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Article by DailyStocks_admin    (05-02-08 06:29 AM)

Filed with the SEC from Apr 17 to Apr 24:

Lakeland Industries (LAKE)
Investor Seymour Holtzman is withdrawing his nominees for election to the board at the company's 2008 annual meeting. Holtzman previously had asked Lakeland to nominate him and Dennis R. Heinrich.
Last week, Lakeland called upon the veteran shareholder activist to withdraw his letter of nomination and "terminate his disruptive proxy contest against the company."
Holtzman said that he is seeking board representation in an effort to "maximize shareholder value." He owns 395,661 shares (7.27%).

BUSINESS OVERVIEW

O ver view

We manufacture and sell a comprehensive line of safety garments and accessories for the industrial protective clothing market. Our products are sold by our in-house customer service group our regional sales managers and independent sales representatives to a network of over 1000 safety and mill supply distributors. These distributors in turn supply end user industrial customers such as chemical/petrochemical, automobile, steel, glass, construction, smelting, munition plants, janitorial, pharmaceutical and high technology electronics manufacturers, as well as hospitals and laboratories. In addition, we supply federal, state and local governmental agencies and departments such as fire and police departments, airport crash rescue units, the Department of Defense, the Department of Homeland Security, and the Centers for Disease Control. In fiscal 2008, we had net sales of $95.7 million. Our net sales attributable to customers outside the United States were $9.6 million, $11.5 million and $13.0 million, in fiscal 2006, fiscal 2007 and fiscal 2008, respectively.

Our major product categories and their applications are described below:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Industry Consolidation

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

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

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

•

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

•

broader product offerings that facilitate cross-selling opportunities;

•

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

•

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

•

access to international sales.

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


B us iness Strategy

Key elements of our strategy include:

•

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

•

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

•

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

•

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

•

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

•

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

•

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

For example:



1.

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


2.

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



3.

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

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

•

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

O ur Competitive Strengths

Our competitive strengths include:

•

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

•

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

•

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

•

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

•

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

•

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

•

Manufacturing Flexibility . By locating labor-intensive manufacturing processes such as sewing in Mexico and China, and by utilizing sewing sub-contractors, we have the ability to increase production without substantial additional capital expenditures. Our manufacturing systems allow us flexibility for unexpected production surges and alternative capacity in the event any of our independent contractors become unavailable.

•

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

CEO BACKGROUND

Christopher J. Ryan has served as our Chief Executive Officer and President 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.

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.

Stephen M. Bachelder has been with Swiftview, Inc. a Portland, Oregon based software company since 1999 and President since 2002. From 1991 to 1999 Mr. Bachelder ran a consulting firm advising software and hardware based 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 November 17, 2004 and his term as a director will expire at our annual meeting of stockholders in June 2009.

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

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 graduated from the Wharton School of Business in 1975. Mr. Kreft has served as a director since November 17, 2004 and his term as a director will expire at our annual meeting of Stockholders June 2008.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We manufacture and sell a comprehensive line of safety garments and accessories for the industrial protective clothing market. Our products are sold by our in-house sales force and independent sales representatives to a network of over 1,000 safety and mill supply distributors. These distributors in turn supply end user industrial customers such as chemical/petrochemical, automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and high technology electronics manufacturers, as well as hospitals and laboratories. In addition, we supply federal, state and local governmental agencies and departments such as fire and police departments, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Our net sales attributable to customers outside the United States were $9.6 million, $11.5 million and $13.0 million, in fiscal 2006, fiscal 2007 and fiscal 2008, respectively.

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

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

We have operated manufacturing facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. As we have increasingly moved production of our products to our facilities in Mexico and China, we have seen improvements in the profit margins for these products. We are close to completion of moving the production of our reusable woven garments and gloves to these facilities and expect to complete this process by the second quarter of fiscal 2009. As a result, we expect to see profit margin improvements for these particular product lines as well. The Company has decided to restructure its manufacturing operations in Mexico, by closing its previous facilities in Celaya and opening new facilities in Jerez. The Company estimates the costs to close, move and start up has aggregated approximately $500,000 pretax. This restructuring will allow for lower occupancy and labor costs and a more efficient production configuration. This cost was charged to its first quarter FY2008 results

Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and disclosure of contingent assets and liabilities. We base estimates on our past experience and on various other assumptions that we believe to be reasonable under the circumstances and we periodically evaluate these estimates.

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

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

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

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

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

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

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

Self-Insured Liabilities. We have a self-insurance program for certain employee health benefits. The cost of such benefits is recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but 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

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

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

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

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, 2008 from 17.5% for the year ended January 31, 2007. The $0.2 million decrease in operating expenses in the year ended January 31, 2008 compared to the year ended January 31, 2007 was principally due to (decreases) or increases in:



o

($0.25) million miscellaneous net expense decreases.


o

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


o

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


o

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


o

$0.09 million in share-based compensation.


o

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


o

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

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

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

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

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

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

MANAGEMENT DISCUSSION FOR LATEST QUARTER
Nine months ended October 31, 2007 as compared to the nine months ended October 31, 2006

Net Sales. Net sales decreased $3.79 million, or 5.1% to $70.8 million for the nine months ended October 31, 2007 from $74.6 million for the nine months ended October 31, 2006. The net decrease was comprised of decreased sales in Tyvek disposable garments of $5.2 million in the U.S. and $1.03 million in Canada primarily due to competitive market conditions, competitors rebate programs, lower government spending in the Company’s Chemical Protective garments by $21,000 and less revenue from India of $295,000 as a result of its shutdown for retooling during this fiscal year to date, counter balanced by growth in sales in Chile, Japan and United Kingdom subsidiaries of $1,103,000 and by increased external sales from China of $1,681,000. The Company expects to reopen its Indian facility in December 2007, so the resumption of glove sales should take full effect in the first quarter of fiscal 2009. Sales of wovens and gloves increased by $270,000 compared to the same period last year. The increase in fire gear sales 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 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 $2.4 million or 13.1% to $16.2 million for the nine months ended October 31, 2007 from $18.6 million for the nine months ended October 31, 2006. Gross profit as a percentage of net sales decreased to 22.9% for the nine months ended October 31, 2007 from 24.9% for the nine months ended October 31, 2006, primarily due to a sales rebate program to meet competitive conditions resulting in a $777,000 reduction in sales and higher Tyvek fabric costs. Such higher Tyvek costs resulted from Tyvek purchased earlier at 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 costs related to the new foreign subsidiaries of approximately $714,000 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 continuation 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 $.40 million, or 3.0% to $12.9 million for the nine months ended October 31, 2007 from $13.3 million for the nine months ended October 31, 2006. As a percentage of sales, operating expenses increased to 18.3% for the nine months ended October 31, 2007 from 17.9% for the nine months ended October 31, 2006. This increase as a
percent of sales is largely due to reduced volume. The decrease in operating expenses in the nine months ended October 31, 2007 as compared to the nine months ended October 31, 2006 included:



•

$0.27 increase in R & D costs relating to UL certifications of fire gear and other non-related certifications and for new product lines.


•

$0.23 million in higher professional and consulting fees, largely resulting from audit fees and engineering fees related to India.


•

$0.08 million in share-based compensation.


•

($0.03) million lower freight out costs resulting from slight relief in prevailing carrier rates and lower volume.


•

($0.05) million in reduced bank charges resulting from reduced use of credit cards and a re-negotiation of the fee structure.


•

($0.07) million lower insurance costs.


•

($0.08) million decreased sales commissions and selling expenses due to decreased volume.


•

($0.11) million lower currency fluctuation costs resulting from our hedging program.


•

($0.28) million miscellaneous decreases.


•

($0.36) million lower start up expenses in India.


Operating Profit . Operating profit decreased 38.6% to $3.3 million for the nine months ended October 31, 2007 from $5.3 million for the nine months ended October 31, 2006. Operating margins were 4.6% for the nine months ended October 31, 2007 compared to 7.1% for the nine months ended October 31, 2006.

Interest Expenses . Interest expenses decreased by $.061 million for the nine months ended October 31, 2007 as compared to the nine months ended October 31, 2006 because of lower amounts borrowed and steady to lower interest rates under the Company’s credit facility.

Income Tax Expense . Income tax expenses consist of federal, state, and foreign income taxes. Income tax expenses decreased $.462 million, or 33%, to $.937 million for the nine months October 31, 2007 from $1.399 million for the nine months ended October 31, 2006. Lakeland’s effective tax rates were 28.9% and 26.9% for the nine months ended October 31, 2007 and 2006, respectively. The Company’s effective tax rate varied from the federal statutory rate of 34% due primarily to the Mexican restructuring costs charged to the first quarter largely not eligible for tax benefits, which was offset by reduced domestic profits in the second quarter, and otherwise lower foreign tax rates, primarily resulting from greater profits resulting from outsourced production, reduced domestic profits in the second quarter, partially offset by state taxes and by start up losses in Chile and Japan which are not eligible for tax credits and for India in which a U.S. tax benefit of $158,000 was recorded at October 31, 2007 and further offset by some foreign exchange items not eligible for foreign tax benefits. The Indian losses became eligible for the tax benefit as a result of the planned liquidation of the existing Indian subsidiary which will result in a bad debt deduction for the U.S. parent company on its taxes for the uncollected portion of its loans and advances from the Indian subsidiary.

Net Income . Net income decreased $1.50 million, or 39.6% to $2.29 million for the nine months ended October 31, 2007 from $3.80 million for the nine months ended October 31, 2006. The decrease in net income primarily resulted from lower sales and meeting competitive conditions in the disposable garment division both in the U.S. and Canada, offset by the decreased operating expenses described above, and the combined operating losses of $561,000 of the new foreign operations and the Mexican plant closing of $500,000.

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