directors.  Further, we are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibit us from engaging in a “business combination” with an “interested
stockholder” for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in the prescribed manner.  For a description
of these provisions, see “Description of Capital Stock – Anti-Takeover
Provisions.”




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 reevaluated 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.





Based
upon an evaluation performed as of January 31, 2010 and throughout fiscal 2010,
we have not identified any material weaknesses in our internal
controls.





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





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


22




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





At
October 31, 2008, management has identified a material weakness in its internal
control over our China operations and financial reporting. A senior manager in
charge of one of the Company’s plants in China was terminated after being
charged by China authorities with, over the last eight years, selling non-woven
fabric waste from garment production and personally keeping the proceeds. This
control deficiency was the result of fraud and inadequate controls governing
non-woven fabric waste. See further discussion in Note 15 to the financial
statements herein.





In
response to the material weakness identified at October 31, 2008, we have
initiated a China Internal Control Committee. Such Committee reviews, examines
and evaluates China operating activities, and plans, designs and implements
internal control procedures and policies. The Committee reports to the Chief
Financial Officer. In particular, the Committee focuses on: strengthening
controls over waste/scrap sales, upgrading local accounting manager authority
and responsibility and creating new banking and inventory controls.





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





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





Changes in Internal Control over
Financial Reporting – There have been no changes in Lakeland Industries,
Inc.’s internal control over financial reporting during the fourth quarter of
fiscal 2010 that have materially affected, or is reasonably likely to materially
affect, Lakeland Industries, Inc.’s internal control over financial
reporting.





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





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





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.


23




ITEM 1B: UNRESOLVED STAFF
COMMENTS




None.




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.  – Plant #1
              Xiao
      Shi Village
              AnQui
      City, Shandong Province
              PRC
      262100
            
            106,000
            
            Owned(1)
            
            N/A
            
            Manufacturing
      Administration EngineeringWeifang
      Lakeland Safety Products Co., Ltd.  – Plant #2
              Xiao
      Shi Village
              AnQui
      City, Shandong Province
              PRC
      262100
            
            215,355
            
            $226,000
            
            11/27/12
            
            Manufacturing
      AdministrationQing
      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
            
            $132,000
            
            3/31/13
              with
      option to renew
            
            Manufacturing
      Administration WarehousingLakeland
      Protective Real Estate
              59
      Bury Court
              Brantford,
      ON N3S 0A9
              Canada
            
            22,092
            
            Owned
            
            N/A
            
            Sales
              Administration
      Warehousing  24




Address
                            
                            Estimated
                              Square
                              Feet
                            
                            Annual Rent
                            
                            Lease Expiration
                            
                            Principal ActivityLakeland
      Industries, Inc.
                              Headquarters
                              701-7
      Koehler Avenue
                              Ronkonkoma,
      NY 11779
                            
                            6,250
                            
                            Owned
                            
                            N/A
                            
                            Administration
                              Studio
                              SalesLakeland
      Industries, Inc.
                              202
      Pride Lane
                              Decatur,
      AL 35603
                            
                            91,788
                            
                            Owned
                            
                            N/A
                            
                            Manufacturing
      Administration Engineering WarehousingLakeland
      Industries, Inc.
                              3420
      Valley Ave.
                              Decatur,
      AL 35603
                            
                            49,500
                            
                            Owned
                            
                            N/A
                            
                            Warehousing
      AdministrationLakeland
      Industries, Inc.
                              201
      Pride Lane, SW
                              Decatur,
      AL 35603
                            
                            2,400
                            
                            $18,900
                              (Harvey Pride, Jr. –
                              officer related party)
                            
                            3/31/11
                            
                            Sales
                              AdministrationLakeland
      Industries, Inc.
                              3428
      Pride Lane
                              Decatur,
      AL 35603
                            
                            7,000
                            
                            $21,000
                            
                            08/08/10
                            
                            WarehouseLakeland
      Industries Europe Ltd.
                              Wallingfen
      Park
                              236
      Main Road
                              Newport,
      East Yorkshire
                              HU15
      2RH U United Kingdom
                            
                            4,550
                            
                            Approximately$57,000 (varies withexchange rates)
                            
                            1/31/11
                            
                            Warehouse
                              SalesLakeland
      Industries, Inc.
                              1100
      Park Road
                              Blandon,
      PA 19510
                            
                            12,000
                            
                            $40,200(Leased from D.
                              Gallen an employee)
                            
                            Month
      to month
                            
                            WarehouseLakeland
      Industries, Inc.
                              31
      South Sterley Street
                              Shillington,
      PA 19607
                            
                            18,520
                            
                            $62,700(Leased from M.
                              Gallen an employee)
                            
                            7/31/10
                            
                            Manufacturing
      Warehouse, Sales AdministrationLakeland
      Industries, Inc.
                              312
      Hendle Street
                              Shillington,
      PA 19607
                            
                            1,760
                            
                            $5,280
                            
                            Month
      to month
                            
                            WarehouseLakeland
      Glove and Safety Apparel Private, Ltd.
                              Plots
      81, 50 and 24
                              Noida
      Special Economic Zone
                              New
      Delhi, India
                            
                            47,408
                            
                            Owned
      (2)
                            
                            N/A
                            
                            Manufacturing
      Warehouse
  25
 
 Address
                            
                            Estimated
                              Square
                              Feet
                            
                            Annual Rent
                            
                            Lease Expiration
                            
                            Principal ActivityLakeland
      Industries Inc., Agencia En Chile
                              Los
      Algarrobos no 2228
                              Comuna
      de Santiago
                              Código
      Postal 8361401
                              Santiago,
      Chile
                            
                            542
                            
                            $17,208
                            
                            03/01/11
                            
                            Warehouse
                              SalesQualytextil,
      S.A.
                              Rua
      do Luxemburgo, 260, Lotes 82/83, Condomicion
      Industrial  Presidente Vargas, Pirajá
                              Salvador,
      Bahia  41230-130
                              Brazil
                            
                            25,209
                            
                            Owned
                            
                            N/A
                            
                            Manufacturing
      Administration Engineering WarehousingQualytextil,
      S.A.
                              Curtume
      Street, 708 Warehouse 10 Lapa de Baixo, Sao Paulo, Brazil
                            
                            13,530
                            
                            $124,699
                            
                            10/31/13
                            
                            Distribution
      Center
                              AdministrationQualytextil,
      S.A.
                              Rui
      Barbosa Street, 2237  - Store 09 Imbetiba, Macaè, Rio de
      Janeiro, Brazil
                            
                            1,259
                            
                            $17,766
                            
                            03/01/11
                            
                            StoreLakeland
      (Hong Kong) Trading Co., Ltd.
                              Unit
      503 5/fl Silvercord Tower 2
                              30
      Canton Road, Tsimshatsui, HK
                            
                            N/A
                            
                            N/A
                            
                            N/A
                            
                            SalesLakeland
      (Beijing) Safety Products Co., Ltd.
                              Unit
      C412, Building C, Yeqing Plaza
                              No.
      9 Wangjing Beilu, Chaoyang District
                              Beijing
      100102 PRC
                            
                            1,150
                            
                            $17,988
                            
                            06/30/2011
                            
                            SalesArt
      Prom, LLC
                              Varashilova
      street 5/1,
                              Ust-Kamnogorsk,
      Kazakhstan, 070002
                            
                            54
                            
                            $1,040
                            
                            09/01/2010
                            
                            OfficeLakeland
      Argentina, SRL
                              Centro
      Industrial y Commercial Florida Oeste, Avda. Gral. Roca #4250
                              Pciade
      Buenos Aires, Argentina
                            
                            8,826
                            
                            $35,765
                            
                            08/18/2012
                            
                            Office


(1)
            We
      own the buildings in which we conduct the majority of our manufacturing
      operations in China and lease the land underlying the buildings from the
      Chinese government.  We have 36 years and 41 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 in India
      amounts to approximately $10,000 on a land lease expiring October 9,
      2011.




26




Our
facilities in Decatur, Alabama; Jerez, Mexico; AnQui, China; Jiaozhou, China;
St. Joseph, Missouri; Shillington, Pennsylvania; New Delhi, India; and Salvador,
Brazil contain equipment used for the design, development and manufacture and
sale of our products.  Our operations in Brantford, Canada; Newport,
United Kingdom; Rio de Janiero and Sao Paulo, Brazil; Beijing, China; Santiago,
Chile; Tsimshatsui, Hong Kong; Moscow, Russia; and Ust-Kamenogorsk, Kazakhstan
are primarily sales and warehousing operations receiving goods for resale from
our manufacturing facilities around the world. We had $4.22 million, $4.79
million and $4.22 million of gross long-lived fixed assets located in China and
$0.00 million, $0.02 million and $0.02 of long-lived assets located in Mexico
and $0.00 million, $1.56 million and $2.46 million of long-lived assets located
in Brazil as of January 31, 2008, 2009 and 2010, respectively.




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. [REMOVED AND RESERVED]




PART II





ITEM 5.
            MARKET FOR THE REGISTRANT’S
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES





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.




Price Range of
                    Common StockHigh
                
                
                LowFiscal
      2011First
      Quarter (through April 14, 2010)
                
                $
                9.86
                
                
                $
                7.69Fiscal
      2010First
      Quarter
                
                $
                8.66
                
                
                $
                5.03Second
      Quarter
                
                
                8.73
                
                
                
                7.10Third
      Quarter
                
                
                9.17
                
                
                
                7.32Fourth
      Quarter
                
                
                8.50
                
                
                
                6.62Fiscal
      2009First
      Quarter
                
                $
                13.38
                
                
                $
                9.62Second
      Quarter
                
                
                13.62
                
                
                
                11.60Third
      Quarter
                
                
                14.00
                
                
                
                8.38Fourth
      Quarter
                
                
                11.25
                
                
                
                5.90




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.




27




On April
14, 2010, the last reported sale price of our common stock on the Nasdaq
National Market was $9.47 per share. As of April 14, 2010, 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.




Equity
Compensation Plans




The
following table sets forth certain information regarding Lakeland’s equity
compensation plans as of January 31, 2010.




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 holdersRestricted
      stock grants-employees
                                    
                                    
                                    167,371
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    66,214Restricted
      stock grants-directors
                                    
                                    
                                    63,184
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    12,496Matching
      award program
                                    
                                    
                                    2,558
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    58,459Bonus
      in stock program-employees
                                    
                                    
                                    23,311
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    37,343Retainer
      in stock program-directors
                                    
                                    
                                    0
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    20,704Total
      Restricted Stock Plans
                                    
                                    
                                    256,424
                                    
                                    
                                    $
                                    0
                                    
                                    
                                    
                                    195,216





(1) At
maximum levels


28





ITEM
6.SELECTED FINANCIAL DATA





The
following selected consolidated financial data as of and for our fiscal years
2006, 2007, 2008, 2009 and 2010 have been derived from our audited consolidated
financial statements. 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 31,2006
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2010(in
      thousands, except share and per share data)Income
      Statement Data:Net
      sales
                        
                        $
                        98,740
                        
                        
                        $
                        100,171
                        
                        
                        $
                        95,740
                        
                        
                        $
                        102,268
                        
                        
                        $
                        94,141Costs
      of goods sold
                        
                        
                        74,818
                        
                        
                        
                        75,895
                        
                        
                        
                        73,383
                        
                        
                        
                        74,299
                        
                        
                        
                        68,735Gross
      profit
                        
                        
                        23,922
                        
                        
                        
                        24,276
                        
                        
                        
                        22,357
                        
                        
                        
                        27,969
                        
                        
                        
                        25,406Operating
      expenses:Selling
      and shipping
                        
                        
                        8,301
                        
                        
                        
                        9,473
                        
                        
                        
                        9,291
                        
                        
                        
                        10,931
                        
                        
                        
                        10,480General
      and administrative
                        
                        
                        6,119
                        
                        
                        
                        8,081
                        
                        
                        
                        8,082
                        
                        
                        
                        10,766
                        
                        
                        
                        12,468Total
      operating expenses
                        
                        
                        14,420
                        
                        
                        
                        17,554
                        
                        
                        
                        17,373
                        
                        
                        
                        21,697
                        
                        
                        
                        22,948Operating
      profit
                        
                        
                        9,502
                        
                        
                        
                        6,722
                        
                        
                        
                        4,984
                        
                        
                        
                        6,272
                        
                        
                        
                        2,458Other
      income (expense):Interest
      expense
                        
                        
                        (167
                        )
                        
                        
                        (356
                        )
                        
                        
                        (330
                        )
                        
                        
                        (828
                        )
                        
                        
                        (1,111
                        )Interest
      income
                        
                        
                        49
                        
                        
                        
                        20
                        
                        
                        
                        66
                        
                        
                        
                        125
                        
                        
                        
                        (3
                        )Gain
      on pension plan liquidation
                        
                        
                        —
                        
                        
                        
                        353
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Other
      income
                        
                        
                        384
                        
                        
                        
                        191
                        
                        
                        
                        145
                        
                        
                        
                        494
                        
                        
                        
                        92Total
      other income (expense)
                        
                        
                        266
                        
                        
                        
                        208
                        
                        
                        
                        (119
                        )
                        
                        
                        (209
                        )
                        
                        
                        (1,022
                        )Income
      before income taxes
                        
                        
                        9,768
                        
                        
                        
                        6,930
                        
                        
                        
                        4,865
                        
                        
                        
                        6,063
                        
                        
                        
                        1,436Income
      tax expenses
                        
                        
                        3,439
                        
                        
                        
                        1,826
                        
                        
                        
                        1,574
                        
                        
                        
                        1,514
                        
                        
                        
                        406Net
      income
                        
                        $
                        6,329
                        
                        
                        $
                        5,104
                        
                        
                        $
                        3,291
                        
                        
                        $
                        4,549
                        
                        
                        $
                        1,030Net income per
      common share (basic)(1)
                        
                        $
                        1.15
                        
                        
                        $
                        0.92
                        
                        
                        $
                        0.60
                        
                        
                        $
                        0.84
                        
                        
                        $
                        0.19Net income per
      common share (diluted)(1)
                        
                        $
                        1.15
                        
                        
                        $
                        0.92
                        
                        
                        $
                        0.59
                        
                        
                        $
                        0.83
                        
                        
                        $
                        0.19Weighted average
      common shares outstanding(1)Basic
                        
                        
                        5,518,751
                        
                        
                        
                        5,520,881
                        
                        
                        
                        5,522,751
                        
                        
                        
                        5,435,829
                        
                        
                        
                        5,426,784Diluted
                        
                        
                        5,524,076
                        
                        
                        
                        5,527,618
                        
                        
                        
                        5,542,245
                        
                        
                        
                        5,475,104
                        
                        
                        
                        5,458,472Balance
      Sheet Data (at period end):Current
      assets
                        
                        $
                        63,719
                        
                        
                        $
                        62,114
                        
                        
                        $
                        70,269
                        
                        
                        $
                        78,363
                        
                        
                        $
                        64,827Total
      assets
                        
                        
                        72,464
                        
                        
                        
                        74,198
                        
                        
                        
                        84,623
                        
                        
                        
                        101,615
                        
                        
                        
                        90,020Current
      liabilities
                        
                        
                        3,839
                        
                        
                        
                        4,326
                        
                        
                        
                        4,997
                        
                        
                        
                        7,452
                        
                        
                        
                        15,921Long-term
      liabilities
                        
                        
                        7,829
                        
                        
                        
                        3,813
                        
                        
                        
                        10,753
                        
                        
                        
                        25,852
                        
                        
                        
                        1,675Stockholders’
      equity
                        
                        
                        60,796
                        
                        
                        
                        66,059
                        
                        
                        
                        68,873
                        
                        
                        
                        68,311
                        
                        
                        
                        72,424




(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.




Repurchase
of Securities


We repurchased our Common Stock during
our fiscal years ending January 31, 2009 and 2010. The Company initiated a stock
repurchase program on February 21, 2008 and has repurchased 125,322 shares as of
April 14, 2010.


29


ITEM
7.  MANAGEMENT’S 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 global industrial protective clothing markets. Our products are sold by our
in-house sales force and independent sales representatives to a network of over
1,000 North American safety and mill supply distributors and end users and
distributors internationally. These distributors in turn supply end user
industrial customers such as integrated oil, utilities, chemical/petrochemical,
automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and
high technology electronics manufacturers, as well as international hospitals
and laboratories. In addition, we supply federal, state and local governmental
agencies and departments domestically and internationally such as municipal fire
and police departments, airport crash rescue units, the military, the Department
of Homeland Security and the Centers for Disease Control and state and privately
owned utilities and integrated oil companies. Our net sales attributable to
customers outside the United States were $13.0 million, $25.6 million and $32.6
in fiscal 2008, fiscal 2009 and fiscal 2010, respectively.




Our North
American sales of Tyvek declined approximately 25% for the year ended January
31, 2010, which continue a long term declining trend for the last four years.
The Company has partially replaced these sales with increased sales of
Hi-Visibility clothing domestically and increased international sales of our
products particularly our fire protective apparel. We are experiencing
competitive pricing pressure in the marketplace for Tyvek protective clothing,
coupled with a 26% decline in this segment in the USA in FY10 as a result of the
weak U.S. economy.  The disposables segment showed a 4.5% decline in gross
margins, caused by the loss in volume combined with higher priced raw materials
and an extremely competitive pricing environment, partially offset by labor
cutbacks.





We have
operated manufacturing facilities in Mexico since 1995, in China since 1996, in
India since 2007 and in Brazil since May 2008. Beginning in 1995, we moved the
labor intensive sewing operation for our limited use/disposable protective
clothing lines to 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 have completed the moving of
production of our reusable woven garments and gloves to these facilities and
completed this process by the second quarter of fiscal 2010. As a result, we
have seen cost improvements for these particular product lines as well. In FY08,
the Company decided to restructure its manufacturing operations in Mexico, by
closing its previous facilities in Celaya and opening new facilities in
Jerez.  The Company’s actual costs to close, move and start up aggregated
approximately $500,000 pretax.  This restructuring allowed for lower
occupancy and labor costs and a more efficient production configuration for FY09
and FY10.





Our
R&D expenses are projected to increase once again in fiscal 2011 to
$425,000, an increase of $66,000 over 2010.  Primary drivers for this
increase are certification cost for the redesign of some of our core products to
reduce manufacturing costs and increase end user appeal; continued development
in our chemical protective garments; and rationalization of product design
globally to increase our supply flexibility.  In addition, we continue to
pursue a robust list of longer term development projects targeted at replacing
existing technologies currently in our product offering




30





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




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




On August
1, 2005, the Company purchased Mifflin Valley, Inc, a Pennsylvania
manufacturer.  This acquisition resulted in the recording of $.9
million in goodwill as of January 31, 2006.  Management has determined
there is no impairment of this goodwill at January 31, 2010, 2009 and
2008.




In May
2008, the Company acquired Qualytextil, S.A., a Brazilian manufacturer. An
evaluation of this acquisition was made as of January 31, 2009, which resulted
in the recording of $4.2 million of goodwill. Management has determined there is
no impairment of this goodwill at January 31, 2010. See Notes 1 and 4 for
further discussion of goodwill.




Intangible
assets consist primarily of trademarks, tradenames and customer contracts.
Trademarks and tradenames are not amortized because they have indefinite lives.
Customer contracts are amortized over their estimated useful lives of 39 months
remaining at January 31, 2010.




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




31




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




Results
of Operations


The
following table sets forth our historical results of operations for the years
ended January 31, 2008, 2009 and 2010 as a percentage of our net
sales.




Year
      Ended January 31,2008
                                    
                                    
                                    2009
                                    
                                    
                                    2010Net
      sales
                                    
                                    
                                    100.0
                                    %
                                    
                                    
                                    100.0
                                    %
                                    
                                    
                                    100.0
                                    %Cost
      of goods sold
                                    
                                    
                                    76.6
                                    %
                                    
                                    
                                    72.7
                                    %
                                    
                                    
                                    73.0
                                    %Gross
      profit
                                    
                                    
                                    23.4
                                    %
                                    
                                    
                                    27.3
                                    %
                                    
                                    
                                    27.0
                                    %Operating
      expenses
                                    
                                    
                                    18.2
                                    %
                                    
                                    
                                    21.2
                                    %
                                    
                                    
                                    24.4
                                    %Operating
      profit
                                    
                                    
                                    5.2
                                    %
                                    
                                    
                                    6.1
                                    %
                                    
                                    
                                    2.6
                                    %Interest
      expense and other income, net
                                    
                                    
                                    0.1
                                    %
                                    
                                    
                                    .2
                                    %
                                    
                                    
                                    1.1
                                    %Income
      tax expense
                                    
                                    
                                    1.7
                                    %
                                    
                                    
                                    1.5
                                    %
                                    
                                    
                                    0.4
                                    %Net
      income
                                    
                                    
                                    3.4
                                    %
                                    
                                    
                                    4.4
                                    %
                                    
                                    
                                    1.1
                                    %





Significant
Balance Sheet fluctuation January 31, 2010 as compared to January 31,
2009


Balance Sheet
Accounts.  The increase in cash and cash equivalents of $2.3
million is primarily the result of normal fluctuations in cash management. The
decrease in borrowings of $14.9 million under the revolving credit agreement is
principally due to the decrease in inventories of $18.5 million.





Year
ended January 31, 2010 compared to the year ended January 31, 2009





For the Year
                    Ended January 31,
                  
                  
                  For the Three
                    Months
                    Ended January 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      sales
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %Gross
      profit
                  
                  
                  27.0
                  %
                  
                  
                  27.3
                  %
                  
                  
                  30.2
                  %
                  
                  
                  26.8
                  %Operating
      expenses
                  
                  
                  24.4
                  %
                  
                  
                  21.2
                  %
                  
                  
                  24.7
                  %
                  
                  
                  24.2
                  %Operating
      profit
                  
                  
                  2.6
                  %
                  
                  
                  6.1
                  %
                  
                  
                  5.5
                  %
                  
                  
                  2.6
                  %Income
      before tax
                  
                  
                  1.5
                  %
                  
                  
                  5.9
                  %
                  
                  
                  5.2
                  %
                  
                  
                  3.9
                  %Net
      income
                  
                  
                  1.1
                  %
                  
                  
                  4.4
                  %
                  
                  
                  4.5
                  %
                  
                  
                  3.0
                  %





4thQuarter Operations FY10.4th Quarter
FY10 operations reflected disposables division year-end reversal of rebates
accrued earlier in the year due to many customers not meeting their year-end
targets for rebates. In Q4 FY10, Qualytextil in Brazil achieved a 53.0% margin
resulting from a larger bid contract.





Net Sales.  Net
sales decreased $8.1 million, or 7.9%, to $94.1 million for the year ended
January 31, 2010 compared to $102.3 million for the year ended January 31, 2009.
The net decrease was comprised mainly of a $12.9 million decrease in U.S.
disposables sales, or 22.2%, a $1.0 million decrease in US glove sales, or
32.3%, a $1.0 million decrease in U.S. chemical sales, or 12.5%, a $1.8 million
decrease in U.S. reflective sales, or 33.0%, and a $0.6 million decrease in US
wovens sales, or 11.7%. This decrease in U.S. sales was partially offset by
significant increases in foreign sales, including $13.2 sales of Qualytextil, SA
in Brazil, compared with sales of $8.4 million which was included in FY09 for
the nine months following the acquisition, sales growth of $1.6 million in
China, domestic, Asia Pacific Rim and other external sales, steady sales in
Canada and Europe and $0.9 million growth in Chile sales.


32




Gross Profit.Gross profit
decreased $2.6 million, or 9.2%, to $25.4 million for the year ended January 31,
2010 from $28.0 million for the year ended January 31, 2009.  Gross
profit as a percentage of net sales decreased to 27% for the year ended January
31, 2010 from 27.3% for the year ended January 31, 2009. The major factors
driving the changes in gross margins were:





·
            Disposables
      gross margin declined by 4.5 percentage points in FY10 compared with FY09.
      This decline was mainly due to higher priced raw materials and an extreme
      competitive pricing environment coupled with lower volume, partially
      offset by labor cutbacks. Disposables margins in Q4 FY10 were increased by
      a year-end reversal of rebates accrued earlier in the year, due to many
      customers not meeting their year-end targets for
  rebates.





·
            Brazil
      gross margin was 45.7% for FY10 this year compared with 51.4% last year.
      Several dynamics were at play. There were several large sales which had
      bid requirements for complete fire ensembles including boots and/or
      helmets. This required Qualytextil to obtain these items from vendors.
      There were several issues with these vendors causing Qualytextil to use
      different vendors under delivery pressure, resulting in higher costs.
      Qualytextil is presently negotiating with a boot vendor and also a helmet
      vendor to obtain more reliable delivery and pricing and has begun
      maintaining a stock of these items on hand in inventory to avoid such
      problems in the future. Much of Qualytextil’s fabric used as raw materials
      is imported from vendors in the U.S. which caused unfavorable costs
      earlier in the year resulting from exchange rate differences. Since then
      the exchange rates have changed to strengthen the Brazilian real which
      should favorably impact the cost and margins in the future. Further, the
      margins obtained in FY2009 were exceptional, partially due to a very weak
      U.S. dollar and may not be achieved in the near future. In normal
      conditions, in the future, the Qualytextil margins will be expected to be
      between 42% and 46%. In Q4 FY10, Qualytextil achieved a 53.0% margin
      resulting from a larger bid
contract.





·
            Glove
      division reduction in volume coupled with inventory write-offs resulting
      in a gross loss of $0.1 million.


·
            Continued
      gross losses of $0.6 million from India in
FY10.


·
            Reflective
      margins were lower than the prior year mainly due to lower
      volume.


·
            Canada
      gross margin increased by 16.1 percentage points primarily from more
      favorable exchange rates and local competitive pricing
      climate.


·
            UK
      and Europe margins increased by 8.2 percentage points primarily from
      exchange rate differentials.


·
            Chile
      margins increased by 8.7 percentage points primarily from higher volume
      and several larger sales orders.





Operating Expenses.Operating expenses
increased $1.3 million, or 5.8%, to $22.9 million for the year ended January 31,
2010 from $21.7 million for the year ended January 31, 2009.  As a
percentage of net sales, operating expenses increased to 24.4% for the year
ended January 31, 2010 from 21.2% for the year ended January 31, 2009.This increase as a percent
of sales is largely due to Brazil operations, which runs at a higher margin with
higher operating expense.  Excluding Qualytextil, operating expenses
decreased $1.6 million for the year ended January 31, 2010 compared with the
year ended January 31, 2009. The decrease in operating expenses, excluding
Brazil, in the year ended January 31, 2010 as compared to the year ended January
31, 2009 included:




·
              $(0.7)
              
              million
      - sales commissions declined, mainly resulting from lower
      volume.·
              (0.6)
              
              million
      - freight out declined, mainly resulting from lower volume and lower
      prevailing carrier rates.·
              (0.6)
              
              million
      - officers salaries declined, reflecting the retirement of Ray Smith to
      become a non-employee director and Chairman of the Board and also
      reflecting an 8% across the board reduction in total officer
      compensation.·
              (0.5)
              
              million
      – reduction in foreign exchange costs resulting from the Company’s hedging
      program and more favorable rates.·
              (0.3)
              
              million
      - shareholder expenses declined, reflecting the proxy fight in the prior
      year.·
              (0.3)
              
              million
      – consulting fees were reduced, resulting from using interns and revising
      Sarbanes Oxley procedures.·
              (0.2)
              
              million
      reduction in employee benefits, mainly resulting from the suspension of
      the employer match for the 401-K plan.·
              0.1
              
              million
      increase in property tax, largely resulting from the Canadian
      warehouse.
  33
  ·
              0.1
              
              million
      increased depreciation largely resulting from the Canadian
      warehouse.·
              0.2
              
              million
      increased bank fees resulting from higher volume of sales paid by credit
      cards instead of customer checks·
              0.5
              
              million
      – professional fees increased resulting from analysis of tax issues and an
      IRS audit. The Company has changed independent auditing firms in the
      expectation that such professional fees will be reduced in the
      future.·
              0.7
              
              million
      – in increased operating costs in China were the result of the large
      increase in direct international sales made by China, which are now
      allocated to SG&A costs, previously allocated to cost of goods
      sold.




Qualytextil,
Brazil operating expenses increased $2.8 million for the year ended January 31,
2010 compared with the year ended January 31, 2009. Major factors in this
increase are as follows:





·
              $1.1
              
              million
      – Brazil operating expenses in Q1 of this year. Brazil operations were not
      included in Q1 last year, as it was acquired effective May 1,
      2008.·
              1.0
              
              million
      – start-up expenses in connection with Qualytextil gearing up to sell
      Lakeland branded products. This includes hiring 20 sales and logistical
      support staff, printing of catalogs, lease of two new distribution centers
      and increased travel expense.·
              0.3
              
              million
      – in additional employee benefits and payroll taxes resulting from hiring
      as employees certain people who had been performing services on an
      out-sourcing basis.·
              0.2
              
              million
      additional freight out costs mainly resulting from higher
      volume.·
              0.2
              
              million
      in additional commissions resulting from higher volume and higher rates
      paid on some larger bids.




Operating
Profit.Operating profit decreased by $3.8 million, or 60.8%,
to $2.5 million from $6.3 million for the prior year. Operating income as a
percentage of net sales decreased to 2.6% for the year ended January31, 2010 from 6.1% for
the year ended January 31, 2009 primarily due to the Brazil acquisition,
partially offset by increased operating expenses and lower U.S. volumes as
discussed above.





Interest
Expense.  Interest expense increased by $0.3 million for the
year ended January 31, 2010 compared to the year ended January 31, 2009 because
of increased borrowings due to the Qualytextil acquisition and higher inventory
levels, partially offset by interest rate decreases.





Other Income -
Net.Other income, net decreased $0.4 million principally as a
result of non-recurring credits in the prior year resulting from net funds
recovered from a Chinese manager’s fraud and from a change in accounting
estimate relating to certain Chinese cash and accruals recorded in 2004 and
prior.





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $1.1 million, or 73.2%, to
$0.4 million for the year ended January 31, 2010 from $1.5 million for the year
ended January 31, 2009.  Our effective tax rate was 28.3% and 25.0%
for the years ended January 31, 2010 and 2009, respectively.  Our
effective tax rate varied from the federal statutory rate of 34% due primarily
to a $350,000 allowance against deferred taxes resulting from the India
restructuring recorded in Q1, losses in India with no tax benefit, tax benefit
in Brazil resulting from government incentive and goodwill write-offs and
credits to prior years taxes in the U.S. and Canada not previously
recorded.





Net Income.  Net
income decreased $3.5 million, or 77.4%, to $1.0 million for the year ended
January 31, 2010 from $4.5 million for the year ended January 31, 2009. The
decrease in net income was primarily a result of a decrease in sales in the U.S.
and an extremely low pricing environment in disposables, margin reduction and
cost buildup in Brazil, a $350,000 allowance against deferred taxes resulting
from the India restructuring and the reclassification from other comprehensive
loss of $297,000 resulting from the buyout of the interest rate swap, offset by
management’s cost reduction program.


34





Year
ended January 31, 2009 compared to the year ended January 31,
2008


For the Year
                                      Ended January 31,
                                    
                                    
                                    For the Three Months
                                      Ended January 31,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Net
      sales
                                    
                                    
                                    100.0
                                    %
                                    
                                    
                                    100.0
                                    %
                                    
                                    
                                    100.0
                                    %
                                    
                                    
                                    100.0
                                    %Gross
      profit
                                    
                                    
                                    27.3
                                    %
                                    
                                    
                                    23.4
                                    %
                                    
                                    
                                    26.8
                                    %
                                    
                                    
                                    24.7
                                    %Operating
      expenses
                                    
                                    
                                    21.2
                                    %
                                    
                                    
                                    18.1
                                    %
                                    
                                    
                                    24.2
                                    %
                                    
                                    
                                    17.8
                                    %Operating
      profit
                                    
                                    
                                    6.1
                                    %
                                    
                                    
                                    5.2
                                    %
                                    
                                    
                                    2.6
                                    %
                                    
                                    
                                    6.9
                                    %Income
      before tax
                                    
                                    
                                    5.9
                                    %
                                    
                                    
                                    5.1
                                    %
                                    
                                    
                                    3.9
                                    %
                                    
                                    
                                    6.6
                                    %Net
      income
                                    
                                    
                                    4.4
                                    %
                                    
                                    
                                    3.4
                                    %
                                    
                                    
                                    3.0
                                    %
                                    
                                    
                                    4.0
                                    %





Net Sales.  Net
sales increased $6.5 million, or 6.8%, to $102.3 million for the year ended
January 31, 2009 compared to $95.7 million for the year ended January 31,
2008.The net
increase was comprised mainly of $8.4 million in sales generated by our
Qualytextil, S.A. facility which was included in FY09 for the nine months
following the acquisition, sales growth of $3.0 million in China, domestic, Asia
Pacific Rim and other external sales, $0.6 million in Europe, $2.5 million in
increased reflective sales in the U.S., $0.1 million increased sales of chemical
protection clothing in the U.S., $0.5 million increase in Chile and $0.4 million
increase in India. These growth areas were offset by decreases in sales of $7.7
million in U.S. disposables, $0.3 million in U.S/ gloves, $1.0 million in U.S.
wovens and $0.3 million in Canada.





Gross Profit.Gross profit
increased $5.6 million, or 25.1%, to $28.0 million for the year ended January
31, 2009 from $22.4 million for the year ended January 31,
2008.  Gross profit as a percentage of net sales increased to 27.3%
for the year ended January 31, 2009 from 23.4% for the year ended January 31,
2008, primarily due to the inclusion of Qualytextil, S.A. sales in 2009 which
operated at a 51.4% margin for the nine months in FY09 in which Brazil
operations were included and in the prior year, a sales rebate program to meet
competitive conditions resulting in a 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 2007 resulting in higher costs. Start-up expenses included in gross
profit related to the new foreign subsidiaries of approximately $.6 million
which were partially offset by ongoing cost reduction programs in component and
service-purchasing, shifting production from the U.S. to China and Mexico,
completion of the plant restructuring in Mexico, rework expenses on a chemical
suit contract and reduced volumes in lower margins in the U.S. fire gear and
gloves.





Operating
Expenses.  Operating expenses increased $4.3 million, or 24.9%,
to $21.7 million for the year ended January 31, 2009 from $17.4 million for the
year ended January 31, 2008.  As a percentage of net sales, operating
expenses increased to 21.2% for the year ended January 31, 2009 from 18.1% for
the year ended January 31, 2008.  The $4.3 million increase in
operating expenses in the year ended January 31, 2009 compared to the year ended
January 31, 2008 was principally due to (decreases) or increases
in:


·
                $2.9
                
                million
      – operating costs in the acquired Brazilian operations not in previous
      year.·
                0.4
                
                million
      – in additional freight out costs, excluding Brazil, resulting from higher
      rates prevailing in most of FY09, due to higher fuel
      surcharges.·
                0.4
                
                Million
      – in additional sales salaries, commissions and administrative salaries
      resulting from expanded sales staff.·
                0.3
                
                million
      – in additional costs resulting from the proxy contest earlier in
      FY09.·
                0.2
                
                million
      – in additional international travel expenses and sales meetings that
      tracked international sales growth.·
                0.1
                
                million
      – in additional advertising and printing costs.·
                0.1
                
                million
      – in additional equity compensation resulting from additional grants
      charged to expense over the vesting period of the Company’s Restricted
      Stock Program.·
                0.1
                
                million
      – in additional currency fluctuation costs.·
                0.1
                
                million
      – in additional computer expenses.·
                0.1
                
                million
      – in other taxes – mainly property taxes on the Canada warehouse opened in
      December 2007.·
                (0.1)
                
                million
      – in reduced medical insurance costs resulting from favorable
      experience.·
                (0.3)
                
                million
      – reduction in professional fees and consulting expenses mainly resulting
      from an expenditure in the previous fiscal year in India to set up the
      proper production
processes.




35




Operating
Profit.Operating profit increased by $1.3 million, or 25.9%,
to $6.3 million, from $5.0 million for the prior year. Operating income as a
percentage of net sales increased to 6.1% for the year ended January31, 2009 from 5.2% for
the year ended January 31, 2008 primarily due to the Brazil acquisition,
partially offset by increased operating expenses and lower volumes as discussed
above.





Interest
Expense.  Interest expense increased by $0.5 million for the
year ended January 31, 2009 compared to the year ended January 31, 2008 because
of increased borrowings due to the Qualytextil acquisition partially offset by
interest rate decreases.





Other Income -
Net.Other income, net increased $0.35 million principally as
a result of  non-recurring credits resulting  from net funds
recovered from a Chinese manager’s fraud and from a change in accounting
estimate relating to certain Chinese cash and accruals recorded in 2004 and
prior.





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $0.06 million, or 3.8%, to
$1.51 million for the year ended January 31, 2009 from $1.57 million for the
year ended January 31, 2008.  Our effective tax rate was 25% and 32.3%
for the years ended January 31, 2009 and 2008, respectively.  Our
effective tax rate varied from the federal statutory rate of 34% due primarily
to lower foreign tax rates, principally in China and Brazil.





Net Income.  Net
income increased $1.3 million, or 38.2%, to $4.5 million for the year ended
January 31, 2009 from $3.3 million for the year ended January 31, 2008. The
increase in net income was the result of the Brazil acquisition, partially
offset by 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 and
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, 2010 we had cash and cash equivalents of $5.1 million and working
capital of $48.9 million, an increase of $2.3 million and a decrease of $22.0
million, respectively, from January 31, 2009. 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
provided by operating activities of $18.7 million for the year ended January 31,
2010 was due primarily to net income of $1.0 million and a decrease in
inventories of $18.3 million. Net cash provided by operations for the year ended
January 31, 2009 of $1.2 million was primarily due to net income of $4.5 million
offset by an increase in inventories of $5.7 million.




Net cash
used in investing activities of $1.2 million and $16.2 million in the years
ended January 31, 2010 and 2009, respectively, was due to the acquisition of
Qualytextil in 2009 and purchases and improvements to property and equipment in
2009 and 2010. Net cash used in and provided by financing activities in the
years ended January 31, 2010 and 2009 was primarily attributable to an increased
borrowing under our credit facilities primarily to fund the Qualytextil
acquisition in FY09 and primarily by repayment of borrowings as a result of
decreased inventory levels in FY10, respectively.




36




Credit Facilities




We
currently have one credit facility:




·
            A
      one year, $23.5 million revolving credit facility, of which we had
      borrowings outstanding as of January 31, 2010 amounting to $9.5
      million




Our $23.5
million revolving credit facility expires on January 14,
2011.  Borrowings under this revolving credit facility bear interest
at the London Interbank Offering Rate (LIBOR) plus 175 basis points and were
1.98% at January 31, 2010. As of January 31, 2010, we had $14.0 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
immediately due and payable. Our lenders have a security interest in
substantially all of our assets to secure the debt under our credit facilities.
As of January 31, 2010, we were in compliance with all covenants contained in
our credit facilities.




We
believe that our current cash position of $5.1 million, our cash flow from
operations, along with borrowing availability under our $23.5 million revolving
credit facility, will be sufficient to meet our currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.




Capital Expenditures




Our
capital expenditures principally relate to purchases of manufacturing equipment,
computer equipment and leasehold improvement, as well as payments related to the
expansion of our facilities in Brazil. In FY10, we expanded the current plant
facility in Brazil. In FY09, we added machinery and equipment in our newly
rented Weifang, China facility. 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 $1.5 million
to purchase our capital equipment which primarily consists of computer equipment
and apparel manufacturing equipment.




Contractual
Obligations




We had no
off-balance sheet arrangements at January 31, 2010. As shown below, at January
31, 2010, our contractual cash obligations totaled approximately $12.1 million,
including lease renewals entered into subsequent to January 31,
2010.




Payments Due by PeriodLess thanTotal
              
              
              1 Year
              
              
              1-3 Years
              
              
              4-5 Years
              
              
              After 5 YearsCanada
      facility loan
              
              $
              1,677,019
              
              
              $
              93,601
              
              
              $
              280,803
              
              
              $
              187,202
              
              
              $
              1,115,413*Operating
      leases
              
              
              881,946
              
              
              
              130,220
              
              
              
              495,027
              
              
              
              256,699
              
              
              
              —Other
      liabilities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Revolving
      credit facility
              
              
              9,518,000
              
              
              
              9,518,000
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              $
              12,076,965
              
              
              $
              9,741,821
              
              
              $
              775,830
              
              
              $
              443,901
              
              
              $
              1,115,413*NOTE:
      We renewed the Mexico lease and rent for the next 3 years at 10% more than
      the past.




37




Contingent
Commitment




Pursuant
to the Share Purchase Agreement relating to the Company’s purchase of
Qualytextil, S.A. in May 2008, there is a provision dealing with a Supplementary
Purchase Price, based on a multiple of Qualytextil’s EBITDA in 2010. See further
description in Note 4 herein.




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
moderate spring 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
December and May 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.




With our
acquisition of the Brazilian facility and exclusive supply agreement with West
Farmers in Australia, this seasonality may decrease as the South American
Mercosur markets, Chile, Australia, New Zealand and South Africa markets
experience their high seasons during our slow summer months and their low season
during our winter months.




Recent
Accounting Developments




In June
2009, the FASB issued a new accounting standard which revises the accounting for
VIEs by introducing a new consolidation model. This new standard changes the
approach to determining the primary beneficiary of a VIE and requires companies
to more frequently assess whether they must consolidate VIEs. The new model
identifies two primary characteristics of a controlling financial interest:
(1) the power to direct significant activities of the VIE, and (2) the
obligation to absorb losses of and/or provide rights to receive benefits from
the VIE that are potentially significant to the VIE. In February 2010, the FASB
finalized an Accounting Standards Update ("ASU") which defers the requirements
of this standard for certain interests in investment funds and certain similar
entities. The adoption of this new standard on January 1, 2010 is not
expected to have a material impact on the Company's financial position or
results of operations, as substantially all of the entities in which it holds
variable interests are anticipated to qualify for the scope deferral under the
ASU.




In June
2009, the FASB issued amended guidance on accounting for transfers of financial
assets. The amendments were issued to improve the information that a reporting
entity provides in its financial statements about a transfer of financial
assets, the effects of a transfer on its financial statements, and a
transferor's continuing involvement, if any, in transferred financial assets.
The amendments eliminate the concept of qualifying special purpose entities from
GAAP. These entities will now be evaluated for consolidation in accordance with
the applicable consolidation criteria. The amendments are effective for
reporting periods beginning on or after November 15, 2009. The adoption of
the amended guidance is not expected to affect the Company's financial
condition, results of operations or cash flows.




In
January 2010, the FASB issued a new accounting standard that provides amended
disclosure requirements related to fair value measurements. This standard is
effective for financial statements issued for reporting periods beginning after
December 15, 2009 for certain disclosures and for reporting periods
beginning after December 15, 2010 for other disclosures. Since these
amended principles require only additional disclosures concerning fair value
measurements, adoption will not affect the Company's financial condition,
results of operations or cash flows.




38




ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 Brazil, Canada, Europe and, to a smaller
extent, in other South American countries. Our sales to customers in Brazil are
denominated in Brazilian Reals, in Canada in Canadian dollars and in Europe in
Euros and British pounds.  If the value of the U.S. dollar increases
relative to the Canadian dollar, the Real, the Pound or the Euro, then our net
sales could decrease as our products would be more expensive to these
international customers because of changes in rate of exchange. Our sales in
China are denominated in the Chinese Yuan; however, our sales there were not
affected this last year due to a steady exchange rate between the Chinese RMB
and the USD. We manage the foreign currency risk through the use of rolling 90
day forward contracts against the Canadian dollar and Chilean Peso. We do not
hedge other currencies at this time. 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.




39


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, 2010, we had $9.5 million in borrowings outstanding under this credit
facility. If the interest rate applicable to this variable rate debt rose 1.0%
in the year ended January 31, 2010, our interest expense would have increased by
a negligible effect.




ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Index to Consolidated
Financial Statements


Consolidated
      Financial Statements:Page
      No.Reports
      of Independent Registered Public Accounting Firms
                41-42Consolidated
      Balance Sheets - January 31, 2010 and 2009
                43Consolidated
      Statements of Income for the years ended January 31, 2010, 2009 and
      2008
                44Consolidated
      Statements of Stockholders' Equity for the years ended January 31, 2010,
      2009 and 2008
                45Consolidated
      Statements of Cash Flows for the years ended January 31, 2010, 2009 and
      2008
                46Notes
      to Consolidated Financial Statements
                47-67Schedule
      II – Valuation and Qualifying Accounts
                68All
      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







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and


Stockholders
of Lakeland Industries, Inc. and Subsidiaries


Ronkonkoma,
New York




We have
audited the accompanying consolidated balance sheet of Lakeland Industries, Inc.
and Subsidiaries as of January 31, 2010, and the related consolidated statements
of income, stockholders’ equity and cash flows for the years then ended. Our
audit also included the 2010 information included in the financial statement
schedule listed in Item 15 (a)(2).  Lakeland Industries, Inc. and
Subsidiaries’ management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
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, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Lakeland Industries, Inc.
and Subsidiaries as of January 31, 2010, and the results of its operations and
its cash flows the year then ended 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.




/s/
      Warren, Averett, Kimbrough and Marino, LLCBirmingham,
      AlabamaApril
      14, 2010




41


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Lakeland
Industries, Inc. and Subsidiaries


Ronkonkoma,
New York





We have
audited the accompanying consolidated balance sheet of Lakeland Industries, Inc.
and Subsidiaries as of January 31, 2009 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended January 31, 2009. We have also audited the financial
statement schedule listed in Item 15(a)(2) of this Form 10-K for the two years
ended January 31, 2009. These consolidated financial statements and
financial statement schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as,
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Lakeland Industries, Inc.
and Subsidiaries as of January 31, 2009, and the results of their operations and
their cash flows for each of the two years ended January 31, 2009 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.





/s/ Holtz
Rubenstein Reminick LLP





Melville,
New York


April 14,
2009


42


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED BALANCE
SHEETS


January
31, 2010 and 2009


2010
                                
                                
                                2009AssetsCurrent
      assetsCash
      and cash equivalents
                                
                                $
                                5,093,380
                                
                                
                                $
                                2,755,441Accounts
      receivable, net of allowance for doubtful accounts of approximately
      $200,200 and $104,500 at January 31, 2010 and 2009,
      respectively
                                
                                
                                15,809,010
                                
                                
                                
                                13,353,430Inventories,
      net of reserves of approximately $868,000 and $657,000 at January 31, 2010
      and 2009, respectively
                                
                                
                                38,575,890
                                
                                
                                
                                57,074,028Deferred
      income taxes
                                
                                
                                1,261,250
                                
                                
                                
                                2,578,232Prepaid
      income tax
                                
                                
                                1,731,628
                                
                                
                                
                                531,467Other
      current assets
                                
                                
                                2,355,506
                                
                                
                                
                                2,070,825Total
      current assets
                                
                                
                                64,826,664
                                
                                
                                
                                78,363,423Property
      and equipment, net
                                
                                
                                13,742,454
                                
                                
                                
                                13,736,326Intangibles
      and other assets, net
                                
                                
                                5,622,120
                                
                                
                                
                                4,405,833Goodwill
                                
                                
                                5,829,143
                                
                                
                                
                                5,109,136Total
      assets
                                
                                $
                                90,020,381
                                
                                
                                $
                                101,614,718Liabilities
      and Stockholders' EquityCurrent
      liabilitiesAccounts
      payable
                                
                                $
                                3,882,730
                                
                                
                                $
                                3,853,890Accrued
      compensation and benefits
                                
                                
                                1,288,796
                                
                                
                                
                                3,069,409Other
      accrued expenses
                                
                                
                                1,138,303
                                
                                
                                
                                434,809Borrowings
      under revolving credit facility
                                
                                
                                9,517,567
                                
                                
                                
                                —Current
      maturity of long-term debt
                                
                                
                                93,601
                                
                                
                                
                                94,000Total
      current liabilities
                                
                                
                                15,920,997
                                
                                
                                
                                7,452,108Borrowings
      under revolving credit facility
                                
                                
                                —
                                
                                
                                
                                24,408,466Construction
      loan payable net of current maturity
                                
                                
                                1,583,419
                                
                                
                                
                                1,368,406Other
      liabilities
                                
                                
                                92,176
                                
                                
                                
                                74,611Total
      liabilities
                                
                                
                                17,596,592
                                
                                
                                
                                33,303,591Commitments
      and ContingenciesStockholders’
      equityPreferred
      stock, $.01 par; 1,500,000 shares authorized; none issued
                                
                                
                                —
                                
                                
                                
                                —Common
      stock, $.01 par; 10,000,000 shares authorized; 5,564,732 and 5,523,288
      shares issued and outstanding at January 31, 2010 and 2009,
      respectively
                                
                                
                                55,647
                                
                                
                                
                                55,233Less
      treasury stock, at cost; 125,322 shares at January 31, 2010 and 107,317
      shares at January 31, 2009
                                
                                
                                (1,353,247
                                )
                                
                                
                                (1,255,459
                                )Additional
      paid-in capital
                                
                                
                                49,622,632
                                
                                
                                
                                49,511,896Retained
      earnings
                                
                                
                                25,221,050
                                
                                
                                
                                24,191,258Other
      comprehensive loss
                                
                                
                                (1,122,293
                                )
                                
                                
                                (4,191,801
                                )Total
      stockholders' equity
                                
                                
                                72,423,789
                                
                                
                                
                                68,311,127Total
      liabilities and stockholders' equity
                                
                                $
                                90,020,381
                                
                                
                                $
                                101,614,718




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


43





Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF
INCOME


For the
Years Ended January 31, 2010, 2009 and 2008





2010
                    
                    
                    2009
                    
                    
                    2008Net
      sales
                    
                    $
                    94,140,819
                    
                    
                    $
                    102,268,125
                    
                    
                    $
                    95,740,068Cost
      of goods sold
                    
                    
                    68,735,076
                    
                    
                    
                    74,298,935
                    
                    
                    
                    73,382,713Gross
      profit
                    
                    
                    25,405,743
                    
                    
                    
                    27,969,190
                    
                    
                    
                    22,357,355Operating
      expensesSelling
      and shipping
                    
                    
                    10,480,099
                    
                    
                    
                    10,931,285
                    
                    
                    
                    9,291,263General
      and administrative
                    
                    
                    12,468,137
                    
                    
                    
                    10,765,595
                    
                    
                    
                    8,082,618Total
      operating expenses
                    
                    
                    22,948,236
                    
                    
                    
                    21,696,880
                    
                    
                    
                    17,373,881Operating
      profit
                    
                    
                    2,457,507
                    
                    
                    
                    6,272,310
                    
                    
                    
                    4,983,474Other
      income (expense)Interest
      expense
                    
                    
                    (1,111,456
                    )
                    
                    
                    (827,725
                    )
                    
                    
                    (330,268
                    )Interest
      income
                    
                    
                    (2,614
                    )
                    
                    
                    124,634
                    
                    
                    
                    66,722Other
      income – net
                    
                    
                    92,216
                    
                    
                    
                    494,084
                    
                    
                    
                    144,870Total
      other income (expense)
                    
                    
                    (1,021,854
                    )
                    
                    
                    (209,007
                    )
                    
                    
                    (118,676
                    )Income
      before income taxes
                    
                    
                    1,435,653
                    
                    
                    
                    6,063,303
                    
                    
                    
                    4,864,798Income
      tax expense
                    
                    
                    405,861
                    
                    
                    
                    1,513,835
                    
                    
                    
                    1,573,936Net
      income
                    
                    $
                    1,029,792
                    
                    
                    $
                    4,549,468
                    
                    
                    $
                    3,290,862Net
      income per common shareBasic
                    
                    $
                    0.19
                    
                    
                    $
                    0.84
                    
                    
                    $
                    0.60Diluted
                    
                    $
                    0.19
                    
                    
                    $
                    0.83
                    
                    
                    $
                    0.59Weighted
      average common shares outstandingBasic
                    
                    
                    5,426,784
                    
                    
                    
                    5,435,829
                    
                    
                    
                    5,522,751Diluted
                    
                    
                    5,458,472
                    
                    
                    
                    5,475,104
                    
                    
                    
                    5,542,245Net
      income
                    
                    $
                    1,029,792
                    
                    
                    $
                    4,549,468
                    
                    
                    $
                    3,290,862Translation
      adjustments:Canada
      Real Estate
                    
                    
                    76,899
                    
                    
                    
                    (55,152
                    )
                    
                    
                    (36,073
                    )Qualytextil,
      S.A. Brazil
                    
                    
                    2,475,387
                    
                    
                    
                    (3,473,196
                    )
                    
                    
                    —Lakeland
      Industries Europe, Inc.
                    
                    
                    (110,238
                    )
                    
                    
                    —
                    
                    
                    
                    —Lakeland
      (Beijing) Safety Products Co., Ltd.
                    
                    
                    80
                    
                    
                    
                    —
                    
                    
                    
                    —Interest
      rate swap
                    
                    
                    627,380
                    
                    
                    
                    (627,380
                    )
                    
                    
                    —Total
                    
                    
                    3,069,508
                    
                    
                    
                    (4,155,728
                    )
                    
                    
                    (36,073
                    )Total
      comprehensive income
                    
                    $
                    4,099,300
                    
                    
                    $
                    393,740
                    
                    
                    $
                    3,254,789





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


44


Lakeland
Industries, Inc. and Subsidiaries


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY


for the
years ended January 31, 2010, 2009 and 2008





Common
      Stock
                  
                  
                  Treasury
      Stock
                  
                  
                  Additional
                    paid-in
                  
                  
                  Retained
                  
                  
                  Other
                    ComprehensiveShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Earnings
                  
                  
                  Loss
                  
                  
                  TotalBalance,
      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
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Translation
      adjustments regarding Canadian Real Estate
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (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
                  )
                  
                  
                  68,872,911Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,549,468
                  
                  
                  
                  —
                  
                  
                  
                  4,549,468Stock
      repurchase program
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (107,317
                  )
                  
                  
                  (1,255,459
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,255,459
                  )Other
      comprehensive loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Translation
      adjustments
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Canadian
      Real Estate
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (55,152
                  )
                  
                  
                  (55,152
                  )Qualytextil,
      S.A., Brazil
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (3,473,196
                  )
                  
                  
                  (3,473,196
                  )Interest
      rate swap
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (627,380
                  )
                  
                  
                  (627,380
                  )Stock
      based compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Issuance
      of director stock options
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  31,544
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  31,544Restricted
      stock plan
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  268,391
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  268,391Balance,
      January 31, 2009
                  
                  
                  5,523,288
                  
                  
                  
                  55,233
                  
                  
                  
                  (107,317
                  )
                  
                  
                  (1,255,459
                  )
                  
                  
                  49,511,896
                  
                  
                  
                  24,191,258
                  
                  
                  
                  (4,191,801
                  )
                  
                  
                  68,311,127Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,029,792
                  
                  
                  
                  —
                  
                  
                  
                  1,029,792Stock
      repurchase program
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (18,005
                  )
                  
                  
                  (97,788
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (97,788
                  )Other
      comprehensive loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Translation
      adjustments
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Canada
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  76,899
                  
                  
                  
                  76,899Qualytextil,
      S.A., Brazil
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,475,387
                  
                  
                  
                  2,475,387UK
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (110,238
                  )
                  
                  
                  (110,238
                  )China
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  80
                  
                  
                  
                  80Interest
      rate swap
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  627,380
                  
                  
                  
                  627,380Stock
      based compensationIssuance
      of director stock options
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  47,068
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  47,068Restricted
      stock plan
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  169,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  169,640Director
      options granted at fair market value
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Director
      stock options exercised
                  
                  
                  3,267
                  
                  
                  
                  33
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  23,529
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  23,562Shares
      issued from Restricted Stock Plan
                  
                  
                  38,177
                  
                  
                  
                  381
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  381Return
      of shares in lieu of payroll tax withholding
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (111,000
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (111,000
                  )Cash
      paid in lieu of issuing shares
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (18,501
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (18,501
                  )Balance,
      January 31, 2010
                  
                  
                  5,564,732
                  
                  
                  $
                  55,647
                  
                  
                  
                  (125,322
                  )
                  
                  $
                  (1,353,247
                  )
                  
                  $
                  49,622,632
                  
                  
                  $
                  25,221,050
                  
                  
                  $
                  (1,122,293
                  )
                  
                  $
                  72,423,789





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


45


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the
Years Ended January 31, 2010, 2009 and 2008





2010
                  
                  
                  2009
                  
                  
                  2008Cash
      flows from operating activitiesNet
      income
                  
                  $
                  1,029,792
                  
                  
                  $
                  4,549,468
                  
                  
                  $
                  3,290,862Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activitiesProvision
      for inventory obsolescence
                  
                  
                  211,601
                  
                  
                  
                  49,785
                  
                  
                  
                  300,626Provision
      for doubtful accounts
                  
                  
                  96,074
                  
                  
                  
                  59,135
                  
                  
                  
                  (58,000
                  )Deferred
      income taxes
                  
                  
                  1,316,981
                  
                  
                  
                  (608,519
                  )
                  
                  
                  (641,575
                  )Depreciation
      and amortization
                  
                  
                  1,744,113
                  
                  
                  
                  1,633,846
                  
                  
                  
                  1,186,840Stock
      based and restricted stock compensation
                  
                  
                  198,588
                  
                  
                  
                  299,935
                  
                  
                  
                  233,261(Increase)
      decrease in operating assets:Accounts
      receivable
                  
                  
                  (2,551,654
                  )
                  
                  
                  2,763,878
                  
                  
                  
                  (89,400
                  )Inventories
                  
                  
                  18,286,537
                  
                  
                  
                  (5,698,718
                  )
                  
                  
                  (7,723,060
                  )Prepaid
      income taxes and other current assets
                  
                  
                  (1,731,628
                  )
                  
                  
                  —
                  
                  
                  
                  1,110,310Other
      assets
                  
                  
                  692,476
                  
                  
                  
                  (422,309
                  )
                  
                  
                  (305,961
                  )Increase
      (decrease) in operating liabilitiesAccounts
      payable
                  
                  
                  28,840
                  
                  
                  
                  (1,418,602
                  )
                  
                  
                  257,357Accrued
      expenses and other liabilities
                  
                  
                  (644,011
                  )
                  
                  
                  3,372
                  
                  
                  
                  319,538Net
      cash provided by (used in) operating activities
                  
                  
                  18,677,709
                  
                  
                  
                  1,211,271
                  
                  
                  
                  (2,119,202
                  )Cash
      flows from investing activitiesAcquisition
      of Qualytextil, S.A.
                  
                  
                  —
                  
                  
                  
                  (13,780,205
                  )
                  
                  
                  —Purchases
      of property and equipment
                  
                  
                  (1,192,251
                  )
                  
                  
                  (2,371,914
                  )
                  
                  
                  (3,427,458
                  )Net
      cash used in investing activities
                  
                  
                  (1,192,251
                  )
                  
                  
                  (16,152,119
                  )
                  
                  
                  (3,427,458
                  )Cash
      flows from financing activitiesNet
      borrowings (payments) under credit agreement
                  
                  
                  (14,890,899
                  )
                  
                  
                  2,192,999
                  
                  
                  
                  5,085,000Purchases
      of stock under Stock Repurchase program
                  
                  
                  (97,788
                  )
                  
                  
                  (1,255,459
                  )
                  
                  
                  —Borrowing
      to fund Qualytextil acquisition
                  
                  
                  —
                  
                  
                  
                  13,344,466
                  
                  
                  
                  —Other
      liabilities
                  
                  
                  17,566
                  
                  
                  
                  74,611
                  
                  
                  
                  —Net
      proceeds (repayment) construction loan
                  
                  
                  (88,993
                  )
                  
                  
                  (88,000
                  )
                  
                  
                  1,976,085Proceeds
      from exercise of stock options
                  
                  
                  23,562
                  
                  
                  
                  —
                  
                  
                  
                  6,690Shares
      returned in lieu of taxes under Restricted Stock Program
                  
                  
                  (110,967
                  )
                  
                  
                  —
                  
                  
                  
                  —Net
      cash provided by (used in) financing activities
                  
                  
                  (15,147,519
                  )
                  
                  
                  14,268,617
                  
                  
                  
                  7,067,775Net
      (decrease) increase in cash and cash equivalents
                  
                  
                  2,337,939
                  
                  
                  
                  (672,231
                  )
                  
                  
                  1,521,115Cash
      and cash equivalents at beginning of year
                  
                  
                  2,755,441
                  
                  
                  
                  3,427,672
                  
                  
                  
                  1,906,557Cash
      and cash equivalents at end of year
                  
                  $
                  5,093,380
                  
                  
                  $
                  2,755,441
                  
                  
                  $
                  3,427,672





See Note
1 for Supplemental Cash Flow information.





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


46


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008





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, 2010, 2009 and 2008.




Basis
of Presentation




On July
1, 2009, the Financial Accounting Standards Board (“FASB”) released the
Accounting Standards Codification (“ASC”). The ASC became the single source of
authoritative nongovernmental U.S. generally accepted accounting principles
(“GAAP”) and is effective for all interim and annual periods ending after
September 15, 2009. All existing accounting standards documents were superseded,
and any other literature not included in the ASC is considered
non-authoritative. The adoption of the ASC did not have any impact on the
Company’s financial condition, results of operations and cash flows, as the ASC
did not change existing U.S. GAAP. The adoption of the ASC changes the approach
of referencing authoritative literature by topic (each a “Topic”) rather than by
type of standard. Accordingly, references to former FASB positions, statements,
interpretations, opinions, bulletins or other pronouncements in the Company’s
Notes to Consolidated Financial Statements are now presented as references to
the relevant topic in the ASC.




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-Weifang 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. and Qingdao
Lakeland Protective Products Co., Ltd. (Chinese corporations), Lakeland
Industries Europe Ltd. (a British corporation), Lakeland Industries Inc. Agencia
en Chile, (a Chilean Limited Liability Company), Lakeland Japan, Inc. (a
Japanese corporation), Lakeland India Private, Ltd. and Lakeland Gloves and
Safety Apparel Private Limited (Indian corporations), Industrias Lakeland S.A.
de C.V. (a Mexican corporation) and  Qualytextil, S.A. (a Brazilian
corporation), RussIndProtection, Ltd. (a Russian corporation), Art Prom, LLC, (a
Kazakhstan corporation), Lakeland (Beijing) Safety Products, Co., Ltd (a Beijing
corporation), Lakeland (Hong Kong) Trading Co., Ltd. (a Hong Kong corporation)
and Lakeland Argentina, SRL (an Argentina corporation)   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. In May 2008, Lakeland do Brasil, S.A., a Brazilian
corporation, was formed as a subsidiary of Lakeland Industries, Inc., which then
purchased 100% of the commonstock of Qualytextil,
S.A., a Brazilian corporation. In November 2008, Lakeland do Brasil was merged
into Qualytextil.




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, collectability
is reasonably assured and pricing is fixed. Substantially all product sales are
sold FOB shipping point, or with respect to non-U.S. customers, an equivalent
basis. 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. Sales are stated net of VAT, GST or sales taxes which maybe
be billed, depending on jurisdiction.




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




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


47




Lakeland
Industries, Inc.
 and
Subsidiaries
 
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
 January
31, 2010, 2009 and 2008




1.
(continued)




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




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




Domestic
and international sales are as follows:





Fiscal Years Ended January 31,2010
                  
                  
                  2009
                  
                  
                  2008Domestic
                  
                  $
                  61,504,000
                  
                  
                  
                  65.3
                  %
                  
                  $
                  76,695,000
                  
                  
                  
                  75.0
                  %
                  
                  $
                  82,773,000
                  
                  
                  
                  86.5
                  %International
                  
                  
                  32,637,000
                  
                  
                  
                  34.7
                  %
                  
                  
                  25,573,000
                  
                  
                  
                  25.0
                  %
                  
                  
                  12,967,000
                  
                  
                  
                  13.5
                  %Total
                  
                  $
                  94,141,000
                  
                  
                  
                  100.0
                  %
                  
                  $
                  102,268,000
                  
                  
                  
                  100.0
                  %
                  
                  $
                  95,740,000
                  
                  
                  
                  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.




Goodwill
and intangible assets




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




On August
1, 2005, the Company purchased Mifflin Valley, Inc, a Pennsylvania
manufacturer.  This acquisition resulted in the recording of $.9
million in goodwill as of January 31, 2006.  Management has determined
there is no impairment of this goodwill at January 31, 2010, 2009 and
2008.




In May
2008, the Company acquired Qualytextil, S.A., a Brazilian manufacturer. An
evaluation of this acquisition was made as of January 31, 2009, which resulted
in the recording of $4.2 million of goodwill. Management has determined there is
no impairment of this goodwill at January 31, 2010. See Note 4 for further
discussion of goodwill.




Intangible
assets consist primarily of trademarks, tradenames and customer contracts.
Trademarks and tradenames are not amortized because they have indefinite lives.
Customer contracts are amortized over their estimated useful lives of 39 months
remaining at January 31, 2010.


48


Lakeland
Industries, Inc.


and
Subsidiaries




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008




1.
(continued)





Impairment
of Long-lived Assets




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




Self-Insured
Liabilities




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 is accrued. This estimate is based upon historical trends and amounted to
$132,000 for each of the years ended January 31, 2010, 2009 and 2008. The
Company maintains separate insurance to cover the excess liability over set
single claim amounts and aggregate annual claim amounts.




Stock-Based
Compensation




The
Company accounts for share based compensation in accordance with the guidance
issued by the FASB, which 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 U.S. GAAP and certain SEC rules and regulations and
provides interpretations with respect to the valuation of share-based payments
for public companies.




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 $2.6
million, $3.0 million and $2.5 million in the fiscal years ended January 31,
2010, 2009 and 2008, respectively.




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 $305,000, $321,000 and $359,000 in the fiscal years ended January
31, 2010, 2009 and 2008, respectively, and was primarily due to certification of
products in 2009.




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.




49


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008




1.
(continued)





Uncertain
Tax Positions




The
Company adopted the guidance for uncertainty in income taxes effective February
1, 2007. This guidance prescribes recognition thresholds that must be met before
a tax benefit is recognized in the financial statements and provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Under this guidance, 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 this
guidance as a $419,000 decrease to the opening balance of retained earnings as
of February 1, 2007, $207,000.




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, 2010, 2009 and 2008 were 31,688, 39,275 and 19,494, 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.




Advertising
Costs




Advertising
costs are expensed as incurred.  Advertising costs (income) amounted
to $50,000, $32,000 and $(76,000) in the fiscal years ended January 31, 2010,
2009 and 2008, 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.




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 $5.1 million and $2.7 million at January 31, 2010 and 2009,
respectively.




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





2010
                  
                  
                  2009
                  
                  
                  2008Interest
      paid
                  
                  $
                  1,111,456
                  
                  
                  $
                  827,725
                  
                  
                  $
                  330,268Income
      taxes paid
                  
                  $
                  625,204
                  
                  
                  $
                  3,216,000
                  
                  
                  $
                  699,456




50


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008




1.
(continued)





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.




Our major
foreign financial depositories are Bank of America, China Construction Bank,
China Agricultural Bank, HSBC in China; HSBC in India and UK; TD Bank Canada;
Trust Bank in Canada; and Banco do Brasil, S.A. and Banco Itaú S.A. in Brasil.
We monitor our financial depositories by their credit rating.




Foreign
Operations and Foreign Currency Translation




The
Company maintains manufacturing operations in Mexico, India, Brazil and the
People’s Republic of China and can access independent contractors in Mexico and
China. It also maintains sales and distribution entities located in India,
Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan and Brazil. The
Company is vulnerable to currency risks in these countries. The functional
currency of foreign subsidiaries is the U.S. dollar, except for the Brazilian
operation, UK, new trading companies in China, and the Canadian Real Estate
subsidiary.




Pursuant
to U.S. GAAP, assets and liabilities of the Company’s foreign operations with
functional currencies, other than the U.S. dollar, are translated at the
exchange rate in effect at the balance sheet date, while revenues and expenses
are translated at average rates prevailing during the periods. Translation
adjustments are reported in accumulated other comprehensive loss, a separate
component of stockholders’ equity.




The
monetary assets and liabilities of the Company’s foreign operations with the
U.S. dollar as the functional currency 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
gains of  approximately $324,000, $149,000 and $72,000 for the fiscal
years ended January 31, 2010, 2009 and 2008, 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
liabilities and disclosures of contingent assets and liabilities at year-end and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.  The most significant estimates include the allowance for
doubtful accounts and inventory allowances.  It is reasonably possible
that events could occur during the upcoming year that could change such
estimates.




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.


51


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008





1.
(continued)




Recent
Accounting Developments




In
June 2009, the FASB issued a new accounting standard which revises the
accounting for VIEs by introducing a new consolidation model. This new standard
changes the approach to determining the primary beneficiary of a VIE and
requires companies to more frequently assess whether they must consolidate VIEs.
The new model identifies two primary characteristics of a controlling financial
interest: (1) the power to direct significant activities of the VIE, and
(2) the obligation to absorb losses of and/or provide rights to receive
benefits from the VIE that are potentially significant to the VIE. In February
2010, the FASB finalized an Accounting Standards Update ("ASU") which defers the
requirements of this standard for certain interests in investment funds and
certain similar entities. The adoption of this new standard on January 1,
2010 is not expected to have a material impact on the Company's financial
position or results of operations.




In
June 2009, the FASB issued amended guidance on accounting for transfers of
financial assets. The amendments were issued to improve the information that a
reporting entity provides in its financial statements about a transfer of
financial assets, the effects of a transfer on its financial statements, and a
transferor's continuing involvement, if any, in transferred financial assets.
The amendments eliminate the concept of qualifying special purpose entities from
GAAP. These entities will now be evaluated for consolidation in accordance with
the applicable consolidation criteria. The amendments are effective for
reporting periods beginning on or after November 15, 2009. The adoption of
the amended guidance is not expected to affect the Company's financial
condition, results of operations or cash flows.




In
January 2010, the FASB issued a new accounting standard that provides amended
disclosure requirements related to fair value measurements. This standard is
effective for financial statements issued for reporting periods beginning after
December 15, 2009 for certain disclosures and for reporting periods
beginning after December 15, 2010 for other disclosures. Since these
amended principles require only additional disclosures concerning fair value
measurements, adoption will not affect the Company's financial condition,
results of operations or cash flows.


52


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008





1.
(continued)





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. This includes translation adjustments for foreign
subsidiaries where the functional currency is other than the U.S. dollar. No tax
benefit or expense has been attributed to any of these items.





2.  INVENTORIES,
NET





Inventories
consist of the following at January 31:




2010
                  
                  
                  2009Raw
      materials
                  
                  $
                  18,727,993
                  
                  
                  $
                  26,343,875Work-in-process
                  
                  
                  2,444,693
                  
                  
                  
                  2,444,160Finished
      goods
                  
                  
                  17,403,204
                  
                  
                  
                  28,285,993$
                  38,575,890
                  
                  
                  $
                  57,074,028




3.  PROPERTY
AND EQUIPMENT, NET





Property
and equipment consist of the following at January 31:




Useful life in years
                    
                    
                    2010
                    
                    
                    2009Machinery
      and equipment
                    
                    3 –
      10
                    
                    
                    $
                    9,020,453
                    
                    
                    $
                    8,488,655Furniture
      and fixtures
                    
                    3 –
      10
                    
                    
                    
                    494,464
                    
                    
                    
                    389,746Leasehold
      improvements
                    
                    Lease
      term
                    
                    
                    
                    1,731,669
                    
                    
                    
                    1,189,312Land
      and building (China)
                    
                    20
                    
                    
                    
                    2,412,115
                    
                    
                    
                    2,412,115Land,
      building and equipment (India)
                    
                    7 -
      39
                    
                    
                    
                    4,129,205
                    
                    
                    
                    4,010,237Land
      and building (Canada)
                    
                    30
                    
                    
                    
                    2,277,397
                    
                    
                    
                    1,985,951Land
      and buildings (USA)
                    
                    39
                    
                    
                    
                    3,655,764
                    
                    
                    
                    3,654,008Land
      and building (Brazil)
                    
                    5
                    
                    
                    
                    662,157
                    
                    
                    
                    535,97124,383,224
                    
                    
                    
                    22,665,995Less
      accumulated depreciation and amortization
                    
                    
                    
                    
                    
                    (10,640,770
                    )
                    
                    
                    (8,929,669
                    )$
                    13,742,454
                    
                    
                    $
                    13,736,326




53


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008




3.
(continued)





Depreciation
and amortization expense for fiscal 2010, 2009 and 2008 amounted to $1,744,113,
$1,633,846 and $1,186,840, respectively. Amortization of intangibles is included
in these amounts and is not material. Net fixed assets in China were
approximately $2.4 million and $2.5 million at January 31, 2010 and 2009,
respectively. Net fixed assets in India were approximately $3.2 million and $3.5
million at January 31, 2010 and 2009, respectively. Net fixed assets in Canada
were approximately $2.3 million and $2.1 million at January 31, 2010 and 2009,
respectively. Net fixed assets in Brazil were approximately $1.8 million and
$1.1 million at January 31, 2010 and 2009, 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
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
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 December
2008.





4.  BUSINESS
COMBINATIONS – Acquisition of
Qualytextil, S.A. and Increased Revolving Credit Line




On May
13, 2008, Lakeland Industries, Inc. completed the acquisition of 100% of all
outstanding stock of Qualytextil, S.A., a corporation organized under the laws
of Brazil, pursuant to a stock purchase agreement. Qualytextil is a supplier of
protective fire apparel in Brazil.




The
acquisition was financed through Lakeland’s revolving credit facility. Further,
to accommodate the Qualytextil acquisition, Wachovia Bank, N.A. in 2008
increased the Revolving Line of Credit from $25,000,000 to $30,000,000 and
reworked several covenants to allow for the acquisition.




The
Purchase Price was based upon a multiple of seven times the 2007 EBITDA of
Qualytextil, some of which was used to repay outstanding debts at closing. The
2007 EBITDA was $R3,118,000 ($1.9 million), and the total amount paid at
closing, including the repayment of such outstanding debts, was $R21,826,000
(approximately $13.3 million).




In
connection with the closing of such acquisition, a total of $R6.3 million ($3.9
million) was used to repay outstanding debts of Qualytextil, $R7.8 million ($4.7
million) was retained in the various escrow funds as described and the balance
of $R7.7 million ($4.7 million) was paid to the Sellers at closing.




There is
a provision for a Supplementary Purchase Price - Subject to Qualytextil’s EBITDA
in 2010 being equal to or greater than $R4,449,200 ($2.7 million). The Purchaser
shall then pay to the Sellers the difference between six (6) times Qualytextil’s
EBITDA in 2010 and seven (7) times the 2007 EBITDA ($R21,826,000.00) ($13.3
million), less any unpaid disclosed or undisclosed contingencies (other than
Outstanding Debts) from preclosing which exceeds $R100,000.00 ($.06 million)
("Supplementary Purchase Price"). The Supplementary Purchase Price in no event
shall be greater than $R27,750,000.00 ($16.8 million) additional over the
initial Purchase Price, subject to certain restrictions. (USD amounts are based
on the exchange rate at the date of the transaction-$R1.645 = 1
USD).




All
sellers also have executed employment contracts with terms expiring December 31,
2011 which contain a non-compete provision extending seven years from
termination of employment.  The Company evaluated the non-compete
provision in the employment agreements and concluded the resulting intangible
asset, to be insignificant to the consolidated financial
statements.




The
Company has evaluated the fair value of the assets purchased, including
intangible assets, and has assigned the following values to intangible assets of
$R870,000 ($372,894) to the value of the Qualytextil contract with a significant
customer, to be amortized over the remaining 54 months of the contract, and
$R7,044,896 ($3,019,543) to tradenames, which has an indefinite life and is,
therefore, not amortized. There is no significant purchased research and
development cost involved.


54




Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008


4.
(continued)




The
operations of Qualytextil, S.A. have been included in the Lakeland consolidated
results commencing May 1, 2008.  A condensed balance sheet at the
acquisition date follows:





Current assets
                    
                    ($000 USD)Cash
      and equivalents
                    
                    $
                    34Accounts
      receivable
                    
                    
                    1,199Inventory
                    
                    
                    3,309Other
      current assets
                    
                    
                    210Total
      current assets
                    
                    
                    4,752Deferred
      tax asset
                    
                    
                    222Fixed
      assets
                    
                    
                    1,249Intangible
      (trademarks, tradenames)
                    
                    
                    186Other
      non-current assets
                    
                    
                    606Total
      assets
                    
                    $
                    7,015Current
      LiabilitiesLoans
                    
                    $
                    3,093Trade
      payables and other current liabilities
                    
                    
                    3,477Total
      current liabilities
                    
                    
                    6,570Other
      non-current liabilities
                    
                    
                    86Net
      assets acquired
                    
                    
                    359$
                    7,015Total
      cost of acquisition of Qualytextil, SA
                    
                    $
                    13,780Less
      net assets acquired
                    
                    
                    (359
                    )Less
      debt repayment at closing
                    
                    
                    (3,890
                    )Less
      additional values to reflect appraisal, assigned to (in
    USD)Trademarks
                    
                    
                    (3,020
                    )Customer
      contract
                    
                    
                    (373
                    )Goodwill
      at closing
                    
                    
                    6,138Foreign
      currency translation
                    
                    
                    1,900Goodwill
      at January 31, 2009 arising from Qualytextil, SA
                    
                    $
                    4,238Effect
      of foreign exchange in FY10
                    
                    
                    720Goodwill
      at January 31, 2010 arising from Qualytextil, S.A.
                    
                    $
                    4,958


55


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


January
31, 2010, 2009 and 2008


4.
(continued)





Lakeland
results on a pro-forma basis with Qualytextil, S.A. results included as if
acquired at beginning of each year shown are as follows:





Fiscal2009
                      
                      
                      Fiscal 2008Sales
                      
                      $
                      104,233
                      
                      
                      $
                      104,258Net
      income
                      
                      
                      4,815
                      
                      
                      
                      3,942EPS
                      
                      $
                      0.89
                      
                      
                      $
                      0.71




For
Brazilian tax purposes, the Company is deducting goodwill over a five-year
period which commenced with the merger of its holding company into the operating
company in Brazil, which took place in November 2008.




5.  INTANGIBLE
AND OTHER ASSETS, NET




Intangible
and other assets consist of:





2010
                  
                  
                  2009Trademarks
      and tradenames, resulting fromQualytextil,
      S.A. acquisition, per appraisal
                  
                  $
                  3,972,157
                  
                  
                  $
                  3,191,891Appraised
      value of customer contracts acquired in Qualytextil, S.A. acquisition,
      amortized over estimates remaining life of 39 months from January 31,
      2010, net of accumulated amortization of $110,454 at 2010 and $20,716 at
      2009
                  
                  
                  335,148
                  
                  
                  
                  352,178Bank
      fees net of accumulated amortization of $0 at 2010 and $483,275 at
      2009
                  
                  
                  71,761
                  
                  
                  
                  83,550Deferred
      taxes non-current
                  
                  
                  705,102
                  
                  
                  
                  519,211Security
      deposits
                  
                  
                  522,465
                  
                  
                  
                  231,318Other
                  
                  
                  15,487
                  
                  
                  
                  27,685$
                  5,622,120
                  
                  
                  $
                  4,405,833





Amortization
expense for the next five years is as follows:




Bank
fees:  $55,700 for 2010 and $27,850 for 2011.




Customer
contracts:  $82,865 per year for 2010 through 2014, subject to
exchange rate fluctuations.




The
increase in trademarks and tradenames from 2009 to 2010 of $780,266 is the
result of foreign exchange differences.


56





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





6.  LONG-TERM
DEBT




Revolving
Credit Facility




In
January 2010, the Company entered into a new one-year $23.5 million revolving
credit facility with TD Bank, N.A. At January 31, 2010 the amount outstanding
under this facility was $9.5 million. 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, 2010.




In July
2005, as amended, the Company entered into a $30 million five-year revolving
credit facility with Wachovia Bank, N.A.  At January 31, 2009, the
balance outstanding under this revolving credit facility amounted to $24.4
million. The credit facility was collateralized by substantially all of the
assets of the Company.  The credit facility contained 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, 2009. This
revolving credit facility was terminated when the Company entered into the
revolving credit facility with TD Bank, N.A. in January 2010.




The
maximum amounts borrowed under the credit facilities during the fiscal years
ended January 31, 2010, 2009 and 2008 were $23,500,000, $28,300,000 and
$9,900,000, respectively, and the weighted average interest rates during the
periods were 3.41%, 3.06% and 5.51%, respectively.




7.  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”) and the
(“2009 Equity Incentive Plan”)




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




Under the
2009 Equity Incentive Plan, the Company has granted up to a maximum of 230,555
restricted stock awards as of January 31, 2010. All of these restricted stock
awards are non-vested at January 31, 2010 (165,725 shares at “baseline”) and
have a weighted average grant date fair value of $8.00. Under the 2006 Equity
Incentive Plan, there are also outstanding as of January 31, 2010 unvested
grants of 2,558 shares under the stock purchase match program and 23,311 shares
under the bonus in stock program. The Company recognizes expense related to
performance-based awards over the requisite service period using the
straight-line attribution method based on the outcome that is
probable.


57




Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





7.
(continued)





As of
January 31, 2010, unrecognized stock-based compensation expense related to
restricted stock awards totaled $1,883,794, consisting of $43,730 remaining
under the 2006 Equity Incentive Plan and $1,844,438 under the 2009 Equity
Incentive Plan, before income taxes, based on the maximum performance award
level, less what has been charged to expense on a cumulative basis through
January 31, 2010, which was set at zero.  Such unrecognized
stock-based compensation expense related to restricted stock awards totaled
$1,325,800 at the baseline performance level. The cost of these non-vested
awards is expected to be recognized over a weighted-average period of three
years.  The board has estimated its current performance level to be at
the zero level, and expenses have been recorded accordingly.  The
performance based awards are not considered stock equivalents for EPS
purposes.




The
Company recognized total stock-based compensation costs of $198,228, $299,935
and $233,261 of which $151,160, $268,391 and $223,261 results from the 2006
Equity Incentive Plan and $47,068, $31,544 and $0 results from the Directors’
Plan for the years ended January 31, 2010, 2009 and 2008, respectively. These
amounts are reflected in selling, general and administrative expenses. The total
income tax benefit recognized for stock-based compensation arrangements was
$54,418, $107,977 and $83,974 for the years ended January 31, 2010, 2009 and
2008, 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 years ended January
31, 2010 and 2009:  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, 2010, 2009 and
2008. During fiscal 2010, 5000 option shares were granted to a new director in
April 2009 and 3,000 option shares (1,000 each) were granted to three directors
in June 2009. During fiscal 2009, 3,000 option shares were granted to three
directors (1,000 each) in June 2008.  No options were granted in
fiscal 2008.




Additional
information with respect to the Directors’ Plan for the fiscal year ended
January 31, 2010 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
                                
                                
                                20,567
                                
                                
                                $
                                13.42
                                
                                
                                
                                2.27Granted
      during FY10
                                
                                
                                8,000
                                
                                
                                
                                6.88
                                
                                
                                
                                
                                
                                
                                $
                                11,200Cancelled
      during FY10
                                
                                
                                (1,000
                                )
                                
                                
                                13.10Exercised
      during FY10
                                
                                
                                (3,267
                                )
                                
                                
                                7.22Outstanding
      and exercisable at end of year
                                
                                
                                24,300
                                
                                
                                $
                                12.11
                                
                                
                                
                                2.34
                                
                                
                                $
                                11,200Weighted-average
      fair value per share of  options granted during:FY10
                                
                                
                                
                                
                                
                                $
                                5.88FY09
                                
                                
                                
                                
                                
                                $
                                10.51FY08
                                
                                
                                
                                
                                
                                
                                N/AReserved
      for future issuance:Directors’
      Plan
                                
                                
                                6,000





58


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





8.  INCOME
TAXES




The
provision for income taxes is based on the following pretax income:




2010
                    
                    
                    2009
                    
                    
                    2008Domestic
                    
                    $
                    (1,208,641
                    )
                    
                    $
                    2,826,365
                    
                    
                    $
                    3,642,522Foreign
                    
                    
                    2,644,294
                    
                    
                    
                    3,236,938
                    
                    
                    
                    1,222,276Total
                    
                    $
                    1,435,653
                    
                    
                    $
                    6,063,303
                    
                    
                    $
                    4,864,798





The
provision for income taxes is summarized as follows:




2010
                    
                    
                    2009
                    
                    
                    2008CurrentFederal
                    
                    $
                    (1,228,449
                    )
                    
                    $
                    1,063,383
                    
                    
                    $
                    1,680,298State
                    
                    
                    (130,339
                    )
                    
                    
                    154,558
                    
                    
                    
                    174,369Foreign
                    
                    
                    447,668
                    
                    
                    
                    904,413
                    
                    
                    
                    343,864(911,120
                    )
                    
                    
                    2,122,354
                    
                    
                    
                    2,198,531Deferred
                    
                    
                    1,316,981
                    
                    
                    
                    (608,519
                    )
                    
                    
                    (624,595
                    )$
                    405,861
                    
                    
                    $
                    1,513,835
                    
                    
                    $
                    1,573,936





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




2010
                  
                  
                  2009
                  
                  
                  2008Statutory
      rate
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %State
      income taxes, net of Federal tax benefit
                  
                  
                  (6.0
                  )%
                  
                  
                  1.7
                  %
                  
                  
                  2.4
                  %Permanent
      differences
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (0.7
                  )%FIN48
      adjustment
                  
                  
                  —
                  
                  
                  
                  (3.4
                  )%
                  
                  
                  —Foreign
      tax rate differential
                  
                  
                  (17.0
                  )%
                  
                  
                  (6.2
                  )%
                  
                  
                  (5.4
                  )%India
      tax credit valuation allowance
                  
                  
                  16.2
                  %
                  
                  
                  —
                  
                  
                  
                  —Restricted
      stock fair market value at vesting per tax compared with grant date per
      books
                  
                  
                  6.2
                  %
                  
                  
                  —
                  
                  
                  
                  —Various
      tax credits
                  
                  
                  (4.7
                  )%
                  
                  
                  —
                  
                  
                  
                  —Other
                  
                  
                  (0.4
                  )%
                  
                  
                  (1.1
                  )%
                  
                  
                  2.0
                  %Effective
      rate
                  
                  
                  28.3
                  %
                  
                  
                  25.0
                  %
                  
                  
                  32.3
                  %




59


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008


8.
(continued)





The tax
effects of temporary differences which give rise to deferred tax assets at
January 31, 2010, 2009 and 2008 are summarized as follows:





2010
                    
                    
                    2009
                    
                    
                    2008Deferred
      tax assetsInventories
                    
                    $
                    902,809
                    
                    
                    $
                    1,204,998
                    
                    
                    $
                    1,120,426Accounts
      receivable
                    
                    
                    9,718
                    
                    
                    
                    37,810
                    
                    
                    
                    17,100Accrued
      compensation and other
                    
                    
                    236,233
                    
                    
                    
                    293,516
                    
                    
                    
                    66,742Depreciation
                    
                    
                    26,935
                    
                    
                    
                    22,304
                    
                    
                    
                    35,666Stock
      based compensation
                    
                    
                    85,555
                    
                    
                    
                    262,502
                    
                    
                    
                    130,000Losses
      in India prior to restructuring
                    
                    
                    —
                    
                    
                    
                    757,102
                    
                    
                    
                    599,779Deferred
      tax assets
                    
                    $
                    1,261,250
                    
                    
                    $
                    2,578,232
                    
                    
                    $
                    1,969,713





Tax
Audit




Effective
February 1, 2007, the Company adopted the new guidance issued by the Financial
Accounting Standards Board (“FASB”) dealing with accounting for uncertainty in
income taxes. This guidance prescribes recognition thresholds that must be met
before a tax position is recognized in the financial statements and provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. Under guidance, an entity may
only recognize or continue to recognize tax positions that meet a "more likely
than not" threshold. The Company recorded the cumulative effect of applying this
guidance as a $419,000 debit to the opening balance retained earnings as of
February 1, 2007, the date of adoption.




The
following table summarized the activity related to our gross unrecognized tax
benefits from February 1, 2007 to January 31, 2009 (in $000):




Accrued
      as of January 31, 2008
                    
                    $
                    439Less
      taxes refundable from1/04 per Company position written off in FY08 as part
      of adjustment to reflect this guidance
                    
                    
                    (162
                    )Balance
      as of January 31, 2008
                    
                    $
                    277Payments
      made to settle the liability
                    
                    
                    (70
                    )Reduction
      in tax expense in FY09 to reflect settlement with IRS
                    
                    
                    (207
                    )Uncertain
      tax liability at January 31, 2009
                    
                    $
                    0




There was
no activity in this account and the uncertain tax liability at January 31, 2010
was $0.




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




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


60


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008


8. (continued)




On July
23, 2008, the Company reached a settlement with the IRS regarding its
examination of the Company’s federal  income tax returns for taxable
years ended January 31, 2003, 2004 and 2005.




The
Company agreed with the IRS to settle the audit for the amount of
$91,000, which includes interest of $24,000. The impact of this
settlement results in an additional state tax liability of $12,000, which
includes interest of $3,000.  The settlement also resulted in the Company
recording a deferred tax asset of $28,000.  Accordingly, the Company
reported a reduction in income tax expense of $207,000 for this
transaction in its second quarter report for July 31, 2008. An audit of the
fiscal year ended January 2007 has been completed by the IRS. The Company has
received a final “No Change Letter” from the IRS for FY07.




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




Lakeland
Protective Wear, Inc., our Canadian subsidiary, follows Canada tax regulatory
framework recording its tax expense and tax deferred assets or liabilities. The
Company has never been audited by the Canada tax authority. As of this statement
filing date, we believe the Company’s tax situation is reasonably stated, and we
do not anticipate future tax liability.




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




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





9.  BENEFIT
PLANS





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
$107,153, $238,207 and $216,283 in the years ended January 31, 2010, 2009 and
2008, respectively. During FY10, the Company suspended the company
match.


61


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





10.  MAJOR
SUPPLIER




The
Company purchased approximately 11.3%, 46.4% and 62.0% of its raw materials from
one supplier under licensing agreements for the years ended January 31, 2010,
2009 and 2008, respectively. We expect the nature of the relationship to change
to buying finished goods from DuPont as opposed to raw material and becoming a
master distributor. Required similar raw materials could be purchased from other
sources although the Company’s competitive position in the marketplace could be
affected.




11.  COMMITMENTS
AND CONTINGENCIES




Employment
Contracts




The
Company has employment contracts with seven principal officers expiring through
January 31, 2012.  Pursuant to such contracts, the Company is
committed to aggregate annual base remuneration of $720,000 and $355,000 for the
fiscal years ended January 31, 2011 and 2012, respectively.




Three of
such contracts provide for bonuses based on reported EPS for the fiscal year
2010. There were no such bonuses for FY10.




The
Company has employment contracts with the four principal sellers of Qualytextil,
S.A. who have remained with Qualytextil, S.A. as managers. All four contracts
expire December 31, 2011 and call for aggregate base compensation of
approximately $R1.1 million (USD $0.6 million).




Leases




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 April 1, 2009 through March 31, 2011 with a 5% yearly increase in
rental rate.




The
Company believes that all rents paid to Harvey Pride, Jr. by the Company are
comparable to what would be charged by an unrelated party, as three different
rent fairness appraisals were performed in 1999, 2002 and 2004.  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, 2010, 2009 and 2008
amounted to $18,900, $18,000 and $18,000, respectively.




In the
fiscal year ended January 31, 2009, Qualytextil, S.A., in connection with the
expansion needed to accommodate the importation and sales of Lakeland branded
products in Brazil, has signed several leases for additional warehousing,
corporate and sales space in Salvador, Rio de Janiero and Sao Paulo, aggregating
approximately 16,000 square feet at an aggregate annual rental of approximately
$157,000, with expiration dates ranging from March 2011 to October
2013.




In July
2005, as part of the acquisition of Mifflin Valley Inc. (merged into Lakeland
Industries, Inc. on September 1, 2006) the Company entered into a five-year
lease with Michael Gallen (an employee) to lease an 18,520 sq. ft. manufacturing
facility in Shillington, PA for $55,560 annually or a per square foot rental of
$3.00 with an annual increase of 3.5%.  This amount was obtained prior
to the acquisition from an independent appraisal of the fair market rental value
per square foot.  In addition, the Company, commencing January 1,
2006, is renting 12,000 sq. ft. of warehouse space in a second location in
Pennsylvania from this employee, on a month-by-month basis, for the monthly
amount of $3,350 or $3.35 per square foot annually.  Mifflin Valley
utilizes the services of Gallen Insurance (an affiliate of Michael & Donna
Gallen) to provide certain insurance in Pennsylvania.  Such payments
for insurance aggregated of approximately $45,000, $40,000 and $34,000 in fiscal
2010, 2009 and 2008, respectively.


62


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





11.
(continued)




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




Gross rental
                  
                  
                  Rentals paid to
                    related partiesYear
      ended January 31,2010
                  
                  $
                  633,769
                  
                  
                  $
                  127,0802009
                  
                  $
                  550,513
                  
                  
                  $
                  117,8552008
                  
                  $
                  566,845
                  
                  
                  $
                  167,904




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, 2010, including lease renewals subsequent to
year end, are summarized as follows:




Year ending January 31,2011
                  
                  $
                  597,2982012
                  
                  
                  454,9732013
                  
                  
                  382,0622014
                  
                  
                  129,015





Real
Estate Purchases




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. 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 (Canadian) 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 (Canadian) of the term loan is guaranteed by the parent
Company.




A
five-year commitment schedule for this is as follows:





Year ended January 31, 2010
                      Canadian2011
                    
                    $
                    93,6012012
                    
                    
                    93,6012013
                    
                    
                    93,6012014
                    
                    
                    93,6012015
                    
                    
                    93,601


63


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008




11.
(continued)




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.




Canadian
Customs Audit




In August
2009, Canadian customs authorities commenced a NAFTA verification audit.
Management believes this audit will be closed without incident.




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 July 31, 2007 at
an annual rental of $121,224.  Mr. Guzman was acting as a contractor
for our Mexican facility both before and following his employment with the
Company.  His company, Intermack, enabled our Mexican facility to
increase or decrease production as required without the Company needing to
expand its facility.  During fiscal 2010, 2009 and 2008, Lakeland de
Mexico paid Intermack $0, $0 and $518,968, respectively, for services relating
to contract production.




Earthquake
in Chile – Subsequent Event




In late
February 2010, there were very severe earthquakes in Chile. All of our employees
are safe. There was little damage to our inventory although our leased warehouse
has structural damage which the landlord is repairing. Although there is a
disruption in the sales, including problems with local communications and
transportation, management believes there will not be a material negative impact
on its operations as a result of the earthquakes and the aftermath.




12.DERIVATIVE
INSTRUMENTS AND FOREIGN CURRENCY EXPOSURE




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




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




Interest
Rate Risk Management




We are
exposed to interest rate risk from debt. We had hedged against the risk of
changes in the interest rate associated with our variable rate revolving credit
(see Note 6) by entering into a variable-to-fixed interest rate swap agreement,
designated as fair value hedges, with a total notional amount of $18 million as
of January 31, 2009. We assumed no hedge ineffectiveness as each interest rate
swap meets the short-cut method requirements under U.S. GAAP for fair value
hedges of debt instruments. As a result, changes in the fair value of the
interest rate swaps were offset by changes in the fair value of the debt. Both
were reported in interest and other income and, net gain or loss is recognized
in earnings. This was bought out in January 2010.


64


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008




12.
(continued)




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




January 31, 2010
                          
                          
                          January 31, 2009Unrealized
      gains:Foreign
      currency exchange contracts
                          
                          
                          —
                          
                          
                          
                          —Unrealized
      (losses):Foreign
      currency exchange contracts
                          
                          
                          —
                          
                          
                          
                          —Interest
      rate swaps
                          
                          
                          —
                          
                          
                          $
                          (627,380
                          )




There
were no derivatives outstanding as of January 31, 2010.


65


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008




13.  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, Jerez, Mexico and Salvador,
Brazil facilities 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:





2010
                            
                            
                            2009
                            
                            
                            2008Net
    Sales:North
      America and other foreign
                            
                            $
                            75,274,796
                            
                            
                            $
                            92,408,341
                            
                            
                            $
                            97,922,742China
                            
                            
                            19,473,004
                            
                            
                            
                            22,182,628
                            
                            
                            
                            14,823,755India
                            
                            
                            824,083
                            
                            
                            
                            489,755
                            
                            
                            
                            132,350Brazil
                            
                            
                            13,173,777
                            
                            
                            
                            8,383,726
                            
                            
                            
                            —Less
      inter-segment sales
                            
                            
                            (14,604,841
                            )
                            
                            
                            (21,196,325
                            )
                            
                            
                            (17,138,779
                            )Consolidated
      sales
                            
                            $
                            94,140,819
                            
                            
                            $
                            102,268,125
                            
                            
                            $
                            95,740,068Operating
      Profit:North
      America and other foreign
                            
                            $
                            21,288
                            
                            
                            $
                            2,890,601
                            
                            
                            $
                            3,262,062China
                            
                            
                            2,578,057
                            
                            
                            
                            3,071,886
                            
                            
                            
                            2,082,988India
                            
                            
                            (852,335
                            )
                            
                            
                            (845,791
                            )
                            
                            
                            (624,042
                            )Brazil
                            
                            
                            298,374
                            
                            
                            
                            1,469,542
                            
                            
                            
                            —Less
      intersegment profit
                            
                            
                            412,123
                            
                            
                            
                            (313,928
                            )
                            
                            
                            262,466Consolidated
      operating profit
                            
                            $
                            2,457,507
                            
                            
                            $
                            6,272,310
                            
                            
                            $
                            4,983,474Identifiable
      Assets:North
      America and other foreign
                            
                            $
                            53,233,159
                            
                            
                            $
                            70,302,861
                            
                            
                            $
                            76,306,269China
                            
                            
                            14,133,006
                            
                            
                            
                            13,270,793
                            
                            
                            
                            9,904,174India
                            
                            
                            3,875,781
                            
                            
                            
                            4,351,075
                            
                            
                            
                            (1,587,590
                            )Brazil
                            
                            
                            18,778,435
                            
                            
                            
                            13,689,989
                            
                            
                            
                            —Consolidated
      assets
                            
                            $
                            90,020,381
                            
                            
                            $
                            101,614,718
                            
                            
                            $
                            84,622,853Depreciation:North
      America and other foreign
                            
                            $
                            790,555
                            
                            
                            $
                            830,314
                            
                            
                            $
                            665,182China
                            
                            
                            320,999
                            
                            
                            
                            286,773
                            
                            
                            
                            352,009India
                            
                            
                            420,141
                            
                            
                            
                            365,262
                            
                            
                            
                            169,649Brazil
                            
                            
                            167,580
                            
                            
                            
                            134,612
                            
                            
                            
                            —Consolidated
      depreciation
                            
                            $
                            1,699,275
                            
                            
                            $
                            1,616,961
                            
                            
                            $
                            1,186,840


66


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


January
31, 2010, 2009 and 2008





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




1/31/10
                    
                    
                    10/31/09
                    
                    
                    7/31/09
                    
                    
                    4/30/09Net
      sales
                    
                    $
                    24,831
                    
                    
                    $
                    22,285
                    
                    
                    $
                    23,049
                    
                    
                    $
                    23,976Cost
      of sales
                    
                    
                    17,329
                    
                    
                    
                    16,629
                    
                    
                    
                    16,812
                    
                    
                    
                    17,965Gross
      profit
                    
                    
                    7,502
                    
                    
                    
                    5,656
                    
                    
                    
                    6,237
                    
                    
                    
                    6,011Net
      income
                    
                    $
                    1,115
                    
                    
                    $
                    (190
                    )
                    
                    $
                    8
                    
                    
                    $
                    97Basic
      and diluted income per commonShareBasic
                    
                    $
                    0.20
                    
                    
                    $
                    (0.03
                    )
                    
                    $
                    0.00
                    
                    
                    $
                    0.02Diluted
                    
                    $
                    0.20
                    
                    
                    $
                    (0.03
                    )
                    
                    $
                    0.00
                    
                    
                    $
                    0.021/31/09
                    
                    
                    10/31/08
                    
                    
                    7/31/08
                    
                    
                    4/30/08Net
      sales
                    
                    $
                    22,263
                    
                    
                    $
                    25,160
                    
                    
                    $
                    27,565
                    
                    
                    $
                    27,280Cost
      of sales
                    
                    
                    16,304
                    
                    
                    
                    17,989
                    
                    
                    
                    19,404
                    
                    
                    
                    20,602Gross
      profit
                    
                    $
                    5,959
                    
                    
                    $
                    7,171
                    
                    
                    $
                    8,161
                    
                    
                    $
                    6,678Net
      income
                    
                    $
                    659
                    
                    
                    $
                    1,373
                    
                    
                    $
                    1,625
                    
                    
                    $
                    893Basic
      and diluted income per commonshare*:ShareBasic
                    
                    $
                    0.12
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.16Diluted
                    
                    $
                    0.12
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.30
                    
                    
                    $
                    0.16





15.  FRAUD
INVOLVING CHINA PLANT MANAGER




In
October 2008, a senior manager in charge of one of the Company’s plants in China
was terminated. He has been charged by Chinese authorities with selling
non-woven fabric waste from garment production over the last eight years and
personally keeping the proceeds. Such proceeds amount to approximately
RMB4,000,000 (approximately USD $580,000) which the Company has recovered. Such
proceeds allegedly originated periodically over the last eight years and were
not significant in any one year. The Company has completed negotiations with
Chinese government agencies regarding income tax, fine and interest at $81,000
and $169,000, respectively. The Company is still negotiating with customs
authorities and has reserved $163,000 as custom duties and fines. A net pretax
total of $247,000 is reported as other income, and $81,000 is reported as income
tax expense in association with this matter for the fiscal year ended January
31, 2009.




Further,
the Company had been searching for an additional building to expand its China
operations. In May 2008, this senior manager steered the Company into purchasing
a building only five miles from our existing plants in AnQui City. The Company
agreed to purchase this building for RMB4.2 million (approximately USD
$614,000). This senior manager was an undisclosed owner of this building.
Further, a forged land lease was also issued. The Company has unwound this
transaction and has received the return in full of the RMB4.2 million it paid in
Q3 for this building. The Company also negotiated a four-year lease for this
property, which will be reflected as prepaid rent for the RMB1.5 million spent
by the Company for improvements.




16.  OTHER
INCOME




In 2003
and 2004, one of the Company’s China subsidiaries reserved RMB1,399,000 (USD
$204,000) out of which RMB901,000 (USD $132,000) was reserved for workers social
benefits, and RMB498,000 (USD $72,000) was reserved for potential liabilities.
This resulted in cash returned by a previous employee who was terminated in
2004. Upon inquiries with the local government agencies, we concluded that we
are no longer liable for these items. As a result, we reported the equivalent of
RMB1,399,000 (USD $204,000) as other income for the year ended January 31,
2009.


67




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, 2010Allowance
      for doubtful accounts (a)
                                                          
                                                          $
                                                          104,500
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          95,700
                                                          
                                                          
                                                          $
                                                          200,200Allowance
      for slow moving inventory
                                                          
                                                          
                                                          657,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          211,000
                                                          
                                                          
                                                          $
                                                          868,000Year
      ended January 31, 2009Allowance
      for doubtful accounts (a)
                                                          
                                                          $
                                                          45,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          59,500
                                                          
                                                          
                                                          $
                                                          104,500Allowance
      for slow moving inventory
                                                          
                                                          $
                                                          607,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          50,000
                                                          
                                                          
                                                          $
                                                          657,000Year
      ended January 31, 2008Allowance
      for doubtful accounts (a)
                                                          
                                                          $
                                                          103,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          (58,000
                                                          )
                                                          
                                                          $
                                                          45,000Allowance
      for slow moving inventory
                                                          
                                                          $
                                                          306,000
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          301,000
                                                          
                                                          
                                                          $
                                                          607,000





(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
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, 2010. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on their evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of January 31, 2010 to
ensure them that information relating to the Company (including our consolidated
subsidiaries) required to be included in our reports filed or submitted under
the Exchange Act are recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
Our Chief Executive Officer and Chief Financial Officer have concluded that we
do not have a material weakness over financial reporting as of January 31,
2010.




Management’s
Report on Internal Control over Financial Reporting




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




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


68




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




In
response to the fraud in China (as fully explained in Note 15 to the
consolidated financial statements) and the material weakness identified at
October 31, 2008, we have initiated a China Internal Control Committee. Such
Committee reviews, examines and evaluates China operating activities, and plans,
designs and implements internal control procedures and policies. The Committee
reports to the Chief Financial Officer. In particular, the Committee focuses
on:  strengthening controls over waste/scrap sales, upgrading local
accounting manager authority and responsibility, and creating new banking and
inventory controls.




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




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




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




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




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




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




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




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




69




Changes
in Internal Control over Financial Reporting


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




ITEM
9B. OTHER INFORMATION




None




PART III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




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,
2010. 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
                    
                    71
                    
                    Chairman
      of the Board of DirectorsChristopher
      J. Ryan
                    
                    58
                    
                    Chief
      Executive Officer, President, Secretary, General Counsel and
      DirectorGary
      Pokrassa
                    
                    62
                    
                    Chief
      Financial OfficerGregory
      D. Willis
                    
                    53
                    
                    Executive
      Vice PresidentHarvey
      Pride, Jr.
                    
                    63
                    
                    Senior
      Vice President - ManufacturingPaul
      C. Smith
                    
                    43
                    
                    Vice
      PresidentGregory
      D. Pontes
                    
                    49
                    
                    Vice
      President - ManufacturingCharles
      D. Roberson
                    
                    49
                    
                    Vice
      President – International SalesPhillip
      L. Willingham
                    
                    52
                    
                    Vice
      President - MISJohn
      J. Collins
                    
                    67
                    
                    DirectorEric
      O. Hallman
                    
                    66
                    
                    DirectorA.
      John Kreft
                    
                    59
                    
                    DirectorStephen
      M. Bachelder
                    
                    59
                    
                    DirectorDuane
      W. Albro
                    
                    63
                    
                    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 November 30,
2003.  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 has served as a director
since 1982, and his term as a director will expire at our annual meeting of
stockholders in 2010 and is up for re-election.




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 2011. 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, between
1983-1991, respectively. Mr. Ryan served as a Director of Lessing, Inc. from
1995-2008, a privately held restaurant chain based in New York. Mr. Ryan
received his BA from Stanford University, 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
40 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).


70




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.




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.




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.




Charles D. Roberson has
served as Vice President – International Sales since March 2009.  Mr.
Roberson joined Lakeland in 2004 as Technical Marketing Manager and later served
as International Sales Manager.  Prior to joining Lakeland Mr. Roberson was
employed by Precision Fabrics Group, Inc. as a Market Manager from 1995-2001 and
as a Nonwovens Manufacturing Manager from 1991-1995.  He began his career
as a manufacturing manager for Burlington Industries, Inc. in its Menswear
Division from 1985-1991.




Phillip L. Willingham has
served as Vice President of MIS since January of 2009. He served as our IT
Manager from 2000-2008. Prior to joining Lakeland, Mr. Willingham worked at the
Chrysler Corporation as a Systems Analyst from 1986-2000.




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 2012.




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 2012.




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 received his MBA from the Wharton School of Business in 1975. 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 in June
2011.




Stephen M. Bachelder was with
Swiftview, Inc., a Portland, Oregon based software company, from 1999-2007 and
President from 2002-2007. 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 2012.




Duane W. Albro currently
serves as President and Chief Executive Officer of Warwick Valley Telephone Co.
Through his early career, he served in executive and operational management
capacities of increasing responsibility in the telecommunications industry for
companies including New York Telephone, NYNEX and Bell Atlantic. He has also
served in senior executive positions in the wireless cell phone refurbishing
industry at Refinish LP; in the cable TV industry at Cablevision Systems Corp;
and in the competitive telecommunications industry at Net2000
Communications.  He has been an active advocate for the use of technology
in education having served on a White House Advisory Council on Technology in
Education and provided testimony to Congress on the benefits of technology used
in education. He has also served on the boards of several recognized
universities and foundations, has participated in various philanthropic
endeavors and economic development initiatives. He is a member of American Mensa
Society and holds an MBA degree from New York Institute of Technology. Mr. Albro
has served as a director since April 2009 and his term as a director will expire
at our Annual Meeting of Stockholders in 2010.


71




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. Kreft, Hallman and Collins, chaired by Mr. Kreft. 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. Albro, Bachelder and Collins,
chaired by Mr. Albro. There is also a Nominating Committee comprised solely of
independent directors that consists of Messrs. Bachelder, Albro and Kreft,
chaired by Mr. Bachelder.




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 $1,500 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. 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 AND RELATED
      STOCKHOLDER MATTERS




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, AND DIRECTOR
      INDEPENDENCE




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 through 2008. This lease was
renewed on April 1, 2008 at the same rental rate of $18,000 for FY09 with 5%
increments for FY10 and FY11.




In July
2005, as part of the acquisition of Mifflin Valley Inc. (merged into Lakeland
Industries, Inc. on September 1, 2006), the Company entered into a five-year
lease with Michael Gallen (an employee) to lease an 18,520 sq. ft. manufacturing
facility in Shillington, PA for $55,560 annually or a per square foot rental of
$3.00 with an annual increase of 3.5%.  This amount was obtained prior
to the acquisition from an independent appraisal of the fair market rental value
per square foot.  In addition, the Company, commencing January 1,
2006, is renting 12,000 sq. ft. of warehouse space in a second location in
Pennsylvania from this employee, on a month-by-month basis, for the monthly
amount of $3,350 or $3.35 per square foot annually.  Mifflin Valley
utilizes the services of Gallen Insurance (an affiliate of Michael and Donna
Gallen) to provide certain insurance in Pennsylvania.  Such payments
for insurance aggregated  approximately $5,500, $4,000 and $6,000 in
fiscal 2010, 2009 and 2008, respectively.




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





PART IV





ITEM
15.      EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES




(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 (See page 68 of this report)




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.




3.
Exhibits:





Exhibit
                                                                      
                                                                      Description3.1
                                                                      
                                                                      Restated
      Certificate of Incorporation of Lakeland Industries, Inc., as amended,
      (Incorporated by reference to Exhibit 3.1 of Lakeland Industries, Inc.’s
      Form 8-K, dated April 15, 2008)3.2
                                                                      
                                                                      Bylaws
      of Lakeland Industries Inc., as amended (Incorporated by reference to
      Exhibit 3.2 of Lakeland Industries, Inc.’s Form 8-K, dated April 15,
      2008)10.1
                                                                      
                                                                      Amendment
      dated February 1, 2007 to the original lease Agreement, dated August 1,
      2001, between Southwest Parkway, Inc., as lessor, and Lakeland Industries,
      Inc., as lessee  (Incorporated by reference to Exhibit 10.1 of
      Lakeland Industries, Inc. Form 10-K for fiscal year ended January 31, 2008
      filed April 14, 2008)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))10.5
                                                                      
                                                                      Employment
      Agreement, dated April 13, 2008, between Lakeland Industries, Inc. and
      Christopher J. Ryan. (filed herein)10.6
                                                                      
                                                                      Lease
      Agreement, dated April 1, 2008, amendment to the original lease Agreement,
      dated March 1, 2004, between Harvey Pride, Jr., as lessor, and Lakeland
      Industries, Inc., as lessee for the property at 201 Pride Lane, Decatur,
      Al. (Incorporated by reference to Exhibit 10.6 of Lakeland Industries,
      Inc. Form 10-K for fiscal year ended January 31, 2009 filed April 15,
      200910.9
                                                                      
                                                                      Employment
      Agreement, dated May 1, 2009, between Lakeland Industries, Inc. and Paul
      C. Smith (Incorporated by reference to Exhibit 10.9 of Lakeland
      Industries, Inc. Form 10-K for fiscal year ended January 31, 2009 filed
      April 15, 2009)10.10
                                                                      
                                                                      Employment
      Agreement, dated January 31, 2010, between Lakeland Industries, Inc. and
      Gary Pokrassa, CPA.  (Incorporated by reference to exhibit 10.1
      of Lakeland Industries, Inc. Form 8-K filed January 15,
    2010)10.11
                                                                      
                                                                      Employment
      Agreement, dated April 16, 2007, between Lakeland Industries Inc. and
      Gregory D. Willis (filed herein)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)
  73
  10.13
                                                                      
                                                                      Lease
      Agreement, dated January 1, 2010, between Carlos Tornquist Bertrand, as
      lessor, and Lakeland Industries, Inc., as lessee for Lakeland Chile (filed
      herein)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
                                                                      
                                                                      Modification
      letter dated January 15, 2010 modifying the original Lease Agreement,
      dated November 10, 2008, between Mifflin Management, as Landlord, and
      Lakeland Industries, Inc., as Tenant, for the property at 312 Hendel
      Street, Shillington, PA (filed herein)10.16
                                                                      
                                                                      Employment
      Agreement, dated December 1, 2008, between Lakeland Industries, Inc. and
      Phillip Willingham (Incorporated by reference to Exhibit 10.16 of Lakeland
      Industries, Inc. Form 10-K for fiscal year ended January 31, 2009 filed
      April 15, 2009)10.17
                                                                      
                                                                      Lease
      Agreement dated September 1, 2009 between LIK 5 Ballow LLC, as lessor, and
      Lakeland Industries, Inc., as lessee for Art Prom, LLC in Kazakhstan
      (filed herein)10.18
                                                                      
                                                                      Lease
      Agreement Extension letter dated December 23, 2009, extending the original
      lease dated February 5, 2007, between Gotham Enterprises & Affiliates,
      LLC, as lesssor, and Lakeland Industries, Inc., as lessee for Industrias
      Lakeland S.A. de C.V in Mexico. (filed herein)10.19
                                                                      
                                                                      Lease
      Agreement, dated August 19, 2009, between Acrilicos Palopoli S.A, as
      lessor and Lakeland Argentina, SRL, as lessee (filed
    herein)10.20
                                                                      
                                                                      Lease
      Agreement, dated June 2, 2009, between Beijing Yeshi Enterprise Group Co.,
      Ltd, as lessor, and Lakeland (Beijing) Safety Products Limited, as lessee.
      (filed herein)14.1
                                                                      
                                                                      Amendment
      dated February 13, 2009 to the Lakeland Industries, Inc. Code of Ethics
      (Incorporated by reference to Exhibit 14.1 of Lakeland Industries, Inc.
      Form 10-K for fiscal year ended January 31, 2009 filed April 15,
      2009)21.1
                                                                      
                                                                      Subsidiaries
      of Lakeland Industries, Inc. (wholly-owned):
                                                                        
                                                                        Lakeland
      Protective Wear, Inc.
                                                                        Lakeland
      Protective Real Estate
                                                                        Industrias
      Lakeland 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
      Glove and Safety Apparel Private Ltd.
                                                                        Lakeland
      Industries, Inc. Agencia en Chile
                                                                        Lakeland
      Japan, Inc.
                                                                        Qualytextil,
      S.A.
                                                                        Lakeland
      Argentina, SRL
                                                                        Art
      Prom, LLC
                                                                        Lakeland
      (Beijing) Safety Products, Co., Ltd.
                                                                        Lakeland
      (Hong Kong) Trading Co., Ltd.23.1
                                                                      
                                                                      Consent
      of Warren, Averett, Kimbrough & Marino, LLC, Independent Registered
      Public Accounting Firm23.2
                                                                      
                                                                      Consent
      of Holtz, Rubenstein, Reminick LLP, 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.




74




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 Section 18 U.S.C. Section 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 Section 18 U.S.C.
      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.




75





_________________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
16, 2010


LAKELAND
      INDUSTRIES, INC.By:
                / s / Christopher J.
RyanChristopher
      J. Ryan,Chief
      Executive Officerand
      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
      16, 2010Raymond
      J. Smith/s/ Christopher J. Ryan
                                          
                                          Chief
      Executive Officer, President,
                                          
                                          April
      16, 2010Christopher
      J. Ryan
                                          
                                          General
      Counsel, Secretary and Director/s/ Gary Pokrassa
                                          
                                          Chief
      Financial Officer
                                          
                                          April
      16, 2010Gary
      Pokrassa/s/ Eric O. Hallman
                                          
                                          Director
                                          
                                          April
      16, 2010Eric
      O. Hallman/s/ John J. Collins, Jr
                                          
                                          Director
                                          
                                          April
      16, 2010John
      J. Collins, Jr./s/ John Kreft
                                          
                                          Director
                                          
                                          April
      16, 2010John
      Kreft/s/ Stephen M. Bachelder
                                          
                                          Director
                                          
                                          April
      16, 2010Stephen
      M. Bachelder/s/ Duane W. Albro
                                          
                                          Director
                                          
                                          April
      16, 2010Duane
      W. Albro


76