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, 2009


OR


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


For the
transition period from _____________ to ______________




Commission
File Number: 0 – 15535





LAKELAND INDUSTRIES,
INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
            13-3115216(State
      or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
      Employer Identification No.)701
      Koehler Ave., Suite 7, Ronkonkoma, NY
            11779(Address
      of Principal Executive Offices)
            (Zip
      Code)





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





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


Common
Stock $0.01 Par Value


(Title
of Class)


Name
of Exchange on which listed - NASDAQ


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


Not
Applicable





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


Yeso    No
x


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


Yes o   No  x


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


Yes x  No o


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


Yesx    Noo


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





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





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


Yeso   No
x


As of
July 31, 2008, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $54,940,120 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 13, 2009Common
      Stock, $0.01 par value per share
                  
                  5,397,466





1


DOCUMENTS
INCORPORATED BY REFERENCE





Document
                
                Parts Into Which
    IncorporatedAnnual
      Report to Stockholders for the Fiscal Year
                
                Parts  [I,
      II, and IV]Ended
      January 31, 2009 (Annual Report)





Portions
of the proxy statement for the annual meeting of stockholders to be held on June
17, 2009, are incorporated by reference into Part III.











2


LAKELAND
INDUSTRIES, INC.


INDEX
TO ANNUAL REPORT ON FORM 10-K


PART
      1:Cautionary Statement regarding Forward-Looking
      Information
                PageItem
      1        BusinessOverview
                4Industry
      Overview
                5International and Domestic Standards
                6Industry
      Consolidation
                7Business
      Strategy
                7Our
      Competitive Strengths
                9Products
                11Quality
                15Marketing and Sales
                15Research and Development
                16Suppliers and Materials
                16Internal Audit
                16Competition
                17Seasonality
                17Patents
      and Trademarks
                17Employees
                17Environmental Matters
                17Available Information
                18Item
      1A
                Risk
      Factors
                18Item
      1B
                Unresolved Staff Comments
                25Item
      2
                Properties
                26Item
      3
                Legal
      Proceedings
                28Item
      4
                Submission of Matters to a Vote of Security
      Holders
                29PART
      II:Item
      5
                Market
      for the Registrant’s Common Stock and Related Stockholder
      Matters
                30Item
      6
                Selected Financial Data
                32Item
      7
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                33Item
      7A
                Quantitative and Qualitative Disclosure about Market
      Risk
                41Item
      8
                Financial Statements and Supplementary
      Data
                42Item
      9
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                73Item
      9A
                Controls and Procedures
                73Item
      9B
                Other
      Information
                75PART
      III:Item
      10
                Directors and Executive Officers of the
      Registrant
                76Item
      11
                Executive Compensation
                78Item
      12
                Security Ownership of Certain Beneficial Owners and
      Management
                78Item
      13
                Certain
      Relationships and Related Transactions
                78Item
      14
                Principal Accounting Fees and
    Services
                78PART
      IV:Item
      15
                Exhibits, Financial Statement Schedules and Reports on Form
      8-K
                79Signatures
                82Certification
      under Exchange Act Rules 13a – 14(b) and 15d- 14(b)
                86
  3
 Index








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





PART I





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





ITEM
1.  BUSINESS


Overview





We
manufacture and sell a comprehensive line of safety garments and accessories for
the industrial protective clothing market. Our products are sold by our in-house
customer service group, our regional sales managers and independent sales
representatives to a network of over 1000 safety and mill supply distributors.
These distributors in turn supply end user industrial customers such as
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 2009, we had net sales of $102.3 million.
Our net sales attributable to customers outside the United States were $11.5
million, $13.0 million and $25.6 million, in fiscal 2007, fiscal 2008 and fiscal
2009, 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.




4
 Index







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




Gloves and Arm Guards.  We manufacture gloves and arm guards from Kevlar®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 hand and arms from lacerations and heat
without sacrificing manual dexterity or comfort.




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




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




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




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 38 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.




5
 Index







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




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




Since
2001, federal and state purchasing of industrial protective clothing and federal
grants to fire departments have increased demand for industrial protective
clothing to protect first responders against actual or threatened terrorist
incidents. Specific events such as the anthrax letters incidents in 2001, the
2002 U.S. Winter Olympics, the SARS epidemic in 2003, the ricin letter incidents
in 2004, the spread of Avian Flu and Hurricane Karina in 2006 have also resulted
in increased peak demand for our products. In 2008 the Department of Homeland
Security (DHS) budgeted $2.3 billion to six various grant programs that allow
states and cities to fund response capabilities through planning, organization,
equipment
(including the chemical protective suits we sell) and training and exercise
activities. These include the “Urban Areas Security Initiative” ($781,630,000),
the “State Homeland Security Program” ($862,925,000), The “Metropolitan Medical
Response System Program” ($39,831,500), The “Commercial Equipment Direct
Assistance Program” ($33,700,000), and the “Chemical Stockpile Emergency
Preparedness Program (budget not published), and the “Hospital Emergency
Preparedness Program” ($450,000,000). Although the 2009 DHS budget is not out
yet, the above programs are expected to exceed $3 billion for 2009, 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 increases.
Complex and changing international standards play to Lakeland’s strengths when
compared to smaller manufacturers.




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




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




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




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




6
 Index







Industry Consolidation




The
industrial protective clothing industry 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.  Lakeland anticipates that this will be a temporary
respite as stronger distributors will be in a good position to acquire smaller,
heavily leveraged distributors as the market begins to
recover.   Smaller, financially distressed, distributors that
cannot attract buyers will likely go out of business leaving their customers to
the remaining distributors.  In either case the end result equates to
continued consolidation at the distributor level.




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: Our sales in our older
      United Kingdom operations grew by 18% in 2009, 34.6% in fiscal 2008, 46.6%
      in 2007 and 55.9% in 2006. We expect our newer operations in Chile, China,
      and India to ramp up sales on a similar basis to our UK
      operations.  We also acquired Qualytextil, a Brazilian
      manufacturer with FY08 sales of $10.0 million and revenue growth in the
      last year of 57% and sales of $8.4 million for the nine months in FY09 in
      which we owned Qualytextil and annualized growth in sales in local
      currency of 20%. 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.




7
 Index


·
            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, natural Latex and Neoprene
      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.




·
            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.




8
 Index







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.




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




·
            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 58,945 square feet
      in New Delhi, India where we are producing nitrile, latex and neoprene
      gloves which were sold in South America in FY09.  We have
      entered the North American and European markets in spring 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.




·
            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.




9
 Index


·
            Experienced Management
      Team. We have an experienced management team. Our executive
      officers, other than the CFO, average greater than 22 years of experience
      in the industrial protective clothing market. The knowledge, relationships
      and reputation of our management team helps us maintain and build our
      customer base.












10
 Index


Products







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









Product
      Line
                  Raw
      Material
                  Protection
      Against
                  End
      MarketLimited
      use/disposable protective clothing
                  ·Tyvek®
      and laminates of Polyethylene, Spunlaced Polyester, SMS, Polypropylene,
      and Company Micromax, Micromax NS, ChemMax 1, ChemMax 2, Pyrolon®,
      and other non-woven fabrics
                  ·Contaminants, irritants, metals, chemicals, fertilizers,
      pesticides, acids, asbestos, PCBs, lead, dioxin and many other hazardous
      chemicals
                    ·Viruses and bacteria (AIDS, streptococcus, SARS and
      hepatitis)
                  ·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
                    ·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 rescue(1)Gloves
      and arm guards
                    Nitrogard
      Lite
                  ·Kevlar®
      yarns
                    ·Kevlar®
      wrapped steel core yarns
                    ·Spectra®
      yarns
                    ·Composite engineered yarns
                    ·Nitrile, latex, 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(1)
      Industrial grade Nitrile, Latex, Neoprene and other combinations thereof
      were be added to our product line in the spring of 2009 resulting from the
      acquisition of an Indian glove facility.  These industrial
      gloves are used to protect workers from hazardous chemicals and will
      complement our line of cut resistant Kevlar, and Spectra string knit
      gloves, along with our hazardous chemical line of coveralls.


11
 Index








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, our China facilities, warehouses in Las Vegas, NV and Shillington, PA.
The fabric is cut and sewn into required patterns at our 4 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 customer.




We
presently utilize one international contractor under an agreement that is
terminable at will by either party. In fiscal 2009, no independent sewing
contractor accounted for more than 5% of our production of limited
use/disposable garments. We believe that we can obtain adequate alternative
production capacity should any of our independent contractors become
unavailable.




12
 Index







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




High-End
Chemical Protective Suits




We
manufacture heavy-duty chemical suits made from DuPont TyChem® QC, SL,
F, BR and TK, fabrics and our proprietary ChemMax® 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 and $547 million for 2007, $560
million for 2008 and $500-600 million for 2009. 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 is where we
expect to see future garment sales.




Fire
Fighting and Heat Protective Apparel




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




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




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




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




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




Our fire
suits range in price from $850 for standard fire department turn out gear to
$2,000 for certain fire proximity suits. Approximately 15% of our heat
protective clothing is currently manufactured at our facility in St. Joseph,
Missouri, 7% 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 in order to compliment our US
lines.




13
 Index





Gloves
and Arm Guards




We
manufacture and sell specially designed gloves and arm guards made from
Kevlar®, a cut
and heat resistant material produced by DuPont, Spectra®, a cut
resistant fiber made by Honeywell and 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 Alabama and Mexican
facilities, and we are shifting lower cost yarn production to our China
facilities. We completed our shift of glove production to Mexico last year and
will continue shifting more to our Chinese facilities and our Indian glove
facility in this fiscal year and next fiscal year.  Foreign production
will allow lower fabric and labor costs.




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




In FY10
we will be combining the Indian made chemically resistant line of gloves to
further broadening 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.




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.




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.


14
 Index


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).





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




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
andSales


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. During fiscal 2009, no one single
distributor accounted for 5% or more of our net sales.




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




15
 Index


Internationally,
we employ an in-house sales force of 44 people and utilize 32 independent sales
representatives who primarily sell directly to end users. Therefore, 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 nitrile, latex, rubber, neoprene and mixed compounded gloves made in our new
India facility, 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 2007, 2008 and 2009, we spent approximately
$100,000, $359,000 and $321,000, 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 2009, we purchased approximately
48.5% of the dollar value of our materials from DuPont, and Tyvek®
constituted approximately 35% of our cost of goods sold and 58% of the dollar
value of our raw material purchases.  We believe our relationship with
DuPont to be good and 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.




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




16
 Index







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 20 Trademarks and have 9 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.




Employees


As of
March 31, 2009, we had approximately 2,238 full time employees, 2,028, or 91.0%,
of whom were employed in our international facilities and 210, or 9.0%, of whom
were employed in our domestic facilities. An aggregate of 1,500 of our employees
are members of unions. We are not currently a party to any collective bargaining
agreements. We believe our employee relations to be excellent.  We
presently have no contracts with these unions.




Environmental Matters


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




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


17
 Index








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. RiskFactors


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 some of its own products which
compete directly with our products.  As a result, there can be no
assurance that we will be able to acquire Tyvek®, TyChem® and other raw
materials and components at competitive prices or on competitive terms in the
future.  For example, certain materials that are high profile and in
high demand may be allocated by vendors to their customers based upon the
vendors’ internal criteria, which are beyond our control, in times of
shortage.




In fiscal 2009, we purchased
approximately 48.5% of the dollar value of our raw materials from DuPont, and
Tyvek® constituted approximately 35% 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




18
 Index


·
            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 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 $7.0 million in
fiscal 2009.  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 $25.6 million USD, in fiscal 2009.  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.”






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 may
accelerate our growth in the personal protective equipment
market.  These acquisitions involve various risks, including:
difficulties in integrating these companies’ operations, technologies, and
products, the risk of diverting management’s attention from normal daily
operations of the business; potential difficulties in completing projects
associated with in-process research and development; risks of entering markets
in which we have limited experience and where competitors in such markets have
stronger market positions; initial dependence on unfamiliar supply chains; and
insufficient revenues to offset increased expenses associated with these
acquisitions.




19
 Index


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 mange growth
efficiently and effectively or are unable to attract and retain additional
qualified management personnel, our business, financial condition and results of
operations could be materially and adversely affected.







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




Our performance is substantially
dependent on the continued services and performance of our senior management and
certain other key personnel, including Christopher J. Ryan, our chief executive
officer, president, general counsel and secretary, Gary Pokrassa, our chief
financial officer, who has 38 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 22 years and an average of 25 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.




20
 Index


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 25% of our net
sales from customers located in foreign countries in fiscal 2009.  We
intend to increase the amount of foreign sales we make in the
future.  The additional risks of foreign sales include:




·
            Potential
      adverse fluctuations in foreign currency exchange
  rates;




·
            Higher
      credit risks;




·
            Restrictive
      trade policies of foreign
governments;




·
            Currency
      nullification and weak banking
institutions;




·
            Changing
      economic conditions in local
markets;




·
            Political
      and economic instability in foreign markets;
and




·
            Changes
      in leadership of foreign
governments.


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





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


We
currently have one credit facility;


·
            A
      five year, $30 million revolving credit facility which commenced July
      2005, of which we had $24.4 million of borrowings outstanding as of
      January 31, 2009.




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.




21
 Index


Our operations require significant
amounts of cash, and we may be required to seek additional capital, whether from
sales of equity or by borrowing money, to fund acquisitions, for the future
growth and development of our business or to fund our operations and inventory,
particularly in the event of a market downturn.  Although we have the
ability until July 7, 2010 to borrow additional sums under our $30 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 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.







Environmental
laws and regulations may subject us to significant liabilities.




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









22
 Index


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.




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 13, 2009, our directors and
executive officers beneficially owned approximately 20.6% 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 13, 2009,
Raymond J. Smith, our chairman of the board,




23
 Index


and
Christopher J. Ryan, our chief executive officer, president, general counsel and
secretary and a director, beneficially owned approximately 9.77% and 7.52% 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 re-evaluated frequently. Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles. We have documented and tested our internal controls and
procedures for compliance with Section 404 of the Sarbanes-Oxley Act of
2002, or the Sarbanes-Oxley Act, which requires annual management assessment of
the effectiveness of our internal control over financial reporting and a report
by our independent auditors on our internal control over financial reporting.
Both we and our independent auditors will be testing our internal controls in
connection with the audit of our financial statements for the year ending
January 31, 2009 and, as part of that documentation and testing,
identifying areas for further attention and improvement.





Based
upon an evaluation performed as of January 31, 2009 and throughout fiscal 2009,
we and our independent registered public accounting firm identified several
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
inter-company profit in inventory and the inadequate review of inventory cutoff
procedures and financial statement reconciliations from one of our China
subsidiaries.  The material weakness which related to the elimination
of inter-company profit in inventory resulted from properly designed controls
that did not operate as intended due to human error. The material weakness that
resulted in the inventory cut-off error was as a result of the improper
reconciliation of the conversion of one of our China subsidiaries’ financial
statements from Chinese GAAP to U.S. GAAP. We engaged a CPA firm in China to
assist management in this conversion, and the Chinese CPA firm’s review as well
as management’s final review did not properly identify the error in the
reconciliation. These control deficiencies resulted in audit adjustments to our
January 31, 2008 financial statements and could have resulted in a misstatement
to cost of sales that would have resulted in a material misstatement to the
annual and interim financial statements if not detected and
prevented.


24
 Index


Effective
in full at October 31, 2008, management has taken primary responsibility to
prepare the US GAAP financial reporting based on China GAAP financial
statements. This function was previously performed by outside accountants in
China. Further, US 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 US corporate internal audit department
and who will work closely with US 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 17 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 –Other than the China Internal Control Committee
discussed above, there have been no other changes in Lakeland Industries, Inc.’s
internal control over financial reporting during the fourth quarter of fiscal
2009 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.







ITEM 1B: UNRESOLVED STAFF COMMENTS




None.




25
 Index





ITEM2.
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
            
            $120,000
            
            3/31/10
              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
      WarehousingLakeland
      Industries, Inc.
              Headquarters
              701-7
      Koehler Avenue
              Ronkonkoma,
      NY 11779
            
            6,250
            
            Owned
            
            N/A
            
            Administration
              Studio
              Sales





26
 Index





Address
            
            Estimated
                Square
                Feet
            
            Annual
      Rent
            
            Lease
      Expiration
            
            Principal
      ActivityLakeland
      Industries, Inc.
              202
      Pride Lane
              Decatur,
      AL 35603
            
            91,788
            
            Owned
            
            N/A
            
            Manufacturing
      Administration Engineering WarehousingLakeland
      Industries, Inc.
              3420
      Valley Ave.
              Decatur,
      AL 35603
            
            49,500
            
            Owned
            
            N/A
            
            Warehousing
      AdministrationLakeland
      Industries, Inc.
              (Harvey
      Pride, Jr. – officer- related
              party)
              201
      Pride Lane, SW
              Decatur,
      AL 35603
            
            2,400
            
            $18,000
            
            3/31/11
            
            Sales
              AdministrationLakeland
      Industries, Inc.
              3428
      Pride Lane
              Decatur,
      AL 35603
            
            7,000
            
            $21,000
            
            08/08/09
            
            WarehouseLakeland
      Industries Europe Ltd.
              Wallingfen
      Park
              236
      Main Road
              Newport,
      East Yorkshire
              HU15
      2RH U United Kingdom
            
            4,550
            
            Approximately
              $57,000
      (varies with
              exchange
      rates)
            
            1/31/11
            
            Warehouse
              SalesLakeland
      Industries, Inc.
              1100
      Park Road
              Blandon,
      PA 19510
            
            12,000
            
            $36,000
              (Leased
      from D.
              Gallen
      an employee)
            
            Month
      to Month
            
            WarehouseLakeland
      Industries, Inc.
              31
      South Sterley Street
              Shillington,
      PA 19607
            
            18,520
            
            $55,560
              (Leased
      from M.
              Gallen
      an employee)
            
            7/31/10
            
            Manufacturing
              Warehouse,
      Sales
              AdministrationLakeland
      Industries, Inc.
              312
      Hendle Street
              Shillington,
      PA 19607
            
            3520
            
            $9,600
            
            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
              WarehouseLakeland
      Industries Inc., Agencia En
              Chile
              Los
      Algarrobos no 2228
              Comuna
      de Santiago
              Código
      Postal 8361401
              Santiago,
      Chile
            
            542
            
            $13,000
            
            03/01/10
            
            Warehouse
              Sales





27
 Index





Address
            
            Estimated
                Square
                Feet
            
            Annual
      Rent
            
            Lease
      Expiration
            
            Principal
      ActivityQualytextil,
      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.
              Cardeal
      Avelar B Billela Street, lots
              11/12
      Granjas Rurais
              Presidente
      Vargas, Pirajá
              Salvador,
      Bahia
              Brazil
            
            11,840
            
            $50,480
            
            10/22/10
            
            Distribution
      CenterQualytextil,
      S.A.
              Rui
      Barbosa Street, 2237  - Store 09
              Imbetiba,
      Macaè, Rio de Janeiro,
              Brazil
            
            1,259
            
            12,626
            
            03/01/10
            
            StoreQualytextil,
      S.A.
              Passos
      da Patria Street, 971
              Sao
      Paulo, Brazil
            
            1,300
            
            17,683
            
            03/24/11
            
            Corporate
              ApartmentLakeland
      Asia Pacific
              D08,
      11/F, Block A
              Gateway
      Square, No. 18 Xiaguangli
              North
      Road, East Third Ring
              Beijing,
      PRC
            
            1184
            
            $20,256
            
            10/15/09
            
            Sales







(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 37 years and 42 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.




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; and
Santiago, Chile are primarily sales and warehousing operations receiving goods
for resale from our manufacturing facilities around the world. We had $3.68
million, $3.85 million and $4.22 million of gross long-lived fixed assets,
located in China and $0.85 million, $0.86 million and $0.0 of long-lived assets
located in Mexico as of January 31, 2006, 2007 and 2008.




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.




28
 Index







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





None.











29
 Index


PART
II





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





Our
common stock is currently traded on the Nasdaq Global Market under the symbol
“LAKE”. The following table sets forth for the periods indicated the high and
low sales prices for our common stock as reported by the Nasdaq National
Market.




Price
      Range of
                  Common
      StockHigh
              
              
              LowFiscal
      2010First
      Quarter (through April 13, 2009)
              
              $
              8.66
              
              
              $
              5.03Fiscal
      2009First
      Quarter
              
              $
              13.38
              
              
              $
              9.62Second
      Quarter
              
              $
              13.62
              
              
              $
              11.60Third
      Quarter
              
              $
              14.00
              
              
              $
              8.38Fourth
      Quarter
              
              $
              11.25
              
              
              $
              5.90Fiscal
      2008First
      Quarter
              
              $
              14.94
              
              
              $
              13.07Second
      Quarter
              
              
              14.13
              
              
              
              12.67Third
      Quarter
              
              
              14.00
              
              
              
              11.25Fourth
      Quarter
              
              
              12.02
              
              
              
              9.73


Holders




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




On April
13, 2009 the last reported sale price of our common stock on the Nasdaq National
Market was $6.96 per share. As of April 13, 2009, 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.




30
 Index







Equity
Compensation Plans




The
following table sets forth certain information regarding Lakeland’s equity
compensation plans as of January 31, 2009.




Plan
      Category
                Number
      of securities to be
                  issued
      upon exercise of
                  outstanding
      options,
                  warrants
      and rights (1)
                Weighted-average
      exercise
                  price
      per share of
                  outstanding
      options,
                  warrants
      and rights (1)
                Number
      of securities
                  remaining
      available for
                  future
      issuance under
                  equity
      compensation plans
                  (excluding
      securities
                  reflected
      in column (a)(1))Equity
      Compensation plans approved by security holders
                (a)
                (b)
                (c)Restricted
      stock grants-employees
                30,415
                $0
                101,585Restricted
      stock grants-directors
                12,320
                $0
                31,680Matching
      award program
                7,541
                $0
                25,459Bonus
      in stock program-employees
                11,346
                $0
                21,654Retainer
      in stock program-directors
                1,296
                $0
                9,704Total
      Restricted Stock Plans
                62,918
                $0
                190,082





(1) At
minimum levels


31
 Index





ITEM
6.SELECTED
CONSOLIDATED FINANCIAL DATA





The
following selected consolidated financial data as of and for our fiscal years
2005, 2006, 2007, 2008 and 2009  have been derived from our audited
consolidated financial statements, which have been audited by  Holtz
Rubenstein Reminick LLP. 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 31,2005
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2009(in
      thousands, except share and per share data)Income
      Statement Data:Net
      sales
                  
                  $
                  95,320
                  
                  
                  $
                  98,740
                  
                  
                  $
                  100,171
                  
                  
                  $
                  95,740
                  
                  
                  $
                  102,268Costs
      of goods sold
                  
                  
                  74,924
                  
                  
                  
                  74,818
                  
                  
                  
                  75,895
                  
                  
                  
                  73,383
                  
                  
                  
                  74,299Gross
      profit
                  
                  
                  20,396
                  
                  
                  
                  23,922
                  
                  
                  
                  24,276
                  
                  
                  
                  22,357
                  
                  
                  
                  27,969Operating
      expenses:Selling
      and shipping
                  
                  
                  7,871
                  
                  
                  
                  8,301
                  
                  
                  
                  9,473
                  
                  
                  
                  9,291
                  
                  
                  
                  10,931General
      and administrative
                  
                  
                  4,871
                  
                  
                  
                  6,119
                  
                  
                  
                  8,081
                  
                  
                  
                  8,083
                  
                  
                  
                  10,766Total
      operating expenses
                  
                  
                  12,742
                  
                  
                  
                  14,420
                  
                  
                  
                  17,554
                  
                  
                  
                  17,374
                  
                  
                  
                  21,697Operating
      profit
                  
                  
                  7,654
                  
                  
                  
                  9,502
                  
                  
                  
                  6,722
                  
                  
                  
                  4,984
                  
                  
                  
                  6,272Other
      income (expense):Interest
      expense
                  
                  
                  (207
                  )
                  
                  
                  (167
                  )
                  
                  
                  (356
                  )
                  
                  
                  (330
                  )
                  
                  
                  (828
                  )Interest
      income
                  
                  
                  18
                  
                  
                  
                  49
                  
                  
                  
                  20
                  
                  
                  
                  66
                  
                  
                  
                  125Gain
      on Pension Plan Liquidation
                  
                  
                  -----
                  
                  
                  
                  -----
                  
                  
                  
                  353
                  
                  
                  
                  -----
                  
                  
                  
                  -----Other
      income
                  
                  
                  98
                  
                  
                  
                  384
                  
                  
                  
                  191
                  
                  
                  
                  145
                  
                  
                  
                  494Total
      other income (expense)
                  
                  
                  (91
                  )
                  
                  
                  266
                  
                  
                  
                  208
                  
                  
                  
                  (119
                  )
                  
                  
                  (209
                  )Income
      before minority interest
                  
                  
                  7,563
                  
                  
                  
                  9,768
                  
                  
                  
                  6,930
                  
                  
                  
                  4,865
                  
                  
                  
                  6,063Minority
      interest in net income of variable interest entities
                  
                  
                  494
                  
                  
                  
                  -----
                  
                  
                  
                  -----
                  
                  
                  
                  -----
                  
                  
                  
                  -----Income
      before income taxes
                  
                  
                  7,069
                  
                  
                  
                  9,768
                  
                  
                  
                  6,930
                  
                  
                  
                  4,865
                  
                  
                  
                  6,063Income
      tax expenses
                  
                  
                  2,053
                  
                  
                  
                  3,439
                  
                  
                  
                  1,826
                  
                  
                  
                  1,574
                  
                  
                  
                  1,514Net
      Income
                  
                  $
                  5,016
                  
                  
                  $
                  6,329
                  
                  
                  $
                  5,104
                  
                  
                  $
                  3,291
                  
                  
                  $
                  4,549Net
      income per common share (Basic)(1)
                  
                  $
                  1.02
                  
                  
                  $
                  1.15
                  
                  
                  $
                  0.92
                  
                  
                  $
                  0.60
                  
                  
                  $
                  0.84Net
      income per common share (Diluted)(1)
                  
                  $
                  1.02
                  
                  
                  $
                  1.15
                  
                  
                  $
                  0.92
                  
                  
                  $
                  0.59
                  
                  
                  $
                  0.83Weighted
      average common shares outstanding(1)Basic
                  
                  
                  4,918,856
                  
                  
                  
                  5,518,751
                  
                  
                  
                  5,520,881
                  
                  
                  
                  5,522,751
                  
                  
                  
                  5,435,829Diluted
                  
                  
                  4,924,638
                  
                  
                  
                  5,524,076
                  
                  
                  
                  5,527,618
                  
                  
                  
                  5,542,245
                  
                  
                  
                  5,475,104Balance
      Sheet Data (at period end):Current
      assets
                  
                  $
                  55,128
                  
                  
                  $
                  63,719
                  
                  
                  $
                  62,114
                  
                  
                  $
                  70,269
                  
                  
                  $
                  78,363Total
      assets
                  
                  
                  60,314
                  
                  
                  
                  72,464
                  
                  
                  
                  74,198
                  
                  
                  
                  84,623
                  
                  
                  
                  101,615Current
      liabilities
                  
                  
                  4,152
                  
                  
                  
                  3,839
                  
                  
                  
                  4,326
                  
                  
                  
                  4,997
                  
                  
                  
                  7,452Long-term
      liabilities
                  
                  
                  1,695
                  
                  
                  
                  7,829
                  
                  
                  
                  3,813
                  
                  
                  
                  10,753
                  
                  
                  
                  25,851Stockholders’
      equity
                  
                  
                  54,467
                  
                  
                  
                  60,796
                  
                  
                  
                  66,059
                  
                  
                  
                  68,873
                  
                  
                  
                  68,311


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




32
 Index





Repurchase
of Securities


We repurchased  our Common
Stock during our fiscal year ending January 31, 2009. The Company initiated a
stock repurchase program on February 21, 2008 and has repurchased 125,822
shares as of April 13, 2009.





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





Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations




You
should read the following summary together with the more detailed business
information and consolidated financial statements and related notes that appear
elsewhere in this Form 10-K and Annual Report and in the documents that we
incorporate by reference into this Form 10-K. This document may contain certain
“forward-looking” information within the meaning of the Private Securities
Litigation Reform Act of 1995. This information involves risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements.




Overview





We
manufacture and sell a comprehensive line of safety garments and accessories for
the 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 $11.5 million, $13.0 million and $25.6
million in fiscal 2007, fiscal 2008 and fiscal 2009, respectively.




Our North
American sales of Tyvek declined approximately 26.3% for the four years ended
January 31, 2009. 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 36% decline in this segment in the USA in Q4 as a result of the
weak U.S. economy which remains weak.  This loss in volume was absorbed yet
we had a moderate increase on our ultimate margins, as a result of cost cutting,
aggressive purchasing and price increases.





There was
a strike of Brazilian customs workers from mid-March to mid-May, 2008. This
delayed many orders due to delays of imported raw materials. April sales were
significantly lower than normal. May sales included this additional backlog from
April. Since the acquisition was effective as of May 1, the revenue and profits
included in the quarter ending July 31, 2008 were higher than would otherwise
have occurred. Management estimates the benefit to May revenue and net income as
approximately $402,000 and $160,000, respectively, or $0.03 earnings per
share.





Our cost
of goods sold was impacted in Q1 and Q2 by the cost of material purchased in
FY08 which lacked rebates. This material was charged to our cost of goods sold
under strict FIFO accounting at the end of Q1 and the beginning of Q2, after
which we have had a smooth flow of material costs. We expect that distributors
will not continue to stock inventory at historical levels as economic conditions
in the United States continue to remain weak. However, a large percentage of our
net sales are driven in part by government funding and health-related events.
Our net sales attributable to chemical suits decreased 1% in the year ended
January 31, 2009 compared to the year ended January 31, 2008. These flat sales
decreases were due primarily to a lull in government spending utilizing Homeland
Defense funds and delays by state and local governmental purchasers in spending
their Bio-Terrorism funds.  These governmental sales are driven
primarily by grants from the federal government under the Fire Act of 2002 and
the Bio Terrorism Preparedness and Response Act of 2002 as administered by the
Department of Homeland Security.





We have
operated manufacturing facilities in Mexico since 1995 and in China since 1996.
Beginning in 1995, we moved the labor intensive sewing operation for our limited
use/disposable protective clothing lines to these facilities. Our facilities and
capabilities in China and Mexico allow access to a less expensive labor pool
than is available in the United States and permit us to purchase certain raw
materials at a lower cost than they are available domestically. As we
have


33
 Index


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 2009. 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 has aggregated approximately $500,000 pretax.  This restructuring has
allowed for lower occupancy and labor costs and a more efficient production
configuration, for this year FY09.





We
anticipate R&D expenses will increase again in FY 2010, to $350,000, as we
aggressively pursue new products for the international market and seek CE
certifications for existing products so that they may be sold
internationally.  Lakeland’s R&D activity increased significantly in
the 4th quarter
as several development activities were identified as having potential
significant sales revenue generation in FY 2010 provided they can be
commercialized by the end of the 2nd quarter
2010.  In addition to short term development activities described
previously, Lakeland has also initiated longer term R&D projects of a more
strategic nature.  While these activities are not expected to account for a
significant portion of R&D expenses in FY 2010, they are additional expenses
and should they be successful, will require more significant funding in
subsequent years.





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




Valuation of Goodwill and Other
Intangible Assets.On February 1, 2002, we adopted Statement of Financial
Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,”
which provides that goodwill and other intangible assets are no longer
amortized, but are assessed for impairment annually and upon occurrence of an
event that indicates impairment may have occurred. Goodwill impairment is
evaluated utilizing a two-step process as required by SFAS No. 142. Factors that
we consider important that could identify a potential impairment
include:  significant




34
 Index


underperformance
relative to expected historical or projected future operating results;
significant changes in the overall business strategy; and significant negative
industry or economic trends. When we determine that the carrying value of
intangibles and goodwill may not be recoverable based upon one or more of these
indicators of impairment, we measure any potential impairment based on a
projected discounted cash flow method.  Estimating future cash flows
requires our management to make projections that can differ materially from
actual results.




In August
2005 we purchased Mifflin Valley, a manufacturing facility in
Pennsylvania.  This purchase resulted in the recording of $871,297 in
goodwill as of January 31, 2006. In May 2008, we purchased Qualytextil, S.A in
Brazil. See Note 4 for a further discussion of resulting goodwill.




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 set forth our historical results of operations for the years
ended January 31, 2007, 2008 and 2009 as a percentage of our net
sales.




Year
      Ended January 31,2007
                        
                        
                        2008
                        
                        
                        2009Net
      sales
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %Cost
      of goods sold
                        
                        
                        75.8
                        %
                        
                        
                        76.6
                        %
                        
                        
                        72.7
                        %Gross
      profit
                        
                        
                        24.2
                        %
                        
                        
                        23.4
                        %
                        
                        
                        27.3
                        %Operating
      expenses
                        
                        
                        17.5
                        %
                        
                        
                        18.1
                        %
                        
                        
                        21.2
                        %Operating
      profit
                        
                        
                        6.7
                        %
                        
                        
                        5.2
                        %
                        
                        
                        6.1
                        %Interest
      expense, net
                        
                        
                        .4
                        %
                        
                        
                        (0.1
                        %)
                        
                        
                        .2
                        %Income
      tax expense
                        
                        
                        1.8
                        %
                        
                        
                        1.6
                        %
                        
                        
                        1.5
                        %Net
      income
                        
                        
                        5.1
                        %
                        
                        
                        3.4
                        %
                        
                        
                        4.4
                        %





Significant
Balance Sheet fluctuation January 31, 2009 as compared to January 31,
2008





Balance Sheet
Accounts.  The decrease in cash and cash equivalents of $ .7
million is primarily the result of normal fluctuations in cash management. The
increase in borrowings of $15.5 million under the revolving credit agreement is
principally due to the borrowing in May 2008 to fund the acquisition of
Qualytextil, S.A. in Brazil, as well as an increase in inventories of $9.0
million as we took advantage of discounts in purchasing of raw materials from
our major supplier. We have built raw material reserves due to an anticipated
increase in the cost of these raw materials.  Plant property and
equipment increased mainly as a result of the Brazil acquisition.





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


35
 Index


growth of
$3.0 million in China, domestic, Asia Pacific Rim and other external sales, $.6
million in Europe, $2.5 million in increased reflective sales in the US, $.1
million increased sales of chemical protection clothing in the US, $.5 million
increase in Chile, and $.4 million increase in India. These growth areas were
offset by decreases in sales of $7.7 million in US disposables, $.3 million in
US gloves, $1.0 million in US wovens, and $.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:





o
            $2.9
      million operating costs in the acquired Brazilian operations not in
      previous year.


o
            $0.4
      million in additional freight out costs excluding Brazil, resulting from
      higher rates prevailing in most of FY09, due to higher fuel
      surcharges.


o
            $0.4
      million in additional sales salaries, commissions and administrative
      salaries resulting from expanded sales
staff.


o
            $0.3
      million in additional costs resulting from the proxy contest earlier in
      FY09.


o
            $0.2
      million in additional international travel expenses and sales meetings,
      that tracked international sales
growth.


o
            $0.1
      million in additional advertising and printing
  costs.


o
            $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.


o
            $0.1
      million in additional currency fluctuation
costs


o
            $0.1
      million in additional computer
expenses


o
            $0.1
      million in other taxes – mainly property taxes on the Canada warehouse
      opened in December 2007.


o
            $(0.1)
      million in reduced medical insurance costs resulting from favorable
      experience


o
            $(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.





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 ending 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 $.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 $.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 $.06 million, or 3.8%, to
$1.51 million for the year ended January 31, 2009 from $1.57 million for the
year


36
 Index


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.








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





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





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





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





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





o
            ($0.25)
      million miscellaneous net expense
decreases.


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


37
 Index


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


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


o
            $0.09
      million in share-based
compensation.


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


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





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





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





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





Income Tax
Expense.  Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $.25 million, or 13.8%, to
$1.6 million for the year ended January 31, 2008 from $1.8 million for the year
ended January 31, 2007.  Our effective tax rate was 32.3% and 26.3%
for the year ended January 31, 2008 and 2007, respectively.  Our
effective tax rate varied from the federal statutory rate of 34% due primarily
to lower foreign tax rates.





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





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, 2009 we had cash and cash equivalents of $2.8 million and working
capital of $70.9 million, a decrease of $.7 million and an increase $5.6
million, respectively, from January 31, 2008. 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 $1.6 million for the year ended January 31,
2009 was due primarily to net income of $4.5 million, offset by an increase in
inventories of $5.7 million. Net cash used in operations for the year ended
January 31, 2008 of $2.1 million was primarily due to net income of $3.3 million
and an increase in inventories of $7.7 million.




38
 Index


Net cash
used in investing activities of $16.2 million and $3.4 million in the years
ended January 31, 2009 and 2008, respectively, was due to the acquisition of
Qualytextil in 2009 and  purchases of real estate, property and
equipment, the construction of new facilities in Canada in FY08 and the
acquisitions of the India facility. Net cash used in and provided by financing
activities in the years ended January 31, 2009 and 2008 was primarily
attributable to an increased borrowing under our credit facilities primarily to
fund the Qualytextil acquisition in FY09, and primarily by borrowings to fund
increased inventory levels in FY08, respectively.




Credit Facilities




We
currently have one credit facility:




·
            A
      five year, $30 million revolving credit facility, of which we had
      borrowings outstanding as of January 31, 2009 amounting to $24.4
      million




Our $30 million revolving credit facility expires
on July 31, 2010.  Borrowings under this revolving credit facility
bear interest at the London Interbank Offering Rate (LIBOR) plus 70 basis points
and were 1.02% at January 31, 2009. As of January 31, 2009, we had $5.6 million
of borrowing availability under this revolving credit facility. Of the amount
outstanding, $18 million is covered by an interest rate swap executed in
September 2008. The interest on this amount was 3.66% at January 31,
2009.




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, 2009, we were in compliance with all covenants contained in
our credit facilities.




We
believe that our current cash position of $2.8 million, our cash flow from
operations along with borrowing availability under our $30 million revolving
credit facility will be sufficient to meet our currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.




Capital Expenditures




Our
capital expenditures principally relate to purchases of manufacturing equipment,
computer equipment, and leasehold improvement, as well as payments related to
the expansion of our facilities 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 primarily computer
equipment and apparel manufacturing equipment




Contractual
Obligations


We
had no off-balance sheet arrangements at January 31, 2009. As shown below, at
January 31, 2009, our contractual cash obligations totaled approximately $26.9
million, including lease renewals entered into subsequent to January 31,
2009.









Payments
      Due by PeriodTotal
              
              
              Less
      than
                  1
      Year
              
              
              1-3
      Years
              
              
              4-5
      Years
              
              
              After
      5 YearsCanada
      facility loan
              
              $
              1,544,000
              
              
              $
              82,000
              
              
              $
              246,000
              
              
              $
              164,000
              
              
              $
              1,052,000Operating
      leases
              
              
              876,000
              
              
              
              84,000
              
              
              
              600,000
              
              
              
              192,000
              
              
              
              -----Other
      liabilities
              
              
              75,000
              
              
              
              -----
              
              
              
              75,000
              
              
              
              -----
              
              
              
              -----Revolving
      credit facility
              
              
              24,408,000
              
              
              
              -----
              
              
              
              24,408,000
              
              
              
              ----
              
              
              
              -----Total
              
              $
              26,903,000
              
              
              $
              166,000
              
              
              $
              25,329,000
              
              
              $
              356,000
              
              
              $
              1,052,000





39
 Index





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.




Effects
of Recent Accounting Pronouncements





In June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FAS No. 109, “Accounting for Income
Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax
benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination. If the tax
position is deemed “more-likely-than-not” to be sustained, the tax position is
then assessed to determine the amount of benefit to recognize in the financial
statements.  The amount of the benefit that may be recognized is the
largest amount that has a greater than 50 percent likelihood of being realized
upon ultimate settlement.  We adopted FIN No. 48 effective as of
February 1, 2007.




In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles.  FAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value
measurements.  FAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments
that require retrospective application.  FAS No. 157 did not have a
material impact on our financial position and results of
operations.




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





Statement
of Financial Accounting Standards No. 141(R), Business Combinations(“Statement 141(R)”), was issued in December 2007. Statement 141
(R) requires that upon initially obtaining control, an acquirer will
recognize 100% of the fair values of acquired assets, including goodwill, and
assumed liabilities, with only limited exceptions, even if the acquirer has not
acquired 100% of its target. Additionally, contingent consideration arrangements
will be fair valued at the acquisition date and included on that basis in the
purchase price consideration and transaction costs will be expensed as incurred.
Statement 141(R) also modifies the recognition for preacquisition contingencies,
such as environmental or legal issues, restructuring plans and acquired research
and development value in purchase accounting. Statement 141(R)


40
 Index


amends
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,
to require the acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination either in
income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. Statement 141(R) is
effective for fiscal years beginning after December 15, 2008. Adoption is
prospective and early adoption is not permitted. We adopted Statement 141
(R) on February 1, 2009. Statement 141R’s impact on accounting for
business combinations is dependent upon future acquisitions.





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





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




ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Foreign
Currency Risk





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




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




Our
primary risk from foreign currency exchange rate changes is presently related to
non-U.S. dollar denominated sales in 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. At this time, we do not manage the foreign currency risk through
the use of derivative instruments. A 10% decrease in the value of the U.S.
dollar relative to foreign currencies would increase the landed costs of our
products into the U.S., but would make our selling price for international sales
more attractive with respect to foreign currencies.  As non-U.S.
dollar denominated international purchases and sales grow, exposure to
volatility in exchange rates could have a material adverse impact on our
financial results.














41
 Index


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, but of
which $18 million is subject to an interest rate swap with the benchmark fixed
at 2.96%. At January 31, 2009, we had $24.4 million in borrowings outstanding
under this credit facility. If the interest rate applicable to this variable
rate debt rose 10% in the year ended January 31, 2009, 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.Report
      of Independent Registered Public Accounting Firm
              43Consolidated
      Balance Sheets - January 31, 2009 and 2008
              45Consolidated
      Statements of Income for the years ended
              46January
      31, 2009, 2008 and 2007Consolidated
      Statement of Stockholders' Equity for the years ended
              47January
      31, 2009, 2008 and 2007Consolidated
      Statements of Cash Flows for the years ended
              48January
      31, 2009, 2008 and 2007Notes
      to Consolidated Financial Statements
              49
      to 72Schedule
      II – Valuation and Qualifying Accounts
              73





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.





42
 Index








Report
of Independent Registered Public Accounting Firm








Board of
Directors and Stockholders


Lakeland
Industries, Inc. and Subsidiaries


Ronkonkoma,
New York





We have
audited the accompanying consolidated balance sheets of Lakeland Industries,
Inc. and Subsidiaries (the "Company" or “Lakeland”) as of
January 31, 2009 and 2008 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years in the
three year period ended January 31, 2009. We have also audited the schedule
listed in Item 15(a)(2) of this Form 10-K for the years ended
January 31, 2009, 2008 and 2007. We have also audited Lakeland’s
internal control over financial reporting as of January 31, 2009,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Lakeland's management is responsible for these consolidated financial statements
and schedule, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying "Management's Report on Internal
Control over Financial Reporting" in Item 9A. Our responsibility is to
express an opinion on these consolidated financial statements and the schedule,
and an opinion on the company's internal control over financial reporting based
on our audits.





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





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





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. Management has
identified a material weakness in relation to its operations in China,
specifically relating to inadequate controls over the sale or disposal of
inventory scrap or waste units and controls over the proceeds from such sales.
We considered this material weakness in determining the nature, timing, and
extent of audit tests applied in our audit of the consolidated financial
statements, as of, and for the year ended January 31, 2009, and our opinion
regarding the effectiveness of Lakeland's internal control over financial
reporting does not affect our opinion on those consolidated financial
statements.





In our
opinion, because of the material weakness identified above on the achievement of
the objectives of the internal control criteria, Lakeland did not maintain
effective internal control over financial reporting as of January 31, 2009,
based on criteria established in Internal Control - Integrated
Frameworkissued by COSO.


43
 Index


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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Lakeland Industries,
Inc. and Subsidiaries as of January 31, 2009 and 2008 and the results of its
operations and its cash flows for each of the years in the three year
period 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





44
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED BALANCE
SHEETS





2009
                  
                  
                  2008AssetsCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  2,755,441
                  
                  
                  $
                  3,427,672Accounts
      receivable, net of allowance for doubtful accounts of $104,500 and
      $45,000 at January 31, 2009 and 2008, respectively
                  
                  
                  13,353,430
                  
                  
                  
                  14,927,666Inventories,
      net of reserves of $657,000 and $607,000 at January 31, 2009 and 2008,
      respectively
                  
                  
                  57,074,028
                  
                  
                  
                  48,116,173Deferred
      income taxes
                  
                  
                  2,578,232
                  
                  
                  
                  1,969,713Prepaid
      income tax
                  
                  
                  531,467
                  
                  
                  
                  -----Other
      current assets
                  
                  
                  2,070,825
                  
                  
                  
                  1,828,210Total
      current assets
                  
                  
                  78,363,423
                  
                  
                  
                  70,269,434Property
      and equipment, net
                  
                  
                  13,736,326
                  
                  
                  
                  13,324,648Intanglibles
      and other assets, net
                  
                  
                  4,405,833
                  
                  
                  
                  157,474Goodwill
                  
                  
                  5,109,136
                  
                  
                  
                  871,297Total
      assets
                  
                  $
                  101,614,718
                  
                  
                  $
                  84,622,853Liabilities
      and Stockholders' EquityCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  3,853,890
                  
                  
                  $
                  3,312,696Accrued
      compensation and benefits
                  
                  
                  3,069,409
                  
                  
                  
                  406,501Other
      accrued expenses
                  
                  
                  434,809
                  
                  
                  
                  1,183,660Current
      maturity of long term debt
                  
                  
                  94,000
                  
                  
                  
                  94,000Total
      current liabilities
                  
                  
                  7,452,108
                  
                  
                  
                  4,996,857Borrowings
      under revolving credit facility
                  
                  
                  24,408,466
                  
                  
                  
                  8,871,000Construction
      loan payable (net of current maturity of $94,000)
                  
                  
                  1,368,406
                  
                  
                  
                  1,882,085Other
      liabilities
                  
                  
                  74,611
                  
                  
                  
                  -----Total
      liabilities
                  
                  
                  33,303,591
                  
                  
                  
                  15,749,942Commitments
      and contingenciesStockholders’
      equityPreferred
      stock, $.01 par; 1,500,000 shares authorized; none issuedCommon
      stock, $.01 par; 10,000,000 shares authorized; 5,523,288 shares issued
      and outstanding at January 31, 2009 and 2008,
    respectively
                  
                  
                  55,233
                  
                  
                  
                  55,233Less
      treasury stock, at cost, 107,317 shares at January 31, 2009 and 0
      shares at January 31, 2008
                  
                  
                  (1,255,459
                  )
                  
                  
                  -----Additional
      paid-in capital
                  
                  
                  49,511,896
                  
                  
                  
                  49,211,961Retained
      earnings
                  
                  
                  24,191,258
                  
                  
                  
                  19,641,790Other
      comprehensive loss
                  
                  
                  (4,191,801
                  )
                  
                  
                  (36,073
                  )Total
      stockholders' equity
                  
                  
                  68,311,127
                  
                  
                  
                  68,872,911Total
      liabilities and stockholders' equity
                  
                  $
                  101,614,718
                  
                  
                  $
                  84,622,853





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


45
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF
INCOME





2009
                
                
                2008
                
                
                2007Net
      sales
                
                $
                102,268,125
                
                
                $
                95,740,068
                
                
                $
                100,170,942Cost
      of goods sold
                
                
                74,298,935
                
                
                
                73,382,713
                
                
                
                75,895,066Gross
      profit
                
                
                27,969,190
                
                
                
                22,357,355
                
                
                
                24,275,876Operating
      expensesSelling
      and shipping
                
                
                10,931,285
                
                
                
                9,291,263
                
                
                
                9,473,404General
      and administrative
                
                
                10,765,595
                
                
                
                8,082,618
                
                
                
                8,080,567Total
      operating expenses
                
                
                21,696,880
                
                
                
                17,373,881
                
                
                
                17,553,971Operating
      profit
                
                
                6,272,310
                
                
                
                4,983,474
                
                
                
                6,721,905Other
      income (expense)Interest
      expense
                
                
                (827,725
                )
                
                
                (330,268
                )
                
                
                (356,331
                )Interest
      income
                
                
                124,634
                
                
                
                66,722
                
                
                
                20,466Gain
      on pension plan liquidation
                
                
                -----
                
                
                
                -----
                
                
                
                352,843Other
      income – net
                
                
                494,084
                
                
                
                144,870
                
                
                
                191,163Total
      other income (expense)
                
                
                (209,007
                )
                
                
                (118,676
                )
                
                
                208,141Income
      before income taxes
                
                
                6,063,303
                
                
                
                4,864,798
                
                
                
                6,930,046Income
      tax expense
                
                
                1,513,835
                
                
                
                1,573,936
                
                
                
                1,825,847Net
      income
                
                $
                4,549,468
                
                
                $
                3,290,862
                
                
                $
                5,104,199Net
      income per common shareBasic
                
                $
                0.84
                
                
                $
                0.60
                
                
                $
                0.92Diluted
                
                $
                0.83
                
                
                $
                0.59
                
                
                $
                0.92Weighted
      average common shares outstandingBasic
                
                
                5,435,829
                
                
                
                5,522,751
                
                
                
                5,520,881Diluted
                
                
                5,475,104
                
                
                
                5,542,245
                
                
                
                5,527,618











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





46
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY





Fiscal
years ended January 31, 2009, 2008 and 2007





Common
      Stock
                    
                    
                    Additional
      paid-in
                    
                    
                    Treasury
      Stock
                    
                    
                    Retained
                    
                    
                    Other
      ComprehensiveShares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Earnings
                    
                    
                    Loss
                    
                    
                    TotalBalance,
      February 1, 2006
                    
                    
                    5,017,046
                    
                    
                    $
                    50,170
                    
                    
                    $
                    42,431,221
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    $
                    18,314,645
                    
                    
                    $
                    -----
                    
                    
                    $
                    60,796,036Exercise
      of stock options
                    
                    
                    2,662
                    
                    
                    
                    27
                    
                    
                    
                    11,849
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    11,876Net
      income
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    5,104,199
                    
                    
                    
                    -----
                    
                    
                    
                    5,104,19910%
      stock dividend
                    
                    
                    502,116
                    
                    
                    
                    5,021
                    
                    
                    
                    6,381,894
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    (6,386,916
                    )
                    
                    
                    -----
                    
                    
                    
                    -----Stock
      based compensation
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    147,061
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    147,061Balance,
      January 31, 2007
                    
                    
                    5,521,824
                    
                    
                    
                    55,218
                    
                    
                    
                    48,972,025
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    17,031,928
                    
                    
                    
                    -----
                    
                    
                    
                    66,059,171Net
      income
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    3,290,862
                    
                    
                    
                    -----
                    
                    
                    
                    3,290,862Effect
      of adoption of FIN 48
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    (419,000
                    )
                    
                    
                    -----
                    
                    
                    
                    (419,000
                    )Effect
      of adoption of  SAB No. 108
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    (262,000
                    )
                    
                    
                    -----
                    
                    
                    
                    (262,000
                    )Exercise
      of stock option
                    
                    
                    1,464
                    
                    
                    
                    15
                    
                    
                    
                    6,675
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    6,690Other
      comprehensive lossTranslation
      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 compensationIssuance
      of director stock options
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    31,544
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    31,544Restricted
      stock plan
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    268,391
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    -----
                    
                    
                    
                    268,391Balance,
      January 31, 2009
                    
                    
                    5,523,288
                    
                    
                    $
                    55,233
                    
                    
                    $
                    49,511,896
                    
                    
                    
                    107,317
                    
                    
                    $
                    (1,255,459
                    )
                    
                    $
                    24,191,258
                    
                    
                    $
                    (4,191,801
                    )
                    
                    $
                    68,311,127










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


47
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





CONSOLIDATED STATEMENTS OF
CASH FLOWS





2009
                
                
                2008
                
                
                2007Cash
      flows from operating activitiesNet
      income
                
                $
                4,549,468
                
                
                $
                3,290,862
                
                
                $
                5,104,199Adjustments
      to reconcile net income to net cash
                  provided
      by (used in) operating activitiesReserve
      for inventory obsolescence
                
                
                49,785
                
                
                
                300,626
                
                
                
                (58,626
                )Provision
      for bad debts
                
                
                59,135
                
                
                
                (58,000
                )
                
                
                55,036Deferred
      income taxes
                
                
                (608,519
                )
                
                
                (641,576
                )
                
                
                (497,435
                )Depreciation
      and amortization
                
                
                1,633,846
                
                
                
                1,186,840
                
                
                
                1,048,380Stock
      based and restricted stock compensation
                
                
                299,935
                
                
                
                233,261
                
                
                
                147,061Gain
      on pension plan liquidation
                
                
                -----
                
                
                
                -----
                
                
                
                (352,843
                )(Increase)
      decrease in operating assets:Accounts
      receivable
                
                
                2,763,878
                
                
                
                (89,400
                )
                
                
                (338,985
                )Inventories
                
                
                (5,698,718
                )
                
                
                (7,723,060
                )
                
                
                4,346,377Prepaid
      income taxes and other current assets
                
                
                -----
                
                
                
                1,110,311
                
                
                
                (1,586,206
                )Other
      assets
                
                
                (422,309
                )
                
                
                (305,961
                )
                
                
                (11,056
                )Increase
      (decrease) in operating liabilitiesAccounts
      payable
                
                
                (1,418,602
                )
                
                
                257,357
                
                
                
                518,583Accrued
      expenses and other liabilities
                
                
                429,051
                
                
                
                319,538
                
                
                
                (31,921
                )Pension
      liability
                
                
                -----
                
                
                
                -----
                
                
                
                (116,691
                )Net
      cash provided by (used in) operating activities
                
                
                1,636,950
                
                
                
                (2,119,202
                )
                
                
                8,225,873Cash
      flows from investing activities
                  Purchase
      of assets in India from RFB Latex
                
                
                -----
                
                
                
                -----
                
                
                
                (3,464,994
                )Acquisition
      of Qualytextil, S.A.
                
                
                (13,780,205
                )
                
                
                -----
                
                
                
                -----Purchases
      of property and equipment
                
                
                (2,371,914
                )
                
                
                (3,427,458
                )
                
                
                (912,651
                )Net
      cash used in investing activities
                
                
                (16,152,119
                )
                
                
                (3,427,458
                )
                
                
                (4,377,645
                )Cash
      flows from financing activitiesNet
      borrowings (payments) under credit agreement
                
                
                2,192,999
                
                
                
                5,085,000
                
                
                
                (3,486,000
                )Purchases
      of stock under Stock Repurchase program
                
                
                (1,255,459
                )
                
                
                -----
                
                
                
                -----Borrowing
      to fund Qualytextil acquisition
                
                
                13,344,466
                
                
                
                -----
                
                
                
                -----Other
      liabilities
                
                
                74,611
                
                
                
                -----
                
                
                
                -----Net
      proceeds from construction loan
                
                
                -----
                
                
                
                1,976,085
                
                
                
                -----Proceeds
      from exercise of stock options
                
                
                -----
                
                
                
                6,690
                
                
                
                11,876Net
      cash provided by (used in) financing activities
                
                
                13,842,938
                
                
                
                7,067,775
                
                
                
                (3,474,124
                )Net
      (decrease) increase in cash and cash equivalents
                
                
                (672,231
                )
                
                
                1,521,115
                
                
                
                374,104Cash
      and cash equivalents at beginning of year
                
                
                3,427,672
                
                
                
                1,906,557
                
                
                
                1,532,453Cash
      and cash equivalents at end of year
                
                $
                2,755,441
                
                
                $
                3,427,672
                
                
                $
                1,906,557





See note
for Supplemental Cash Flow information.





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


48
 Index


Lakeland
Industries, Inc.


and
Subsidiaries


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





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, 2009, 2008 and 2007.





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
corporations), 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 corporation), 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)   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 common
stock 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.  Sales are reduced for sales returns and allowances. Payment
terms are generally net 30 days for United States sales and net 90 days for
international sales.




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




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




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




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




49
 Index


Lakeland
Industries, Inc.




and
Subsidiaries




NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


1.
(continued)





Domestic
and international sales are as follows:





Fiscal
      Years Ended January 31,2009
                
                
                2008
                
                
                2007Domestic
                
                $
                76,695,000
                
                
                
                75.0
                %
                
                $
                82,773,000
                
                
                
                86.5
                %
                
                $
                88,667,000
                
                
                
                88.5
                %International
                
                
                25,573,000
                
                
                
                25.0
                %
                
                
                12,967,000
                
                
                
                13.5
                %
                
                
                11,504,000
                
                
                
                11.5
                %Total
                
                $
                102,268,000
                
                
                
                100.00
                %
                
                $
                95,740,000
                
                
                
                100.0
                %
                
                $
                100,171,000
                
                
                
                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





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





On August
1, 2005, the Company purchased Mifflin Valley, Inc, a Pennsylvania
manufacturer.  This acquisition resulted in the recording of $.9
million in goodwill as of January 31, 2006.  Management has determined
there is no impairment of this goodwill at January 31, 2009, 2008 and
2007.





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, 2009. See Note 4 for further
discussion of goodwill.





Intangible
Assets





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 51 months remaining at January 31,
2009.


50
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


1.
(continued)





Self-Insured
Liabilities





The
Company has a self-insurance program for certain employee health benefits. The
cost of such benefits is recognized as expense based on claims filed in each
reporting period and an estimate of claims incurred but not reported during such
period. This estimate is based upon historical trends and amounted to $132,000
for each of the years ended January 31, 2009, 2008 and 2007. The Company
maintains separate insurance to cover the excess liability over set single claim
amounts and aggregate annual claim amounts.





Stock-Based
Compensation





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





In
adopting FAS No. 123(R), the Company applied the modified prospective approach
to transition.  Under the modified prospective approach, the
provisions of FAS No. 123(R) are to be applied to new awards and to awards
modified, repurchased, or cancelled after the required effective
date.  Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of the
required effective date shall be recognized as the requisite service is rendered
on or after the required effective date.  The compensation cost for
that portion of awards shall be based on the grant-date fair value of those
awards as calculated for either recognition or pro-forma disclosures under FAS
No. 123.





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 $3.0
million, $2.5 million and $2.5 million in the fiscal years ended January 31,
2009, 2008 and 2007, 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 $321,000, $359,000, and $100,000 in the fiscal years ended January
31, 2009, 2008 and 2007, respectively, and was largely for testing and
certification of new products in 2008 and 2009 and for development of new raw
materials in 2007.


51
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


1.
(continued)





Income
Taxes





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





Uncertain
Tax Positions





Effective February 1,
2007, the first day of fiscal 2008, the Company adopted the provisions of
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes recognition
thresholds that must be met before a tax benefit is recognized in the financial
statements and provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. Under FIN
48, an entity may only recognize or continue to recognize tax positions that
meet a "more likely than not"
threshold. The Company recorded the cumulative effect of applying FIN 48 as a
$419,000 decrease to the opening balance of retained earnings as of February 1,
2007, the date of adoption, $207,000 of which was then reversed in FY2009, when
the company settled a long dispute with the I.R.S.





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, 2009, 2008, and 2007 were 39,275, 19,494, and 6,737, respectively,
representing the dilutive effect of stock options and restricted stock awards.
The diluted earnings per share calculation takes into account the shares that
may be issued upon exercise of stock options, reduced by shares that may be
repurchased with the funds received from the exercise, based on the average
price during the fiscal year (as adjusted for the 10% stock dividend to holders
of record on April 30, 2005 and August 1, 2006).





Advertising
Costs





Advertising
costs are expensed as incurred.  Advertising costs (income) amounted
to $32,000, $(76,000), and $30,000 in the fiscal years ended January 31, 2009,
2008 and 2007, 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 $2.7 million and $3.6 million at January 31, 2009 and 2008,
respectively.


52
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





1.
(continued)





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





2009
                
                
                2008
                
                
                2007Interest
      paid
                
                $
                827,725
                
                
                $
                330,268
                
                
                $
                356,331Income
      taxes paid
                
                $
                3,216,000
                
                
                $
                699,456
                
                
                $
                3,744,519





Concentration
of Credit Risk





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





The
largest foreign cash balances are deposited in HSBC in China and the UK and in
the TD Canada Trust Bank in Canada and Banco do Brasil S.A. and Banco Itaú S.A.
banks in Brazil.  The utilization of these larger banking institutions
minimizes risk of deposits held in foreign countries.








Foreign
Operations and Foreign Currency Translation





The
Company maintains manufacturing operations 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 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 and the Canadian Real Estate
subsidiary.





Pursuant
to FAS 52, assets and liabilities of the Company’s foreign operations with
functional currencies, other than the US dollar, are translated at the exchange
rate in effect at the balance sheet date, while revenues and expenses are
translated at average rates prevailing during the periods. Translation
adjustments are reported in accumulated other comprehensive loss, a separate
component of stockholders’ equity.





The
monetary assets and liabilities of the Company’s foreign operations with the US
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 losses
of  approximately $149,000, $72,000, and $29,000 for the fiscal years
ended January 31, 2009, 2008 and 2007, 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 reserves.  It is reasonably possible
that events could occur during the upcoming year that could change such
estimates.


53
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





1.
(continued)





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.





Fair
value of Financial Instruments





The
Company's principal financial instrument consists of its outstanding revolving
credit facility and term loan.





Effects
of Recent Accounting Pronouncements





In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles.  FAS No. 157 defines
fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements.  FAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and
should be applied prospectively, except in the case of a limited number of
financial instruments that require retrospective
application.  Management believes the potential impact of FAS No. 157
on our financial position and results of operations is not
material.




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





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





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51,” which
establishes new standards governing the accounting for and reporting of
noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and
the loss of control of subsidiaries. Certain provisions of this standard
indicate, among other things, that NCIs (previously referred to as minority
interests) be treated as a separate component of equity, not as a liability;
that increases and decrease in the parent’s ownership interest that leave
control intact be treated as equity transactions, rather than as step
acquisitions or dilution gains or losses; and that losses of a partially owned
consolidated subsidiary be allocated to the NCI even when such allocation might
result in a


54
 Index








Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





1.
(continued)





deficit
balance. This standard also requires changes to certain presentation and
disclosure requirements. SFAS No. 160 is effective beginning
February 1, 2009. The provisions of the standard are to be applied to all
NCIs prospectively, except for the presentation and disclosure requirements,
which are to be applied retrospectively to all periods presented. The Company
believes that this pronouncement will not have a material effect on the
financial statements.





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




Comprehensive
income (loss)





Comprehensive
income (loss) refers to revenue, expenses, gains and losses that under generally
accepted accounting principles are included in comprehensive income but are
excluded from net income as these amounts are recorded directly as an adjustment
to stockholders' equity. This includes translation adjustments for foreign
subsidiaries where the functional currency is other than the US dollar. No tax
benefit or expense has been attributed to any of these items.





Comprehensive
Income





January
      31,
                  2009
                
                
                January
      31,
                  2008
                
                
                January
      31,
                  2007Net
      income
                
                $
                4,549,468
                
                
                $
                3,290,862
                
                
                $
                5,104,199Translation
      adjustmentsCanada
      Real Estate
                
                
                (55,152
                )
                
                
                (36,073
                )
                
                
                -----Qualytextil,
      S.A. Brazil
                
                
                (3,473,196
                )
                
                
                -----
                
                
                
                -----Interest
      rate swap
                
                
                (627,380
                )
                
                
                -----
                
                
                
                -----Total
                
                
                4,155,728
                
                
                
                (36,073
                )
                
                
                -----Total
      comprehensive income
                
                $
                393,740
                
                
                $
                3,254,789
                
                
                $
                5,104,199








2
–INVENTORIES, NET





Inventories
consist of the following at January 31:


2009
                
                
                2008Raw
      materials
                
                $
                26,343,875
                
                
                $
                25,035,569Work-in-process
                
                
                2,444,160
                
                
                
                2,873,001Finished
      goods
                
                
                28,285,993
                
                
                
                20,207,603$
                57,074,028
                
                
                $
                48,116,173





55
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





3
–PROPERTY AND EQUIPMENT, NET





Property
and equipment consist of the following at January 31:


Useful life in years
                  
                  2009
                  
                  
                  2008Machinery
      and equipment
                  
                  
                  3 –
      10
                  
                  
                  $
                  8,488,655
                  
                  
                  $
                  6,960,835Furniture
      and fixtures
                  
                  
                  3 –
      10
                  
                  
                  
                  389,746
                  
                  
                  
                  316,592Leasehold
      improvements
                  
                  Lease
      term
                  
                  
                  
                  1,189,312
                  
                  
                  
                  654,097Land
      and building  (China)
                  
                  
                  20
                  
                  
                  
                  2,412,115
                  
                  
                  
                  2,412,115Land,
      building and equipment (India)
                  
                  
                  7 -
      39
                  
                  
                  
                  4,010,237
                  
                  
                  
                  3,949,612Land
      and building (Canada)
                  
                  
                  30
                  
                  
                  
                  1,985,951
                  
                  
                  
                  2,434,059Land
      and buildings (USA)
                  
                  
                  39
                  
                  
                  
                  3,654,008
                  
                  
                  
                  3,652,252Land
      and building (Brazil)
                  
                  
                  5
                  
                  
                  
                  535,971
                  
                  
                  
                  -----22,665,995
                  
                  
                  
                  20,379,562Less
      accumulated depreciation and amortization
                  
                  
                  
                  
                  
                  
                  (8,929,669
                  )
                  
                  
                  (7,054,914
                  )$
                  13,736,326
                  
                  
                  $
                  13,324,648





Depreciation
and amortization expense for fiscal 2009, 2008 and 2007 amounted to $1,633,846,
$1,186,840, and $1,048,380,
respectively.  Net fixed assets in China were approximately $2,452,282
($2.45) million and $2,130,889 ($2.13) million at January 31, 2009 and 2008,
respectively.  Net fixed assets in India were approximately $3.5
million and $3.77 million at January 31, 2009 and 2008, respectively. Net fixed
assets in Canada were approximately $2.1 million and $2.6 million at January 31,
2009 and 2008, respectively. Net fixed assets in Brazil were approximately $1.1
million and  $0 at January 31, 2009 and 2008,
respectively.





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





The
acquisition was financed through Lakeland’s existing revolving credit facility
as amended. Further, to accommodate the Qualytextil acquisition, Wachovia Bank,
N.A. has increased the Revolving Line of Credit from $25,000,000 to $30,000,000
and has 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, is $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.




56
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


4.
(continued)





There are
provisions for an adjustment of the initial Purchase Price, based on results of
2008 EBITDA.  The Post-Closing audit as of April 30, 2008 resulted in
no adjustments to the Purchase Price.





There is
also 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 pre-closing 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, if any, 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.


57
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





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
      receivables
                      
                      
                      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
                      
                      
                      359Total
      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
                      
                      $
                      4,238











58
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





4.
(continued)





Lakeland
results on a pro-forma basis with Qualytextil, S.A. results included as if
acquired at beginning of each period shown are as follows (in USD $000 except
EPS):




FY
      09
                  YTD
                FY
      08
                  YTDSales
                $104,233
                $104,258Net
      Income
                4,815
                3,942EPS
                $0.89
                $0.71








For
Brazilian tax purposes, the Company expects to deduct goodwill over a five year
period commencing upon the merger of its holding company into the operating
company in Brazil, which took place in November 2008.








5. – INTANGIBLES AND OTHER
ASSETS, NET





Intangibles
and other assets consist of:





2009
                  
                  
                  2008Trademarks
      and tradenames,resulting
      from Qualytextil, S.A.acquisition,
      per appraisal
                  
                  $
                  3,191,891
                  
                  
                  $
                  -----Appraised
      value of customercontracts
      acquired in Qualytextil, S.A.acquisition,
      amortized over estimatedremaining
      life of 51 months fromJanuary
      31, 2009, net
                  
                  
                  352,178
                  
                  
                  
                  -----Bank
      fees net of amortization
                  
                  
                  83,550
                  
                  
                  
                  16,223Deferred
      taxes-non current
                  
                  
                  519,211
                  
                  
                  
                  -----Security
      deposits
                  
                  
                  231,318
                  
                  
                  
                  101,367Other
                  
                  
                  27,685
                  
                  
                  
                  39,884$
                  4,405,833
                  
                  
                  $
                  157,474





Amortization
expense for the next 5 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.


59
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





6.
-LONG-TERM DEBT





Revolving
Credit Facility





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 is collateralized by substantially all
of the assets of the Company.  The credit facility contains financial
covenants, including, but not limited to, fixed charge ratio, funded debt to
EBIDTA ratio, inventory and accounts receivable collateral coverage ratio, with
respect to which the Company was in compliance at January 31, 2009 and for the
year then ended.





The
maximum amounts borrowed under the credit facilities during the fiscal years
ended January 31, 2009, 2008 and 2007 were $28,300,000, $9,900,000, and
$10,000,000, respectively, and the weighted average interest rates during the
periods were 3.06%, 5.51%, and 5.74%, 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”)





On June 21, 2006, the shareholders of
the Company approved a restricted stock plan.  A total of 253,000
shares of restricted stock were authorized under this plan.  Under the
restricted stock plan, eligible employees and directors are awarded
performance-based restricted shares of the Company common stock.  The
amount recorded as expense for the performance-based grants of restricted stock
are based upon an estimate made at the end of each reporting period as to the
most probable outcome of this plan at the end of the three year performance
period.  (e.g., baseline, minimum, maximum
or zero).  In addition to the grants with vesting based solely on
performance, certain awards pursuant to the plan have a time-based vesting
requirement, under which awards vest from three to four years after issuance,
subject to continuous employment and certain other
conditions.  Restricted stock have the same voting rights as other
common stock.  Restricted stock awards do not have voting rights, and
the underlying shares are not considered to be issued and outstanding until
vested.





The Company has granted up to a maximum
of 147,617 restricted stock awards as of January 31, 2009.  All of
these restricted stock awards are non-vested at January 31, 2009 (104,772 shares
at “baseline” and 62,917 shares at “minimum”) and have
a weighted average grant date fair value of $12.94.  The Company
recognizes expenses related to performance-based awards over the requisite
service period using the straight-line attribution method based on the outcome
that is probable.





As of January 31, 2009, unrecognized
stock-based compensation expense related to restricted stock awards totaled
$732,846 and $1,292,458 and $175,996 at the baseline, maximum and minimum
performance levels, respectively.  The cost of these non-vested awards
is expected to be recognized over a weighted-average period of three
years.  The board has estimated its current performance level to be at
the minimum level and expenses have been recorded accordingly.  The
performance based awards are not considered stock equivalents for EPS
purposes.


60
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


7.
(continued)





The
Company recognized total stock-based compensation costs of $299,935, $233,261
and $147,601, of which $268,391, $223,261 and $122,013 results from the 2006
Equity Incentive Plan, and $31,544 , $0 and $25,588 results from the Directors
Plan Directors Option Plan for the years ended January 31, 2009, 2008 and 2007,
respectively. These amounts are reflected in selling, general and administrative
expenses.  The total income tax benefit recognized for stock-based
compensation arrangements was $107,977, $83,974 and $53,136 for the years ended
January 31, 2009, 2008 and 2007, respectively.





The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions for the year ended January
31, 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, 2009, 2008 and 2007.  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, 2009 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
                          
                          
                          17,567
                          
                          
                          $
                          13.48
                          
                          
                          
                          2.74Granted
      during FY09
                          
                          
                          3,000
                          
                          
                          
                          13.10
                          
                          
                          
                          
                          
                          
                          $
                          8,618Outstanding
      and exercisable at end of year
                          
                          
                          20,567
                          
                          
                          $
                          13.42
                          
                          
                          
                          2.27
                          
                          
                          $
                          1,594Weighted-average
      fair value per share of  options granted during
    2009
                          
                          
                          
                          
                          
                          $
                          13.10Weighted-average
      fair value per share of options exercised during 2009
                          
                          
                          
                          
                          
                          
                          N/A





Reserved
      Shares:Directors
      Plan
                
                
                29,936





61
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





8.
– INCOME TAXES





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





2009
                
                
                2008
                
                
                2007Domestic
                
                $
                2,826,365
                
                
                $
                3,642,522
                
                
                $
                5,132,063Foreign
                
                
                3,236,938
                
                
                
                1,222,276
                
                
                
                1,797,983Total
                
                $
                6,063,303
                
                
                $
                4,864,798
                
                
                $
                6,930,046





The
provision for income taxes is summarized as follows:





2009
                
                
                2008
                
                
                2007CurrentFederal
                
                $
                1,063,383
                
                
                $
                1,680,298
                
                
                $
                1,669,922State
                
                
                154,558
                
                
                
                174,369
                
                
                
                180,999Foreign
                
                
                904,413
                
                
                
                343,864
                
                
                
                429,3432,122,354
                
                
                
                2,198,531
                
                
                
                2,280,264Deferred
                
                
                (608,519
                )
                
                
                (624,595
                )
                
                
                (454,417
                )$
                1,513,835
                
                
                $
                1,573,936
                
                
                $
                1,825,847








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





2009
                
                
                2008
                
                
                2007Statutory
      rate
                
                
                34.0
                %
                
                
                34.0
                %
                
                
                34.0
                %State
      income taxes, net of Federal tax benefit
                
                
                1.7
                %
                
                
                2.4
                %
                
                
                1.7
                %Permanent
      differences
                
                
                -----
                
                
                
                (.7
                )%
                
                
                (.7
                )%FIN48
      adjustment
                
                
                (3.4
                )%
                
                
                -----
                
                
                
                -----Foreign
      tax rate differential
                
                
                (6.2
                )%
                
                
                (5.4
                )%
                
                
                (7.6
                )%Other
                
                
                (1.1
                )%
                
                
                2.0
                %
                
                
                (1.0
                )%Effective
      rate
                
                
                25.0
                %
                
                
                32.3
                %
                
                
                26.4
                %





62
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


8.
(continued)





The tax
effects of temporary differences which give rise to deferred tax assets at
January 31, 2009, 2008 and 2007 are summarized as follows:





2009
                      
                      
                      2008
                      
                      
                      2007Deferred
      tax assetsInventories
                      
                      $
                      1,204,998
                      
                      
                      $
                      1,120,426
                      
                      
                      $
                      766,662Accounts
      receivable
                      
                      
                      37,810
                      
                      
                      
                      17,100
                      
                      
                      
                      39,140Accrued
      compensation and other
                      
                      
                      293,516
                      
                      
                      
                      66,742
                      
                      
                      
                      150,895Depreciation
                      
                      
                      22,304
                      
                      
                      
                      35,666
                      
                      
                      
                      -----Stock
      based compensation
                      
                      
                      262,502
                      
                      
                      
                      130,000
                      
                      
                      
                      -----Losses
      in India prior to restructuring
                      
                      
                      757,102
                      
                      
                      
                      599,779
                      
                      
                      
                      398,667Gross
      deferred tax assets
                      
                      
                      2,578,232
                      
                      
                      
                      1,969,713
                      
                      
                      
                      1,355,364Deferred
      tax liabilitiesDepreciation
      and other
                      
                      
                      -----
                      
                      
                      
                      -----
                      
                      
                      
                      27,227Gross
      deferred tax liabilities
                      
                      
                      -----
                      
                      
                      
                      -----
                      
                      
                      
                      27,227Net
      deferred tax asset
                      
                      $
                      2,578,232
                      
                      
                      $
                      1,969,713
                      
                      
                      $
                      1,328,137





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





Tax
Audit/Adoption of FIN 48





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





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





Balance
      as of February 1, 2007
                                
                                $
                                419Increases
      related to prior year tax position – accrued interest
                                
                                
                                20Accrued
      as of January 31, 2008
                                
                                
                                439Less
      taxes refundable from1/04 per company position written off in FY08 as part
      of FIN48 adjustment
                                
                                
                                (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
                                )FIN48
      liability at January 31, 2009
                                
                                $
                                0





63
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


8.
(continued)





The
Company’s policy is to recognize interest and penalties related to income tax
issues as components of income tax expense. The Company had approximately
$90,000 of accrued interest as of July 31, 2008, prior to recording the effects
of the settlement with the Internal Revenue Service (“IRS”).





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 and 2005 have been audited by the
IRS.





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 ending
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
Company’s US federal tax returns for the year ended January 31, 2007 has just
commenced.





Our two
major foreign tax jurisdictions are China and Brazil. According to China tax
regulatory framework, there is no statute of limitation on fraud or any criminal
activities to deceive tax authorities. However, the general practice is
going back five years, and general practice for records maintenance is fifteen
years.  Our China subsidiaries were audited during the tax year 2007 for
the tax years through 2006, 2005 and 2004, respectively. Those audits are
associated with ordinary course of business. China tax authorities did not
perform tax audits associated with ordinary course of business during tax year
2008.  China tax authority performed a fraud audit but the scope was
limited to the fraud activities found in late tax year 2008.  This audit
covered tax year from 2003 through 2008, please see Note 17 for further details.
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.





9.
– BENEFIT PLANS





Defined
Benefit Plan





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





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
$238,207, $216,283, and $197,075 in the fiscal years ended January 31, 2009,
2008, and 2007, respectively.


64
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





10.
– MAJOR SUPPLIER





The
Company purchased approximately 46.4%, 62.0%, and 62.6% of its raw materials
from one supplier under licensing agreements for the fiscal years ended January
31, 2009, 2008 and 2007, respectively.  The Company expects this
relationship to continue for the foreseeable future. Required similar raw
materials could be purchased from other sources; although, the Company’s
competitive position in the marketplace could be affected.





11.
– COMMITMENTS AND CONTINGENCIES





Employment
Contracts





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





Three of
such contracts provide for bonuses based on reported EPS for the fiscal year
2009. The Company has accrued an aggregate of $77,000 for these
bonuses.





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.





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
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, 2009, 2008 and 2007
amounted to $18,000.





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 28,000 square feet at an aggregate annual rental of
approximately $205,000, with expiration dates ranging from 3/2010 to
10/2013.





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 $40,000, $34,000 and $27,000 in fiscal
2009, 2008 and 2007, respectively.


65
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





11.
(continued)





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





Gross rental
                        
                        
                        Rentals paid to
                          related partiesYear
      ended January 31,2009
                        
                        $
                        550,513
                        
                        
                        $
                        117,8552008
                        
                        $
                        566,845
                        
                        
                        $
                        167,9042007
                        
                        $
                        769,101
                        
                        
                        $
                        226,560








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, 2009 including lease renewals subsequent to year-end are
summarized as follows:





Year
      ending January 31,2010
                  
                  $
                  691,5612011
                  
                  
                  504,7652012
                  
                  
                  318,6032013
                  
                  
                  265,6962014
                  
                  
                  101,339








Real
Estate Purchases





Building
purchase in India:





On
November 22, 2006 the Company closed on its contract to buy the Industrial glove
assets of RFB Latex, Ltd. of New Delhi, India. Included in this contract are 3
buildings of 58,945 square feet on three land plots which has an appraised value
of $3.5 million.





Canadian
building:





In June
2006, the Company entered into an agreement to construct a distribution facility
in Brantford, Ontario at a fixed cost of approximately $2,400,000. 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,
                      (Canadian)2010
                      96,6002011
                      96,6002012
                      96,6002013
                      96,6002014
                      96,600


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.


66
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





11.
(continued)





US
Customs Audit





The
Company has received notice in March 2009 that it has been selected for a NAFTA
verification audit by US Customs in Brownsville.  Management believes this
will not result in a significant liability to the Company.





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 2009, 2008 and 2007, Lakeland de
Mexico paid Intermack $1,889,309, $518,968 and
$721,748,  respectively, for services relating to contract
production.





12.
– RESTRUCTURING





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





13. –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, Euro and Great Britain Pound.  Such
contracts for the Euro and Pound are largely timed to expire with the last day
of the fiscal quarter, with a new contract purchased on the first day of the
following quarter, to match the operating cycle of the Company. Management has
decided not to hedge its long position in the Chinese Yuan or the Brazilian
Real.





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





The
Company had no derivative instruments outstanding at January 31, 2009 and one
derivative instrument outstanding at January 31, 2008 which was treated as a
cash flow hedge intended for forecasted purchases of merchandise by the
Company’s Canadian subsidiary.   The change in the fair market value
of the effective hedge portion of the foreign currency forward exchange
contracts was an unrealized loss of $36,073, for the year ended January 31, 2008
and was recorded in other comprehensive loss. It will be released into
operations over the remaining 9 months of the contract based on the
timing of the sales of the underlying inventory.  The release to operations
will be reflected in cost of products sold.


67
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


13.
(continued)





During
the year ended January 31, 2008 and 2009, the Company recorded a loss in cost of
goods sold for the remaining portion of the foreign currency forward exchange
contract that did not qualify for hedge accounting treatment.  The
derivative instrument was in the form of a foreign currency “participating
forward” exchange contract. The “participating forward” feature affords the
Company full protection on the downside and the ability to retain 50% of any
gains, in exchange for a premium at inception.  Such premium is built
into the contract in the form of a different contract rate in the amount of
$0.0160.





Interest
Rate Risk Management





We are
exposed to interest rate risk from debt. We have hedged against the risk of
changes in the interest rate associated with our variable rate Revolving Credit
(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 assume no hedge ineffectiveness as each interest rate
swap meets the short-cut method requirements under SFAS 133 for fair value
hedges of debt instruments. As a result, changes in the fair value of the
interest rate swaps are offset by changes in the fair value of the debt, both
are reported in interest and other income and not net gain or loss is recognized
in earnings.





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





January
      31, 2009
                January
      31, 2008Unrealized
      Gains:Foreign
      currency exchange contracts
                -----
                -----Unrealized
      (Losses):Foreign
      currency exchange contracts
                -----
                $77,000Interest
      rate swaps
                $(627,380)
                -----





The
Brazilian financial statements, when translated into USD pursuant to FAS 52,
“Foreign Currency Translation” resulted in a Currency Translation Adjustment
(CTA) of $(3,473,196), which is included in Other Comprehensive Loss on the
Balance Sheet.





14.
–
MANUFACTURING SEGMENT DATA




The
Company manages its operations by evaluating its geographic locations. The
Company’s North American operations include its facilities in Decatur, Alabama
(primarily disposables, chemical suit and glove production), Celaya, Mexico
(primarily disposables, chemical suit and glove production) and St. Joseph,
Missouri (primarily woven products).  The Company also maintains
contract manufacturing facilities in China (primarily disposable and chemical
suit production).  The Company’s China facilities, 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:














68
 Index





Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007


14.
(continued)








2009
                
                
                2008
                
                
                2007Net
      Sales:North
      America and other foreign
                
                $
                92,408,341
                
                
                $
                97,922,742
                
                
                $
                104,804,921China
                
                
                22,182,628
                
                
                
                14,823,755
                
                
                
                12,007,656India
                
                
                489,755
                
                
                
                132,350
                
                
                
                449,022Brazil
                
                
                8,383,726
                
                
                
                -----
                
                
                
                -----Less
      inter-segment sales
                
                
                (21,196,325
                )
                
                
                (17,138,779
                )
                
                
                (17,090,657
                )Consolidated
      sales
                
                $
                102,268,125
                
                
                $
                95,740,068
                
                
                $
                100,170,942Operating
      Profit:North
      America & other foreign
                
                $
                2,890,601
                
                
                $
                3,262,062
                
                
                $
                5,879,388China
                
                
                3,071,886
                
                
                
                2,082,988
                
                
                
                1,858,226India
                
                
                (845,791
                )
                
                
                (624,042
                )
                
                
                (974,
      678
                )Brazil
                
                
                1,469,542
                
                
                
                -----
                
                
                
                -----Less
      intersegment profit
                
                
                (313,928
                )
                
                
                262,466
                
                
                
                (41,031
                )Consolidated
      operating profit
                
                $
                6,272,310
                
                
                $
                4,983,474
                
                
                $
                6,721,905Identifiable
      Assets:North
      America and other foreign
                
                $
                70,302,861
                
                
                $
                76,306,269
                
                
                $
                63,479,434China
                
                
                13,270,793
                
                
                
                9,904,174
                
                
                
                4,353,599India
                
                
                4,351,075
                
                
                
                (1,587,590
                )
                
                
                6,365,327Brazil
                
                
                13,689,989
                
                
                
                -----
                
                
                
                -----Consolidated
      assets
                
                $
                101,614,718
                
                
                $
                84,622,853
                
                
                $
                74,198,360Depreciation:North
      America and other foreign
                
                $
                830,314
                
                
                $
                665,182
                
                
                $
                633,754China
                
                
                286,773
                
                
                
                352,009
                
                
                
                402,233India
                
                
                365,262
                
                
                
                169,649
                
                
                
                12,393Brazil
                
                
                134,612
                
                
                
                -----
                
                
                
                -----Consolidated
      depreciation
                
                $
                1,616,961
                
                
                $
                1,186,840
                
                
                $
                1,048,380








69
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007








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









1/31/09
                  
                  
                  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
                  
                  
                  
                  20,202Gross
      Profit
                  
                  $
                  5,959
                  
                  
                  $
                  7,171
                  
                  
                  $
                  8,161
                  
                  
                  $
                  6,678Net
      Income
                  
                  $
                  659
                  
                  
                  $
                  1,373
                  
                  
                  $
                  1,625
                  
                  
                  $
                  893Basic
      and Diluted income per commonShare:Basic
                  
                  $
                  0.12
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.30
                  
                  
                  $
                  0.16Diluted
                  
                  $
                  0.12
                  
                  
                  $
                  0.25
                  
                  
                  $
                  0.30
                  
                  
                  $
                  0.161/31/08
                  
                  
                  10/31/07
                  
                  
                  7/31/07
                  
                  
                  4/30/07Net
      Sales
                  
                  $
                  24,959
                  
                  
                  $
                  23,453
                  
                  
                  $
                  21,732
                  
                  
                  $
                  25,596Cost
      of Sales
                  
                  
                  18,789
                  
                  
                  
                  17,749
                  
                  
                  
                  16,538
                  
                  
                  
                  20,307Gross
      Profit
                  
                  $
                  6,170
                  
                  
                  $
                  5,704
                  
                  
                  $
                  5,194
                  
                  
                  $
                  5,289Net
      Income
                  
                  $
                  998
                  
                  
                  $
                  930
                  
                  
                  $
                  767
                  
                  
                  $
                  596Basic
      and Diluted income per commonShare:Basic
                  
                  $
                  0.18
                  
                  
                  $
                  0.17
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.11Diluted
                  
                  $
                  0.18
                  
                  
                  $
                  0.17
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.11





16.  – ADOPTION OF
SAB NO. 108




In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements.”  The
transition provisions of SAB 108 permit the Company to adjust for the cumulative
effect on retained earnings of immaterial errors relating to prior years. SAB
108 also requires the adjustment of any prior quarterly financial statements
within the fiscal year of adoption for the effects of such errors on the
quarters when the information is next presented. Such adjustments do not require
previously filed reports with the SEC to be amended. The Company adopted SAB 108
at the end of fiscal 2007. In accordance with SAB 108, the Company has adjusted
beginning retained earnings for fiscal 2008 in the accompanying consolidated
financial statements for the items described under “Elimination of Intercompany
Profit in Inventory” below. The Company considers these adjustments to be
immaterial to prior periods.





Elimination
of Intercompany Profit in Inventory


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









70
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





16.
(continued)







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




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




(in thousands)
                          
                          
                          
                          
                          
                          
                          
                          Net Adjustment, AfterNet
      Decrease to
                          
                          
                          Net Income
                          
                          
                          Tax as a
      % of NetFiscal Year
                          
                          Net
      Income
                          
                          
                          As Reported
                          
                          
                          Income As Reported2007
                          
                          
                          154
                          
                          
                          
                          5,104
                          
                          
                          
                          3.022006
                          
                          
                          20
                          
                          
                          
                          6,329
                          
                          
                          
                          0.32
                          %2005
                          
                          
                          88
                          
                          
                          
                          5,016
                          
                          
                          
                          1.75
                          %Total
                          
                          $
                          262
                          
                          
                          
                          16,449
                          
                          
                          
                          1.59
                          %


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




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





17.  – 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 have 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.




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 5 miles from our existing plants in AnQui City. The Company
agreed to purchase this building for RMB4.2 million (approximately $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 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.













71
 Index


Lakeland
Industries, Inc.


and
Subsidiaries





NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


January
31, 2009, 2008 and 2007





18.  – OTHER
INCOME





In 2003 and 2004, one of the Company’s
China subsidiaries reserved RMB1,399,000 ($204,000) out of which RMB901,000 was
reserved for workers social benefits and RMB498,000 was reserved for potential
liabilities 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 ($204,000) as other income for the year ended January 31,
2009.





72
 Index





SCHEDULE II – VALUATION AND
QUALIFYING ACCOUNTS





Column
      A
                                      
                                      Column
      B
                                      
                                      
                                      Column
      C
                                      
                                      
                                      Column
      D
                                      
                                      
                                      Column
      EAdditionsBalance
      at
                                        Beginning
                                        of
      period
                                      
                                      
                                      Charge
      to
                                        costs
      and
                                        expenses
                                      
                                      
                                      Charged
                                        to
      other
                                        accounts
                                      
                                      
                                      Additions
      /
                                        Deductions
                                      
                                      
                                      Balance
      at
                                        end
      of
                                        periodYear
      ended January 31, 2009
                                        Allowance
      for doubtful accounts (a)
                                      
                                      $
                                      45,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      59,500
                                      
                                      
                                      $
                                      104,500Allowance
      for slow moving inventory
                                      
                                      $
                                      607,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      50,000
                                      
                                      
                                      $
                                      657,000Year
      ended January 31, 2008
                                        Allowance
      for doubtful accounts (a)
                                      
                                      $
                                      103,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (58,000
                                      )
                                      
                                      $
                                      45,000Allowance
      for slow moving inventory
                                      
                                      $
                                      306,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      301,000
                                      
                                      
                                      $
                                      607,000Year
      ended January 31, 2007
                                        Allowance
      for doubtful accounts (a)
                                      
                                      $
                                      323,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (220,000
                                      )
                                      
                                      $
                                      103,000Allowance
      for slow moving inventory
                                      
                                      $
                                      365,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (59,000
                                      )
                                      
                                      $
                                      306,000





(a)
Deducted from accounts receivable.




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





None





ITEM
9A. CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





We
conducted an evaluation, under the supervision and with the participation of the
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of January 31, 2009. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives.
Based on their evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were not effective
as of January 31, 2009 for the reasons discussed below, to ensure them that
information relating to the Company (including our consolidated subsidiaries)
required to be included in our reports filed or submitted under the Exchange Act
are recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Our Chief
Executive Officer and Chief Financial Officer have concluded that we have a
material weakness over our China operations and financial reporting as of
January 31, 2009.





Management’s
Report on Internal Control over Financial Reporting




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




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.




73
 Index







Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of January 31, 2009. In making this assessment, management used the
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this evaluation, management has concluded that the Company’s internal control
over financial reporting was not effective as of January 31, 2009. Our Chief
Executive Officer and Chief Financial Officer have concluded that we have a
material weakness over our inventory relating to sales of raw material waste in
China at January 31, 2009.


In
response to the fraud in China (as fully explained in Note 17), 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
will provide us with the infrastructure and processes necessary to accurately
prepare our financial statements on a quarterly basis.


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




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




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





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




Remediation - In response to
the material weaknesses identified at January 31, 2008, we continue the process
of initiating additional review procedures to reduce the likelihood of future
human error and are transitioning to internal accounting staff with greater
knowledge of U.S. GAAP to improve the accuracy of the financial reporting of our
Chinese subsidiary.  We have automated key elements of the calculation
of intercompany profits in inventory and formalized the review process of the
data needed to calculate this amount. With the implementation of this corrective
action we believe that the previously identified material weakness relating to
intercompany profit elimination has been remediated as of the first quarter of
the fiscal year 2009.
  Effective
in full at October 31, 2008, management has taken primary responsibility to
prepare the US GAAP financial reporting based on China GAAP financial
statements. This function was previously performed by outside accountants in
China. Further, US 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 US corporate internal audit department
and who will work closely with US management.


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





Changes in Internal Control Over
Financial Reporting –Except as described
above, there have been no changes in our internal control over financial
reporting since January 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





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





74
 Index







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 2009.  Based on that
evaluation, management concluded that other than the China Internal Control
Committee discussed above, there have not been changes in Lakeland Industries,
Inc.’s internal control over financial reporting during the fourth quarter of
fiscal 2009 that have materially affected, or is reasonably likely to materially
affect, Lakeland Industries, Inc.’s internal control over financial
reporting.




Holtz Rubenstein Reminick LLP, the
Company's independent registered public accounting firm has issued a report on
management’s assessment of the Company’s internal control over financial
reporting. That report dated April 14, 2009 is included
herein.




Changes
in Internal Control over Financial Reporting





Other than the China Internal Control
Committee discussed above, there have been no other changes in Lakeland
Industries, Inc.’s internal control over financial reporting during the fourth
quarter of fiscal 2009 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





75
 Index





PART
III











ITEM
      10.
            DIRECTORS
      AND EXECUTIVE OFFICERS OF THE
  REGISTRANT





The
following is a list of the names and ages of all of our directors and executive
officers, indicating all positions and offices they hold with us as of April 10,
2009. 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
                70
                Chairman
      of the Board of DirectorsChristopher
      J. Ryan
                57
                Chief
      Executive Officer, President,  Secretary, General Counsel and
      DirectorGary
      Pokrassa
                61
                Chief
      Financial OfficerGregory
      D. Willis
                52
                Executive
      Vice PresidentHarvey
      Pride, Jr.
                62
                Senior
      Vice President - ManufacturingPaul
      C. Smith
                42
                Vice
      PresidentGregory
      Pontes
                48
                Vice
      President - ManufacturingPhillip
      Willingham
                51
                Vice
      President - MISJohn
      J. Collins
                66
                DirectorEric
      O. Hallman
                65
                DirectorJohn
      Kreft
                58
                DirectorStephen
      M. Bachelder
                58
                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 as served as a director since
1982 and his term as a director will expire at our annual meeting of stockholder
in 2010.




Christopher J. Ryan has
served as our Chief Executive Officer and President of Lakeland since February
1, 2004, Secretary since April 1991, General Counsel since February 2000 and a
director since May 1986.  Mr. Ryan was our Executive Vice President -
Finance from May 1986 until becoming our President on February 1, 2004 and his
term as director will expire at our annual meeting of stockholders in 2008. Mr.
Ryan also worked as a Corporate Finance Partner at Furman Selz Mager Dietz &
Birney, Senior Vice President-Corporate Finance at Laidlaw Adams & Peck,
Inc., Managing-Corporate Finance Director of Brean Murray Foster Securities, Inc
and Senior Vice President-Corporate Finance of Rodman & Renshaw,
respectively between 1983-1991. 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
38 years experience in both public and private accounting. Mr. Pokrassa was the
CFO for Gristedes Foods, Inc. (AMEX-GRI) from 2000-2003 and Syndata Technologies
from 1997-2000. Mr. Pokrassa received a BS in Accounting from New York
University and is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public
Accountants.




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




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




76
 Index


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.




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 2009.




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




A. John Kreft has been
President of Kreft Interests, a Houston based private investment firm, since
2001. Between 1998 and 2001, he was CEO of Baker Kreft Securities, LLC, a NASD
broker-dealer. From 1996 to 1998, he was a co-founder and manager of TriCap
Partners, a Houston based venture capital firm. From 1994 to 1996 he was
employed as a director at Alex Brown and Sons. He also held senior positions at
CS First Boston including employment as a managing director from 1989 to
1994.  Mr. Kreft has served as a director since November 17, 2004 and
his term as a director will expire at our annual meeting of Stockholders June
2011. Mr. Kreft received his MBA from the Wharton School of Business in 1975.
Mr. Kreft is a member of the National Association of Corporate Directors
(NACD).




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







Committees
of the Board


Our board
of directors has a designated Audit Committee that reviews the scope and results
of the audit and other services performed by our independent accountants. The
Audit Committee is comprised solely of independent directors and consists of
Messrs. Kreft, Bachelder, 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. Kreft,
Bachelder, Collins and Hallman. There is also a Nominating Committee comprised
of the independent directors, 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 $1500 for in-person
attendance or $500 for telephone attendance. Non-employee directors are
reimbursed for their reasonable expenses incurred in connection with attendance
at or participation in such meetings. In addition, under our 1995 Director Plan,
each non-employee director who becomes a director is granted an option to
purchase 5,000 shares of our common stock. Messrs. Hallman and Collins were each
granted an option to purchase 5,000 shares of our common stock in 1988 under our
previous 1986 Plan at the time of their respective appointments or reelections
to the board of directors. Such grants and the terms thereof were renewed on
April 18, 1997, May 5, 1996 and




77
 Index


May 5,
1996, respectively, in accordance with stockholder approval of the 1995 Director
Plan at our 1995 annual meeting of stockholders. Messrs. Kreft and Bachelder
each received an option to purchase 5,000 shares of our Common Stock upon
appointment to our Board of Directors in November 2004.




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








ITEM
11.  EXECUTIVE COMPENSATION





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





ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT





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





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS





Related
Party Leases


On March
1, 1999, we entered into a one year (renewable for four additional one year
terms) lease agreement with Harvey Pride, Jr., our Vice President –
Manufacturing, for a 2,400 sq. ft. customer service office located next to our
existing Decatur, Alabama facility. We paid an annual rent of $18,000 for this
facility under the lease agreement in fiscal 2004 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 is Pennsylvania
from this employee, on a month by month basis, for the monthly amount of $3,350
or $3.35 per square foot annually.  Mifflin Valley utilizes the
services of Gallen Insurance (an affiliate of Michael & Donna Gallen) to
provide certain insurance in Pennsylvania.  Such payments for
insurance aggregated of approximately $40,000, $34,000 and $27,000 in fiscal
2009, 2008 and 2007, respectively.







Related
Party-outside contractor




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







ITEM
14.  PRINCIPAL ACCOUNTING FEES AND
SERVICES





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


78
 Index





PART
IV





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





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





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





2  Financial
      Statement Schedules:


Schedule
II- Valuation and Qualifying Accounts


All
      other schedules are omitted because they are not applicable, not required,
      or because the 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))10.3
                                    Employment
      Agreement, dated April 16, 2007, between Lakeland Industries, Inc. and
      Raymond J. Smith (Incorporated by reference to Exhibit 10-4 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.4
                                    Employment
      Agreement, dated April 11, 2008, agreement between Lakeland Industries,
      Inc. and Harvey Pride, Jr. (filed herein)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. (filed herein)10.7
                                    Modification
      to the Term Loan and Security Agreement, dated July 7, 2005, between
      Lakeland Industries, Inc. and Wachovia Bank, N.A. (filed
      herein)10.8
                                    Employment
      Agreement, dated April 18, 2007, between Lakeland Industries, Inc. and
      James M. McCormick (Incorporated by reference to Exhibit 10-12 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.9
                                    Employment
      Agreement, dated April 18, 2007, between Lakeland Industries, Inc. and
      Paul C. Smith (Incorporated by reference to Exhibit 10-13 of Lakeland
      Industries, Inc.’s Quarterly Report on Form 10-Q filed June 7,
      2007)10.10
                                    Employment
      Agreement, dated January 31, 2008, between Lakeland Industries, Inc. and
      Gary Pokrassa, CPA.  (Incorporated by reference to exhibit 10.1
      of Lakeland Industries, Inc. Form 8-K filed February 6,
    2008)





79
 Index





10.11
                                    Employment
      Agreement, dated April 16, 2007, between Lakeland Industries Inc., and
      Gregory D. Willis (Incorporated by reference to exhibit 10.15 of Lakeland
      Industries, Inc. Quarterly Report on Form 10-Q filed June 7,
      2007)10.12
                                    Asset
      Purchase Agreement, dated July, 2005 between Lakeland Industries, Inc. and
      Mifflin Valley, Inc. and Lease Agreement and Employment Contract between
      Lakeland Industries, Inc., and Michael Gallen (Incorporated by reference
      to exhibit 10.15, 10.16, and 10.17 of Lakeland Industries, Inc.’s
      Quarterly Report on form 10-Q filed September 7, 2005)10.13
                                    Lease
      Agreement, dated March 1, 2006, between Carlos Tornquist Bertrand, as
      lessor, and Lakeland Industries, Inc., as lessee (Incorporated by
      reference to exhibit 10.21 of Lakeland Industries, Inc.’s 10-K for the
      year ended January 31, 2007)10.14
                                    Lease
      Agreement, dated 2006, between Michael Robert Kendall, June Jarvis, and
      Barnett Waddingham Trustees Limited, as lessor, and Lakeland Industries,
      Inc., as lessee (Incorporated by reference to exhibit 10.22 of Lakeland
      Industries, Inc.’s 10-K for the year ended January 31,
    2007)10.15
                                    Lease
      Agreement, 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 (filed herein)14.1
                                    Amendment
      dated February 13, 2009 to the Lakeland Industries, Inc. Code of Ethics
      (filed herein)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
      India Private Ltd.
                                      Lakeland
      Industries, Inc. Agencia en Chile
                                      Lakeland
      Japan, Inc.
                                      Qualytextil,
      S.A.23
                                    Consent
      of Independent Registered Public Accounting Firm31.1
                                    Certification
      of Christopher J. Ryan, Chief Executive Officer, President, Secretary and
      General Counsel, pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
                                    Certification
      of Gary Pokrassa, Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                                    Certification
      of Christopher J. Ryan, Chief Executive Officer, President, Secretary and
      General Counsel, pursuant to 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.





(b)
            Reports
      on Form 8 - K.




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


80
 Index





a.
            On
      April 14, 200 the Company filed a Form 8-K regarding the Company's FY 2008
      financial results for the reporting period ended January 31,
      2008.


b.
            On
      April 15, 2008 the Company filed a Form 8-K regarding the Company’s
      Restated Certificate of Incorporation and Amended and Restated
      Bylaws.


c.
            On
      April 16, 2008 the Company filed a Form 8-K regarding the issue of a press
      release calling on Seymour Holtzman to withdraw his notice of
      nomination.


d.
            On
      April 22, 2008 the Company filed a Form 8-K regarding the issue of a press
      release confirming receipt of notice from Seymour Holtzman withdrawing his
      notice of intent to nominate two individuals for election at the 2008
      annual meeting.


e.
            On
      May 6, 2008 the Company filed a Form 8-K regarding the final closing date
      for the acquisition of Qualytextil,
S.A.


f.
            On
      May 15, 2008 the Company filed a Form 8-K regarding the Stock Purchase
      Agreement, Employment Agreements, the Completion of Acquisition with
      Qualytextil, S.A. and the Amendment to Revolving Line of
      Credit.


g.
            On
      May 16, 2008 the Company filed a Form 8-K regarding the issue of a press
      release announcing it intends to seek stockholder approval for the repeal
      of the supermajority voting requirements applicable to certain business
      combinations that are currently contained in its Restated Certificate of
      Incorporation.


h.
            On
      June 9, 2008 the Company filed a Form 8-K regarding the issue of a press
      release announcing the Company’s Q1 FY09 financial results for the
      reporting period ended April 30,
2008.


i.
            On
      June 20, 2009, the Company filed a Form 8-K regarding the employment
      agreement, dated April 13, 2008, between Lakeland Industries, Inc. and
      Christopher J. Ryan, the approval and adoption of the Amended and Restated
      Bylaws of the Company by the Board of Directors, and the Amendments to
      Lakeland’s Restated Certificate of
  Incorporation.


j.
            On
      July 25, 2008, the Company filed a Form 8-K/A amending the May 15, 2008
      Form 8-K regarding the completion of the Qualytextil acquisition in order
      to include audited historical financial statements of Qualytextil and pro
      forma financial information that was not included in the initial Form
      8-K.


k.
            On
      August 1, 2008, the Company filed a Form 8-K regarding the settlement with
      the Internal Revenue Service.


l.
            On
      August 7, 2008, the Company filed a Form 8-K/A amending the June 20, 2008
      Form 8-K solely to correct a number of typographical errors contained in
      the discussion of the advance notice provision of the Company’s Amended
      and Restated Bylaws.


m.
            On
      September 9, 2008, the Company filed a Form 8-K regarding the issue of a
      press release announcing the Company’s Q2 FY09 financial results for the
      reporting period ended July 31,
2008.


n.
            On
      September 23, 2008, the Company filed a Form 8-K announcing it has entered
      into an interest rate swap agreement with Wachovia Bank,
    NA.


o.
            On
      December 10, 2008, the Company filed a Form 8-K regarding the issue of a
      press release announcing the Company’s Q3 FY09 financial results for the
      reporting period ended October 31,
2008.


p.
            On
      December 12, 2008, the Company filed a Form 8-K announcing the resignation
      of Michael Cirenza from its Board of
Directors.


q.
            On
      March 4, 2009, the company filed a Form 8-K announcing it will make a
      presentation at an investor conference in Las Vegas, Nevada sponsored by
      EdgeWater Research Partners.


81
 Index





SIGNATURES





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





Dated:   April
15, 2009


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
      15, 2009Raymond
      J. Smith/s/ Christopher J. Ryan
                              
                              Chief
      Executive Officer, President,
                              April
      15, 2009Christopher
      J. Ryan
                              
                              General
      Counsel, Secretary and Director/s/ Gary Pokrassa
                              
                              Chief
      Financial Officer
                              April
      15, 2009Gary
      Pokrassa/s/ Eric O. Hallman
                              
                              Director
                              April
      15, 2009Eric
      O. Hallman/s/ John J. Collins, Jr.
                              
                              Director
                              April
      15, 2009John
      J. Collins, Jr./s/ John Kreft
                              
                              Director
                              April
      15, 2009John
      Kreft/s/ Stephen M. Bachelder
                              
                              Director
                              April
      15, 2009Stephen
      M. Bachelder





82