UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2012

OR

| |  ̈ | 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: 001-34382



ROCKY BRANDS, INC.

(Exact name of registrant as specified in
its charter)





|Ohio                            | 31-1364046         
|------------------------------- | -------------------
|(State or Other Jurisdiction of | (I.R.S. Employer   
|Incorporation or Organization)  | Identification No.)





39 E. Canal Street, Nelsonville, Ohio
45764

(Address of Principal Executive Offices,
Including Zip Code)



(740) 753-1951

(Registrant’s Telephone Number, Including
Area Code)



Not Applicable

(Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report)



Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x NO  ̈



Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes x
No  ̈



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



Large accelerated filer  ̈Accelerated
filer x Non-accelerated filer  ̈
Smaller reporting company  ̈

(Do not check if a
smaller reporting company)



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES  ̈ NO x



As of July 20, 2012, 7,503,568 shares of Rocky Brands, Inc.
common stock, no par value, were outstanding.













FORM 10-Q



ROCKY BRANDS, INC.



TABLE OF CONTENTS



|PART I.     FINANCIAL INFORMATION |                                                                                                                                        | PAGE NUMBER
|--------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | -----------
|                                  |                                                                                                                                        |            
|Item 1.                           | Financial Statements                                                                                                                   |            
|                                  |                                                                                                                                        |            
|                                  | Condensed Consolidated Balance Sheets June 30, 2012 and 2011 (Unaudited), and December 31, 2011                                        |            
|                                  |                                                                                                                                        |            
|                                  | Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2012 and 2011 (Unaudited) |            
|                                  |                                                                                                                                        |            
|                                  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (Unaudited)                            |            
|                                  |                                                                                                                                        |            
|                                  | Notes to the Interim Unaudited Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2012 and 2011   |            
|                                  |                                                                                                                                        |            
|Item 2.                           | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                  |            
|                                  |                                                                                                                                        |            
|Item 3.                           | Quantitative and Qualitative Disclosures About Market Risk                                                                             |            
|                                  |                                                                                                                                        |            
|Item 4.                           | Controls and Procedures                                                                                                                |            
|                                  |                                                                                                                                        |            
|PART II.  OTHER INFORMATION       |                                                                                                                                        |            
|                                  |                                                                                                                                        |            
|Item 1.                           | Legal Proceedings                                                                                                                      |            
|                                  |                                                                                                                                        |            
|Item 1A.                          | Risk Factors                                                                                                                           |            
|                                  |                                                                                                                                        |            
|Item 2.                           | Unregistered Sales of Equity Securities and Use of Proceeds                                                                            |            
|                                  |                                                                                                                                        |            
|Item 3.                           | Defaults Upon Senior Securities                                                                                                        |            
|                                  |                                                                                                                                        |            
|Item 4.                           | Mine Safety Disclosures                                                                                                                |            
|                                  |                                                                                                                                        |            
|Item 5.                           | Other Information                                                                                                                      |            
|                                  |                                                                                                                                        |            
|Item 6.                           | Exhibits                                                                                                                               |            
|                                  |                                                                                                                                        |            
|SIGNATURE                         |                                                                                                                                        |            





2







PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS





ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS





|                                                                                                                                            |  | June 30, 2012 |             |  | December 31, 2011 |   |             | June 30, 2011 | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- |  | ----------------- | - | ----------- | ------------- | 
|                                                                                                                                            |  | (Unaudited)   |             |  |                   |   |             | (Unaudited)   | 
|ASSETS:                                                                                                                                     |  |               |             |  |                   |   |             |               | 
|CURRENT ASSETS:                                                                                                                             |  |               |             |  |                   |   |             |               | 
|Cash and cash equivalents                                                                                                                   |  | $             | 1,850,905   |  |                   | $ | 3,650,291   |               | 
|Trade receivables – net                                                                                                                     |  |               | 36,729,487  |  |                   |   | 45,008,793  |               | 
|Other receivables                                                                                                                           |  |               | 760,596     |  |                   |   | 946,686     |               | 
|Inventories                                                                                                                                 |  |               | 74,048,921  |  |                   |   | 65,019,048  |               | 
|Income tax receivable                                                                                                                       |  |               | 933,293     |  |                   |   | 1,164,664   |               | 
|Deferred income taxes                                                                                                                       |  |               | 1,154,040   |  |                   |   | 1,154,040   |               | 
|Prepaid expenses                                                                                                                            |  |               | 2,240,461   |  |                   |   | 2,561,941   |               | 
|Total current assets                                                                                                                        |  |               | 117,717,703 |  |                   |   | 119,505,463 |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|FIXED ASSETS – net                                                                                                                          |  |               | 24,822,919  |  |                   |   | 23,557,102  |               | 
|IDENTIFIED INTANGIBLES                                                                                                                      |  |               | 30,490,861  |  |                   |   | 30,493,107  |               | 
|OTHER ASSETS                                                                                                                                |  |               | 436,525     |  |                   |   | 510,293     |               | 
|TOTAL ASSETS                                                                                                                                |  | $             | 173,468,008 |  |                   | $ | 174,065,965 |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|LIABILITIES AND SHAREHOLDERS' EQUITY:                                                                                                       |  |               |             |  |                   |   |             |               | 
|CURRENT LIABILITIES:                                                                                                                        |  |               |             |  |                   |   |             |               | 
|Accounts payable                                                                                                                            |  | $             | 10,740,705  |  |                   | $ | 5,696,363   |               | 
|Current maturities – long term debt                                                                                                         |  |               | -           |  |                   |   | -           |               | 
|Accrued expenses:                                                                                                                           |  |               |             |  |                   |   |             |               | 
|Salaries and wages                                                                                                                          |  |               | 1,122,898   |  |                   |   | 2,310,906   |               | 
|Taxes - other                                                                                                                               |  |               | 595,214     |  |                   |   | 609,992     |               | 
|Accrued freight                                                                                                                             |  |               | 511,152     |  |                   |   | 633,254     |               | 
|Commissions                                                                                                                                 |  |               | 457,214     |  |                   |   | 709,201     |               | 
|Income taxes payable                                                                                                                        |  |               | -           |  |                   |   | -           |               | 
|Current portion of pension funding                                                                                                          |  |               | -           |  |                   |   | -           |               | 
|Other                                                                                                                                       |  |               | 933,674     |  |                   |   | 970,806     |               | 
|Total current liabilities                                                                                                                   |  |               | 14,360,857  |  |                   |   | 10,930,522  |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|LONG TERM DEBT – less current maturities                                                                                                    |  |               | 29,909,957  |  |                   |   | 35,000,000  |               | 
|DEFERRED INCOME TAXES                                                                                                                       |  |               | 10,987,395  |  |                   |   | 10,987,395  |               | 
|DEFERRED PENSION LIABILITY                                                                                                                  |  |               | -           |  |                   |   | -           |               | 
|DEFERRED LIABILITIES                                                                                                                        |  |               | 488,437     |  |                   |   | 488,437     |               | 
|TOTAL LIABILITIES                                                                                                                           |  |               | 55,746,646  |  |                   |   | 57,406,354  |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|COMMITMENTS AND CONTINGENCIES                                                                                                               |  |               |             |  |                   |   |             |               | 
|                                                                                                                                            |  |               |             |  |                   |   |             |               | 
|SHAREHOLDERS' EQUITY:                                                                                                                       |  |               |             |  |                   |   |             |               | 
|Common stock, no par value;                                                                                                                 |  |               |             |  |                   |   |             |               | 
|25,000,000 shares authorized; issued and outstanding June 30, 2012 - 7,503,568; December 31, 2011 - 7,489,995 and June 30, 2011 - 7,489,995 |  |               | 69,694,770  |  |                   |   | 69,572,270  |               | 
|Accumulated other comprehensive loss                                                                                                        |  |               | -           |  |                   |   | -           |               | 
|Retained earnings                                                                                                                           |  |               | 48,026,592  |  |                   |   | 47,087,341  |               | 
|Total shareholders' equity                                                                                                                  |  |               | 117,721,362 |  |                   |   | 116,659,611 |               | 
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                  |  | $             | 173,468,008 |  |                   | $ | 174,065,965 |               | 



See notes to the interim unaudited condensed
consolidated financial statements.





3







ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME

(UNAUDITED)





|                                                                         |  | Three Months Ended |            |   | Six Months Ended |  
|------------------------------------------------------------------------ |  | ------------------ | ---------- | - | ---------------- | -
|                                                                         |  | June 30,           |            |   | June 30,         |  
|                                                                         |  | 2012               |            |   | 2011             |  
|NET SALES                                                                |  | $                  | 44,408,358 |   |                  | $
|                                                                         |  |                    |            |   |                  |  
|COST OF GOODS SOLD                                                       |  |                    | 29,056,731 |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|GROSS MARGIN                                                             |  |                    | 15,351,627 |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|SELLING, GENERAL AND                                                     |  |                    |            |   |                  |  
|ADMINISTRATIVE EXPENSES                                                  |  |                    | 14,893,727 |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|INCOME FROM OPERATIONS                                                   |  |                    | 457,900    |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|OTHER INCOME AND (EXPENSES):                                             |  |                    |            |   |                  |  
|Interest expense, net                                                    |  |                    | (130,606   | ) |                  |  
|Other – net                                                              |  |                    | 13,270     |   |                  |  
|Total other - net                                                        |  |                    | (117,336   | ) |                  |  
|                                                                         |  |                    |            |   |                  |  
|INCOME  BEFORE INCOME TAXES                                              |  |                    | 340,564    |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|INCOME TAX EXPENSE                                                       |  |                    | 122,000    |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|NET INCOME                                                               |  | $                  | 218,564    |   |                  | $
|                                                                         |  |                    |            |   |                  |  
|NET INCOME PER SHARE                                                     |  |                    |            |   |                  |  
|Basic                                                                    |  | $                  | 0.03       |   |                  | $
|Diluted                                                                  |  | $                  | 0.03       |   |                  | $
|                                                                         |  |                    |            |   |                  |  
|WEIGHTED AVERAGE NUMBER OF                                               |  |                    |            |   |                  |  
|COMMON SHARES OUTSTANDING                                                |  |                    |            |   |                  |  
|Basic                                                                    |  |                    | 7,503,568  |   |                  |  
|Diluted                                                                  |  |                    | 7,503,568  |   |                  |  
|                                                                         |  |                    |            |   |                  |  
|COMPREHENSIVE INCOME                                                     |  |                    |            |   |                  |  
|Net income                                                               |  | $                  | 218,564    |   |                  | $
|Other comprehensive income:                                              |  |                    |            |   |                  |  
|Amortization of unrecognized transition obligation, service and net loss |  |                    | -          |   |                  |  
|TOTAL COMPREHENSIVE INCOME                                               |  | $                  | 218,564    |   |                  | $





See notes to the interim unaudited condensed
consolidated financial statements.





4









ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS

(UNAUDITED)





|                                                    |  | Six Months Ended |            
|--------------------------------------------------- |  | ---------------- | -----------
|                                                    |  | June 30,         |            
|                                                    |  | 2012             |            
|CASH FLOWS FROM OPERATING ACTIVITIES:               |  |                  |            
|Net income                                          |  | $                | 939,251    
|Adjustments to reconcile net income to net cash     |  |                  |            
|provided by (used in) operating activities:         |  |                  |            
|Depreciation and amortization                       |  |                  | 2,822,201  
|Deferred compensation and other                     |  |                  | -          
|(Gain) loss on disposal of fixed assets             |  |                  | (57,503    
|Stock compensation expense                          |  |                  | 122,500    
|Change in assets and liabilities                    |  |                  |            
|Receivables                                         |  |                  | 8,465,396  
|Inventories                                         |  |                  | (9,029,873 
|Other current assets                                |  |                  | 552,851    
|Other assets                                        |  |                  | 73,768     
|Accounts payable                                    |  |                  | 4,990,781  
|Accrued and other liabilities                       |  |                  | (1,614,007 
|                                                    |  |                  |            
|Net cash provided by (used in) operating activities |  |                  | 7,265,365  
|                                                    |  |                  |            
|CASH FLOWS FROM INVESTING ACTIVITIES:               |  |                  |            
|Purchase of fixed assets                            |  |                  | (4,051,981 
|Investment in trademarks and patents                |  |                  | (22,547    
|Proceeds from sale of fixed assets                  |  |                  | 99,820     
|                                                    |  |                  |            
|Net cash used in investing activities               |  |                  | (3,974,708 
|                                                    |  |                  |            
|CASH FLOWS FROM FINANCING ACTIVITIES:               |  |                  |            
|Proceeds from revolving credit facility             |  |                  | 30,019,432 
|Repayments of revolving credit facility             |  |                  | (35,109,475
|Repayments of long-term debt                        |  |                  | -          
|Proceeds from exercise of stock options             |  |                  | -          
|                                                    |  |                  |            
|Net cash (used in) provided by financing activities |  |                  | (5,090,043 
|                                                    |  |                  |            
|DECREASE IN CASH AND CASH EQUIVALENTS               |  |                  | (1,799,386 
|                                                    |  |                  |            
|CASH AND CASH EQUIVALENTS,                          |  |                  |            
|BEGINNING OF PERIOD                                 |  |                  | 3,650,291  
|                                                    |  |                  |            
|CASH AND CASH EQUIVALENTS,                          |  |                  |            
|END OF PERIOD                                       |  | $                | 1,850,905  



See notes to the interim unaudited condensed
consolidated financial statements.





5







ROCKY BRANDS, INC.

AND SUBSIDIARIES





NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011





| | 1. | INTERIM FINANCIAL REPORTING
| | -- | ---------------------------



In the opinion of management, the accompanying
interim unaudited condensed consolidated financial statements reflect all adjustments that are necessary for a fair
presentation of the financial results. All such adjustments reflected in the unaudited interim condensed consolidated
financial statements are considered to be of a normal and recurring nature. The results of the operations for the three and
six months ended June 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the whole year.
Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2011.
Certain amounts from the prior year have been reclassified to conform to current year presentation.



| | 2. | TRADE RECEIVABLES
| | -- | -----------------



Trade receivables are presented net of the related
allowance for uncollectible accounts of approximately $519,000, $556,000 and $618,000 at June 30, 2012, December 31, 2011 and June
30, 2011, respectively. The allowance for uncollectible accounts is calculated based on the relative age and size of trade receivable
balances. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have
pursued all reasonable efforts to collect on the account.



| | 3. | INVENTORIES
| | -- | -----------



Inventories are comprised of the
following:





|                            |  | June 30,    |            |   | December 31, |   |            | June 30,    | 
|--------------------------- |  | ----------- | ---------- | - | ------------ | - | ---------- | ----------- | 
|                            |  | 2012        |            |   | 2011         |   |            | 2011        | 
|                            |  | (Unaudited) |            |   |              |   |            | (Unaudited) | 
|                            |  |             |            |   |              |   |            |             | 
|Raw materials               |  | $           | 12,792,812 |   |              | $ | 8,303,064  |             | 
|Work-in-process             |  |             | 993,791    |   |              |   | 476,991    |             | 
|Finished goods              |  |             | 60,371,168 |   |              |   | 56,342,273 |             | 
|Reserve for obsolescence or |  |             |            |   |              |   |            |             | 
|lower of cost or market     |  |             | (108,850   | ) |              |   | (103,280   | )           | 
|                            |  |             |            |   |              |   |            |             | 
|Total                       |  | $           | 74,048,921 |   |              | $ | 65,019,048 |             | 







6









| | 4. | SUPPLEMENTAL CASH FLOW INFORMATION
| | -- | ----------------------------------



Supplemental cash flow information is as follows:





|                                          |  | (Unaudited)      |        
|----------------------------------------- |  | ---------------- | -------
|                                          |  | Six Months Ended |        
|                                          |  | June 30,         |        
|                                          |  | 2012             |        
|                                          |  |                  |        
|Interest                                  |  | $                | 319,432
|                                          |  |                  |        
|Federal, state and local income taxes,    |  |                  |        
|net of refunds                            |  | $                | 273,766
|                                          |  |                  |        
|Fixed asset purchases in accounts payable |  | $                | 207,731







| | 5. | PER SHARE INFORMATION
| | -- | ---------------------



Basic earnings per share (“EPS”) is computed
by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during each
period. The diluted earnings per share computation includes common share equivalents, when dilutive. There are no adjustments to
net income necessary in the calculation of basic and diluted earnings per share.



A reconciliation of the shares used
in the basic and diluted income per common share computation for the three and six months ended June 30, 2012 and 2011 are as follows:





|                                     |  | (Unaudited)        |           |  | (Unaudited)      | 
|------------------------------------ |  | ------------------ | --------- |  | ---------------- | 
|                                     |  | Three Months Ended |           |  | Six Months Ended | 
|                                     |  | June 30,           |           |  | June 30,         | 
|                                     |  | 2012               |           |  | 2011             | 
|Weighted average                     |  |                    |           |  |                  | 
|shares outstanding                   |  |                    | 7,503,568 |  |                  | 
|                                     |  |                    |           |  |                  | 
|Dilutive stock options               |  |                    | -         |  |                  | 
|                                     |  |                    |           |  |                  | 
|Dilutive weighted average            |  |                    |           |  |                  | 
|shares outstanding                   |  |                    | 7,503,568 |  |                  | 
|                                     |  |                    |           |  |                  | 
|Anti-dilutive stock options/weighted |  |                    |           |  |                  | 
|average shares outstanding           |  |                    | 10,000    |  |                  | 







7









| | 6. | RECENT FINANCIAL ACCOUNTING STANDARDS
| | -- | -------------------------------------



Recently adopted accounting standards



In April 2011, the Financial Accounting and Standards
Board (FASB) issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is
a Troubled Debt Restructuring. The FASB believes the guidance in this ASU will improve financial reporting by creating greater
consistency in the way GAAP is applied for various types of debt restructurings. The ASU clarifies which loan modifications constitute
troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable
meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure
of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must
separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the
debtor is experiencing financial difficulties. The amendments to FASB Accounting Standards CodificationTM (Codification)
Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession and
whether a debtor is experiencing financial difficulties. The guidance was effective for interim and annual periods beginning on
or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of
adoption. The adoption of this standard did not have a material effect on our consolidated financial statements.



In May 2011, the FASB issued ASU No. 2011-04, Fair
Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective
efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value
and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.”
The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied
prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15,
2011. The adoption of this standard did not have a material effect on our consolidated financial statements.



In September 2011, the FASB issued ASU No. 2011-08,
Intangibles – Goodwill and Other – (Topic 350) Testing Goodwill for Impairment.The amendments in this update
will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit
unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than
its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative
assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. The adoption of this standard did not have a material effect on our consolidated financial statements.





8







In June 2011, the FASB
issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments to
Topic 220, an entity has the option to present the total of comprehensive income, the components of net income and the components
of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of net income along with total net income, each component
of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This
update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders'
equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item
of other comprehensive income must be reclassified to net income.The amendments in this update should be applied retrospectively.
For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December
15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require
any transition disclosures. The adoption of this standard did not have a material effect on our consolidated financial statements.



Accounting standards not yet adopted



In December 2011, the FASB issued ASU No. 2011-12,
Comprehensive Income (Topic 220):

Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05. The amendments in this update supersede certain pending paragraphs in Accounting Standards Update
No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes
in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income.
The amendments will be temporary to allow the FASB time to redeliberate the presentation requirements for reclassifications out
of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities.
We are currently assessing the potential impact of the adoption of this amendment on our consolidated financial statements and
related disclosures.





9







| | 7. | INCOME TAXES
| | -- | ------------



We file income tax returns in the U.S. Federal jurisdiction
and various state and foreign jurisdictions. We are no longer subject to U.S. Federal tax examinations for years before 2008. State
jurisdictions that remain subject to examination range from 2007 to 2010. Foreign jurisdiction tax returns that remain subject
to examination range from 2005 to 2010 for Canada and from 2005 to 2010 for Puerto Rico. We do not believe there will be any material
changes in our unrecognized tax positions over the next 12 months.



Our policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense. As of June 30, 2012, accrued interest or penalties
were not material, and no such expenses were recognized during the quarter. We provided for income taxes at an estimated effective
tax rate of 36% and 35% for the six months ended June 30, 2012 and 2011, respectively. The estimated effective tax rate for 2012
is higher than the rate for 2011 as we made additional permanent capital investment in our operations in the Dominican
Republic in 2011, which reduced the amount of dividends that we needed to provide for U.S. income taxes. We do not expect to make
additional permanent capital investment in 2012.





10







| | 8. | INTANGIBLE ASSETS
| | -- | -----------------



A schedule of intangible assets is as follows:





|                             |  | Gross  |            |  | Accumulated  |   |              | Carrying | 
|---------------------------- |  | ------ | ---------- |  | ------------ | - | ------------ | -------- | 
|June 30, 2012 (unaudited)    |  | Amount |            |  | Amortization |   |              | Amount   | 
|Trademarks:                  |  |        |            |  |              |   |              |          | 
|Wholesale                    |  | $      | 27,243,578 |  |              | $ | -            |          | 
|Retail                       |  |        | 2,900,000  |  |              |   | -            |          | 
|Patents                      |  |        | 2,483,337  |  |              |   | 2,136,054    |          | 
|Customer relationships       |  |        | 1,000,000  |  |              |   | 1,000,000    |          | 
|Total Identified Intangibles |  | $      | 33,626,915 |  |              | $ | 3,136,054    |          | 
|                             |  |        |            |  |              |   |              |          | 
|                             |  |        | Gross      |  |              |   | Accumulated  |          | 
|December 31, 2011            |  |        | Amount     |  |              |   | Amortization |          | 
|Trademarks:                  |  |        |            |  |              |   |              |          | 
|Wholesale                    |  | $      | 27,243,578 |  |              | $ | -            |          | 
|Retail                       |  |        | 2,900,000  |  |              |   | -            |          | 
|Patents                      |  |        | 2,460,790  |  |              |   | 2,111,261    |          | 
|Customer relationships       |  |        | 1,000,000  |  |              |   | 1,000,000    |          | 
|Total Identified Intangibles |  | $      | 33,604,368 |  |              | $ | 3,111,261    |          | 
|                             |  |        |            |  |              |   |              |          | 
|                             |  |        |            |  |              |   |              |          | 
|                             |  |        | Gross      |  |              |   | Accumulated  |          | 
|June 30, 2011 (unaudited)    |  |        | Amount     |  |              |   | Amortization |          | 
|Trademarks:                  |  |        |            |  |              |   |              |          | 
|Wholesale                    |  | $      | 27,243,578 |  |              | $ | -            |          | 
|Retail                       |  |        | 2,900,000  |  |              |   | -            |          | 
|Patents                      |  |        | 2,447,750  |  |              |   | 2,087,060    |          | 
|Customer relationships       |  |        | 1,000,000  |  |              |   | 1,000,000    |          | 
|Total Identified Intangibles |  | $      | 33,591,328 |  |              | $ | 3,087,060    |          | 





Amortization
expense for intangible assets was $12,450 and $12,110 for the three months ended June 30, 2012 and 2011, respectively and $24,793
and 24,275 for the six months ended June 30, 2012 and 2011, respectively.  The weighted average amortization period for patents
is 15 years.



Estimate
of Aggregate Amortization Expense for the years ending December 31,:





| | 2013 |  |  | $ | 48,826 | 
| | ---- |  |  | - | ------ | 
| | 2014 |  |  |   | 48,053 | 
| | 2015 |  |  |   | 47,477 | 
| | 2016 |  |  |   | 44,704 | 
| | 2017 |  |  |   | 40,136 | 







11







| | 9. | CAPITAL STOCK
| | -- | -------------



On May 11, 2004, our shareholders approved the 2004
Stock Incentive Plan. The Plan includes 750,000 of our common shares that may be granted for stock options and restricted stock
awards. As of June 30, 2012, we were authorized to issue approximately 334,250 shares under our existing plans.



The Plan generally provides for grants with the exercise
price equal to fair value on the date of grant, graduated vesting periods of up to five years, and lives not exceeding ten years.
The following summarizes stock option transactions from January 1, 2012 through June 30, 2012:





|                                       |  | Shares |         |   | Weighted Average Exercise  Price |  
|-------------------------------------- |  | ------ | ------- | - | -------------------------------- | -
|Options outstanding at January 1, 2012 |  |        | 100,000 |   |                                  | $
|Issued                                 |  |        | -       |   |                                  |  
|Exercised                              |  |        | -       |   |                                  |  
|Forfeited                              |  |        | (90,000 | ) |                                  | $
|Options outstanding at June 30, 2012   |  |        | 10,000  |   |                                  | $
|                                       |  |        |         |   |                                  |  
|Options exercisable at:                |  |        |         |   |                                  |  
|January 1, 2012                        |  |        | 100,000 |   |                                  | $
|June 30, 2012                          |  |        | 10,000  |   |                                  | $
|                                       |  |        |         |   |                                  |  
|Unvested options at June 30, 2012      |  |        | -       |   |                                  |  





During the six months ended June
30, 2012, we granted 13,573 shares of common stock to members of our Board of Directors. We recorded compensation expense of $122,500,
which was the fair market value of the shares on the grant date. The shares are fully vested but cannot be sold for one year.



In June 2009, our Board of Directors adopted a Rights
Agreement, which provides for one preferred share purchase right to be associated with each share of our outstanding common stock.
Shareholders exercising these rights would become entitled to purchase shares of Series B Junior Participating Cumulative Preferred
Stock. The rights are exercisable after the time when a person or group of persons without the approval of the Board of Directors
acquire beneficial ownership of 20 percent or more of our common stock or announce the initiation of a tender or exchange offer
which if successful would cause such person or group to beneficially own 20 percent or more of our common stock. Such exercise
would ultimately entitle the holders of the rights to purchase at the exercise price, shares of common stock of the surviving corporation
or purchaser, respectively, with an aggregate market value equal to two times the exercise price. The person or groups effecting
such 20 percent acquisition or undertaking such tender offer would not be entitled to exercise any rights. The Rights Agreement
was renewed in June 2012 and expires in June 2017.





12









| | 10. | RETIREMENT PLANS
| | --- | ----------------



Prior to the fourth quarter of 2011, we sponsored
a noncontributory defined benefit pension plan covering non-union workers in our Ohio and Puerto Rico operations. Benefits under
the non-union plan are based upon years of service and highest compensation levels as defined. On December 31, 2005, we froze the
noncontributory defined benefit pension plan for all non-U.S. territorial employees. In the fourth quarter of 2011, we made a determination
to fully fund and terminate the pension plan.



Net pension cost of the Company’s plan is as
follows:





|                             |  | (Unaudited)        |   |  | (Unaudited)      |  
|---------------------------- |  | ------------------ | - |  | ---------------- | -
|                             |  | Three Months Ended |   |  | Six Months Ended |  
|                             |  | June 30,           |   |  | June 30,         |  
|                             |  | 2012               |   |  | 2011             |  
|                             |  |                    |   |  |                  |  
|Service cost                 |  | $                  | - |  |                  | $
|Interest                     |  |                    | - |  |                  |  
|Expected return on assets    |  |                    | - |  |                  |  
|Amortization of unrecognized |  |                    |   |  |                  |  
|net gain or loss             |  |                    | - |  |                  |  
|Amortization of unrecognized |  |                    |   |  |                  |  
|transition obligation        |  |                    | - |  |                  |  
|Amortization of unrecognized |  |                    |   |  |                  |  
|prior service cost           |  |                    | - |  |                  |  
|Net pension cost             |  | $                  | - |  |                  | $







13









| | 11. | SEGMENT INFORMATION
| | --- | -------------------



We have identified three reportable segments: Wholesale,
Retail and Military. Wholesale includes sales of footwear and accessories to several classifications of retailers, including sporting
goods stores, outdoor specialty stores, mail order catalogs, independent retailers, mass merchants, retail uniform stores, and
specialty safety shoe stores. Retail includes all sales from our stores and all sales in our Lehigh division, which includes sales
via shoemobiles to individual customers. Military includes sales to the U.S. Military. The following is a summary of segment results
for the Wholesale, Retail, and Military segments.





|                   |  | (Unaudited)        |            |  | (Unaudited)      |  
|------------------ |  | ------------------ | ---------- |  | ---------------- | -
|                   |  | Three Months Ended |            |  | Six Months Ended |  
|                   |  | June 30,           |            |  | June 30,         |  
|                   |  | 2012               |            |  | 2011             |  
|NET SALES:         |  |                    |            |  |                  |  
|Wholesale          |  | $                  | 34,697,580 |  |                  | $
|Retail             |  |                    | 9,139,712  |  |                  |  
|Military           |  |                    | 571,066    |  |                  |  
|Total Net Sales    |  | $                  | 44,408,358 |  |                  | $
|                   |  |                    |            |  |                  |  
|GROSS MARGIN:      |  |                    |            |  |                  |  
|Wholesale          |  | $                  | 11,058,323 |  |                  | $
|Retail             |  |                    | 4,267,641  |  |                  |  
|Military           |  |                    | 25,663     |  |                  |  
|Total Gross Margin |  | $                  | 15,351,627 |  |                  | $







Segment asset information is not prepared or used
to assess segment performance.



| | 12. | LONG-TERM DEBT
| | --- | --------------



In October 2010, we entered into a financing agreement
with PNC Bank (“PNC”) to provide a $70 million credit facility. The term of the facility is five years and the current
interest rate is generally LIBOR plus 1.50%.



Our credit facility contains
a restrictive covenant which requires us to maintain a fixed charge coverage ratio. This restrictive covenant is only in effect
upon a triggering event taking place (as defined in the credit facility agreement). At June 30, 2012, no triggering event had occurred
and the covenant was not in effect.



Thetotal amount available
under our revolving credit facility is subject to a borrowing base calculation based on various percentages of accounts receivable
and inventory. As of June 30, 2012, we had $29.9 million in borrowings under this facility and total capacity of $66.0 million.



In April 2011, we repaid the
remaining balance of approximately $1.8 million on our mortgage loans by borrowing under a sub-facility on the PNC credit facility.
The sub-facility is secured by real estate owned by us. In connection with this transaction, we incurred approximately $0.1 million
of prepayment and other fees that were reported as additional interest expense in the second quarter of 2011. The mortgage loans
were incurring interest at 8.28% and were replaced with borrowings under the credit facility for a current interest rate of LIBOR
plus 1.50%.





14







| | 13. | FINANCIAL INSTRUMENTS
| | --- | ---------------------





Generally accepted accounting standards establish a framework
for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level l measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy under generally accepted accounting standards are described below:



Level 1:	Inputs to the valuation methodology
are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.



Level 2:	Inputs to the valuation methodology
include:



| | · | Quoted prices for similar assets or liabilities in active
markets;
| | - | ------------------------------------------------------------------

| | · | Quoted prices for identical or similar assets or liabilities
in inactive markets;
| | - | ---------------------------------------------------------------------------------

| | · | Inputs other than quoted prices that are observable for
the asset or liability;
| | - | -------------------------------------------------------------------------------

| | · | Inputs that are derived principally from or corroborated
by observable market data by correlation or other means.
| | - | -----------------------------------------------------------------------------------------------------------------



If the asset or liability has a specified (contractual) term,
the Level 2 input must be observable for substantially the full term of the asset or liability.



Level 3:	Inputs to the valuation methodology
are unobservable and significant to the fair value measurement.



The only asset or liability measured at fair value on a recurring
basis by the Company at June 30, 2012, December 31, 2011 and June 30, 2011 was cash and cash equivalents of $1,850,905, $3,650,291
and $3,194,944, respectively. Cash and cash equivalents are considered to be Level 1.



The fair values of cash, accounts receivable, other
receivables and accounts payable approximated their carrying values because of the short-term nature of these instruments. Accounts
receivable consists primarily of amounts due from our customers, net of allowances. Other receivables consist primarily of amounts
due from employees (sales persons’ advances in excess of commissions earned and employee travel advances); other customer
receivables, net of allowances; and expected insurance recoveries. The carrying amounts of our revolving line of credit, our mortgages
and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the
marketplace during the year.





15









ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





RESULTS OF OPERATIONS



The following table sets forth, for the periods indicated, information
derived from our Interim Unaudited Condensed Consolidated Financial Statements, expressed as a percentage of net sales. The discussion
that follows the table should be read in conjunction with our Interim Unaudited Condensed Consolidated Financial Statements.





|                        |  | Three Months Ended |       |   | Six Months Ended | 
|----------------------- |  | ------------------ | ----- | - | ---------------- | 
|                        |  | June 30,           |       |   | June 30,         | 
|                        |  | 2012               |       |   | 2011             | 
|Net Sales               |  |                    | 100.0 | % |                  | 
|Cost Of Goods Sold      |  |                    | 65.4  | % |                  | 
|Gross Margin            |  |                    | 34.6  | % |                  | 
|                        |  |                    |       |   |                  | 
|Selling, General and    |  |                    |       |   |                  | 
|Administrative Expenses |  |                    | 33.5  | % |                  | 
|                        |  |                    |       |   |                  | 
|Income From Operations  |  |                    | 1.1   | % |                  | 



Three Months Ended June 30, 2012 Compared to Three Months
Ended June 30, 2011



Net sales. Net sales for the three months ended June
30, 2012 were $44.4 million compared to $52.3 million for the same period in 2011. Wholesale sales for the three months ended June
30, 2012 were $34.7 million compared to $40.8 million for the same period in 2011. The $6.1 million decrease in wholesale sales
was the result of a $3.0 million or 51.4% decrease in our hunting footwear category, a $2.0 million or 11.2% decrease in our work
footwear category, a $0.7 million or 36.3% decrease in our apparel category, a $0.4 million or 8.6% decrease in our commercial
military footwear category, a $0.2 million or 8.2% decrease in our duty footwear category and a $0.3 million decline in other,
which was partially offset by a $0.5 million or 8.4% increase in our western footwear category. On June 29, 2012, severe storms
eliminated power to more than 660,000 homes and businesses in Ohio including our distribution center in Logan, Ohio. As a result
of this power outage, our shipping capabilities were temporarily suspended which caused approximately $2.5 million of shipments
to move from the second quarter into the third quarter. In addition to the power outage, the decrease to the hunting category is
due to retailers buying closer to the season than in the prior year period. Retail sales for the three months ended June 30, 2012
were $9.1 million compared to $10.9 million for the same period in 2011. The $1.8 million decrease in retail sales resulted from
our ongoing transition to more internet driven transactions and the decision to remove a portion of our Lehigh mobile stores from
operations to help lower operating expenses. Military segment sales for the three months ended June 30, 2012,
were $0.6 million, compared to $0.6 million in the same period in 2011. From time to time, we bid on military contracts when they
become available. Our sales under such contracts are dependent on us winning the bids for these contracts.



Gross margin. Gross margin for the three months ended
June 30, 2012 was $15.4 million, or 34.6% of net sales, compared to $20.6 million, or 39.4% of net sales, in the same period last
year. Wholesale gross margin for the three months ended June 30, 2012 was $11.1 million, or 31.9% of net sales, compared to $15.5
million, or 37.9% of net sales, in the same period last year. The 600 basis point decrease is primarily the result of an increase
in product costs as a result of manufacturing variances in our production facility. Retail gross margin for the three months ended
June 30, 2012 was $4.3 million, or 46.7% of net sales, compared to $5.1 million, or 46.7% of net sales, for the same period in
2011. Military gross margin for the three months ended June 30, 2012 was less than $0.1 million, or 4.5% of net sales, compared
to $0.1 million, or 13.0% of net sales, for the same period in 2011.





16







SG&A expenses. SG&A expenses were $14.9 million,
or 33.5% of net sales, for the three months ended June 30, 2012, compared to $16.9 million, or 32.2% of net sales for the same
period in 2011. The net change primarily reflects decreases in compensation and benefits expense of $0.6 million, lower advertising
expenses of $0.6 million and decreased operating expenses of $0.5 million for our retail operations due to the continued closing
of mobile stores.



Interest expense. Interest expense was $0.1 million in
the three months ended June 30, 2012, compared to $0.3 million for the same period in the prior year. The decrease of $0.2 million
is primarily the result of lower average borrowings and $0.1 million of prepayment penalties and other fees from the early repayment
of our mortgage loans in April 2011.



Income taxes. Income tax expense for the three months
ended June 30, 2012 was $0.1 million, compared to $1.2 million for the same period a year ago. We provided for income taxes at
effective tax rates of 36% in 2012 and 35% in 2011. The estimated effective tax rate for 2012 is higher than the rate
for 2011 as we were anticipating making additional permanent capital investment in our operations in the Dominican Republic in
2011, which reduced the amount of dividends that we needed to provide for U.S. income taxes. We do not expect to make additional
permanent capital investment in 2012.



Six Months Ended June 30, 2012 Compared to Six Months Ended
June 30, 2011



Net sales. Net sales for the six months ended June 30,
2012 were $97.7 million compared to $104.6 million for the same period in 2011. Wholesale sales for the six months ended June 30,
2012 were $77.1 million compared to $80.6 million for the same period in 2011. The $3.5 million decrease in wholesale sales was
the result of a $2.8 million or 32.9% decrease in our hunting footwear category, a $1.0 million or 15.0% decrease in our duty footwear
category, a $0.7 million or 29.3% decrease in our apparel category, a $0.2 million or 0.7% decrease in our work footwear category
and a $1.6 million decline in other, which was partially offset by a $2.0 million or 15.2% increase in our western footwear category
and a $0.8 million or 8.1% increase in our commercial military footwear category. As a result of the previously mentioned power
outage, our shipping capabilities were temporarily suspended which caused approximately $2.5 million of shipments to move from
the second quarter into the third quarter. In addition to the power outage, the decrease to the hunting category is due to retailers
buying closer to the season than in the prior year. Retail sales for the six months ended June 30, 2012 were $19.6 million compared
to $22.6 million for the same period in 2011. The $3.0 million decrease in retail sales resulted from our ongoing transition to
more internet driven transactions and the decision to remove a portion of our Lehigh mobile stores from operations to help lower
operating expenses. Military segment sales for the six months ended June 30, 2012, were $1.0 million, compared
to $1.4 million in the same period in 2011. From time to time, we bid on military contracts when they become available. Our sales
under such contracts are dependent on us winning the bids for these contracts.



Gross margin. Gross margin for the six months ended June
30, 2012 was $33.4 million, or 34.1% of net sales, compared to $39.9 million, or 38.1% of net sales, in the same period last year.
Wholesale gross margin for the six months ended June 30, 2012 was $24.0 million, or 31.1% of net sales, compared to $28.8 million,
or 35.7% of net sales, in the same period last year. The 460 basis point decrease is primarily the result of an increase in product
costs as a result of manufacturing variances in our production facility and a rollout to all stores for one of our largest accounts
in the first quarter of 2012 that negatively impacted gross margins due to temporary price concessions. Retail gross margin for
the six months ended June 30, 2012 was $9.3 million, or 47.6% of net sales, compared to $10.9 million, or 48.2% of net sales, for
the same period in 2011. The 60 basis point decrease is primarily the result of lower average selling prices, primarily in the
first quarter of 2012. Military gross margin for the six months ended June 30, 2012 was less than $0.1 million, or 4.2% of net
sales, compared to $0.2 million, or 13.1% of net sales, for the same period in 2011.





17







SG&A expenses. SG&A expenses were $31.6 million,
or 32.4% of net sales, for the six months ended June 30, 2012, compared to $35.1 million, or 33.5% of net sales for the same period
in 2011. The net change primarily reflects decreases in compensation and benefits expense of $1.6 million and decreased operating
expenses of $1.1 million for our retail operations due to the continued closing of mobile stores.



Interest expense. Interest expense was $0.3 million in
the six months ended June 30, 2012, compared to $0.5 million for the same period in the prior year. The decrease of $0.2 million
is primarily the result of lower average borrowings and $0.1 million of prepayment penalties and other fees from the early repayment
of our mortgage loans in April 2011.



Income taxes. Income tax expense for the six months ended
June 30, 2012 was $0.5 million, compared to $1.5 million for the same period a year ago. We provided for income taxes at effective
tax rates of 36% in 2012 and 35% in 2011. The estimated effective tax rate for 2012 is higher than the rate for 2011
as we were anticipating making additional permanent capital investment in our operations in the Dominican Republic in 2011, which
reduced the amount of dividends that we needed to provide for U.S. income taxes. We do not expect to make additional permanent
capital investment in 2012.



Liquidity and Capital Resources



Our principal sources of liquidity have been our income from
operations and borrowings under our credit facility.



Over the last several years our principal uses of cash have
been for working capital and capital expenditures to support our growth. Our working capital consists primarily of trade receivables
and inventory, offset by accounts payable and accrued expenses. Our working capital fluctuates throughout the year as a result
of our seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year
and highest during the months of May through October of each year. We typically utilize our revolving credit facility to fund our
seasonal working capital requirements. As a result, balances on our revolving credit facility will fluctuate significantly throughout
the year. Our capital expenditures relate primarily to projects relating to our property, merchandising fixtures, molds and equipment
associated with our manufacturing operations, retail sales fleet and for information technology. Capital expenditures were $4.1
million for the first six months of 2012, compared to $4.3 million for the same period in 2011. Total capital expenditures for
2012 are anticipated to be approximately $6.3 million.



In October 2010, we entered into a financing agreement with
PNC Bank (“PNC”) to provide a $70 million credit facility. The term of the facility is five years and the current interest
rate is generally LIBOR plus 1.50%.





18







Our credit facility contains a restrictive
covenant which requires us to maintain a fixed charge coverage ratio. This restrictive covenant is only in effect upon a triggering
event taking place (as defined in the credit facility agreement). At June 30, 2012, no triggering event had occurred and the covenant
was not in effect.



Thetotal amount available under
our revolving credit facility is subject to a borrowing base calculation based on various percentages of accounts receivable and
inventory. As of June 30, 2012, we had $29.9 million in borrowings under this facility and total capacity of $66.0 million.



In April 2011, we repaid the remaining balance of approximately
$1.8 million on our mortgage loans by borrowing under a sub-facility on the PNC credit facility. The sub-facility is secured by
real estate owned by us. In connection with this transaction, we incurred approximately $0.1 million of prepayment and other fees
that were reported as additional interest expense in the second quarter of 2011. The mortgage loans were incurring interest at
8.28% and were replaced with borrowings under the credit facility for a current interest rate of LIBOR plus 1.50%.



We believe that our existing credit facility coupled with cash
generated from operations will provide sufficient liquidity to fund our operations for at least the next twelve months. Our continued
liquidity, however, is contingent upon future operating performance, cash flows and our ability to meet financial covenants under
our credit facility.



Operating Activities. Cash provided by operating activities
totaled $7.3 million for the six months ended June 30, 2012, compared to cash used by operating activities of $1.6 million in the
same period of 2011. Cash provided by operating activities for the six months ended June 30, 2012 was primarily impacted by decreases
in accounts receivable and increases in accounts payable, partially offset by increases in inventory. Cash used in operating activities
for the six months ended June 30, 2011 was primarily impacted by higher inventory levels, partially offset by reductions in accounts
receivable and increases in accounts payable.



Investing Activities. Cash used in investing activities
was $4.0 million for the six months ended June 30, 2012, compared to $4.3 million in the same period of 2011. Cash used in investing
activities reflects an investment in property, plant and equipment of $4.1 million in 2012 and $4.3 million in 2011. Our 2012 and
2011 expenditures primarily relate to investments in molds and equipment associated with our manufacturing operations and for information
technology.



Financing Activities. Cash used in financing activities
for the six months ended June 30, 2012 was $5.1 million and reflects a net reduction under the revolving credit facility of $5.1
million. Cash provided by financing activities for the six months ended June 30, 2011 was $4.8 million and reflects a net increase
in the borrowing under the revolving credit facility of $6.4 million, partially offset by repayments on long-term debt of $2.0
million.



Inflation



We cannot determine the precise effects of inflation; however,
inflation continues to have an influence on the cost of materials, salaries, and employee benefits. We attempt to offset the effects
of inflation through increased selling prices, productivity improvements, and reduction of costs.





19







Critical Accounting Policies and Estimates



“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” discusses our interim condensed consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America. The preparation of these interim condensed
consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. A summary of our significant accounting
policies is included in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year
ended December 31, 2011.



Our management regularly reviews our accounting policies to
make certain they are current and also to provide readers of the interim condensed consolidated financial statements with useful
and reliable information about our operating results and financial condition. These include, but are not limited to, matters related
to accounts receivable, inventories, intangibles and income taxes. Implementation of these accounting policies includes estimates
and judgments by management based on historical experience and other factors believed to be reasonable. This may include judgments
about the carrying value of assets and liabilities based on considerations that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.





Our management believes the following critical accounting policies
are most important to the portrayal of our financial condition and results of operations and require more significant judgments
and estimates in the preparation of our interim condensed consolidated financial statements.



Revenue recognition



Revenue principally consists of sales to customers, and, to
a lesser extent, license fees. Revenue is recognized when the risk and title passes to the customer, while license fees are recognized
when earned. Customer sales are recorded net of allowances for estimated returns, trade promotions and other discounts, which are
recognized as a deduction from sales at the time of sale.



Accounts receivable allowances



Management maintains allowances for uncollectible accounts for
estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance
for uncollectible accounts is calculated based on the relative age and size of trade receivable balances.



Sales returns and allowances



We record a reduction to gross sales based on estimated customer
returns and allowances. These reductions are influenced by historical experience, based on actual customer returns and allowances.
The actual amount of sales returns and allowances realized may differ from our estimates. If we determine that sales returns or
allowances should be either increased or decreased, then the adjustment would be made to net sales in the period in which such
a determination is made.



Inventories



Management identifies slow moving or obsolete inventories and
estimates appropriate loss provisions related to these inventories. Historically, these loss provisions have not been significant
as the vast majority of our inventories are considered saleable, and we have been able to liquidate slow moving or obsolete inventories
through our factory outlet stores or through various discounts to customers. Should management encounter difficulties liquidating
slow moving or obsolete inventories, additional provisions may be necessary. Management regularly reviews the adequacy of our inventory
reserves and makes adjustments to them as required.





20







Intangible assets



Intangible assets, including goodwill, trademarks and patents
are reviewed for impairment annually, and more frequently, if necessary. We perform such testing of goodwill and indefinite-lived
intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not
reduce the fair value of the asset below its carrying amount.



In assessing whether indefinite-lived intangible assets are
impaired, we must make certain estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating
margins, weighted average cost of capital and other factors such as discount rates, royalty rates, cost of capital, and market
multiples to determine the fair value of our assets. These estimates and assumptions require management’s judgment, and changes
to these estimates and assumptions could materially affect the determination of fair value and/or impairment for each of our other
indefinite-lived intangible assets. Future events could cause us to conclude that indications of intangible asset impairment exist.
Impairment may result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse
changes in applicable laws and regulations, competition, or the sale or disposition of a reporting segment. Any resulting impairment
loss could have a material adverse impact on our financial condition and results of operations.



Income taxes



Management has recorded a valuation allowance to reduce its
deferred tax assets for a portion of state and local income tax net operating losses that it believes may not be realized. We have
considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation
allowance; however, in the event we were to determine that we would not be able to realize all or part of our net deferred tax
assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was
made.



SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.



Except
for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include certain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements
include, but may not be limited to, all statements regarding our and management’s intent, belief, and expectations, such
as statements concerning our future profitability and our operating and growth strategy. Words such as “believe,” “anticipate,”
“expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,”
“predict,” “potential,” “continue,” “likely” and similar expressions are intended
to identify forward-looking statements. Investors are cautioned that all forward-looking statements contained in this Quarterly
Report on Form 10-Q and in other statements we make involve risks and uncertainties including, without limitation, the factors
set forth under the caption “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31,
2011, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. One or more
of these factors have affected, and in the future could affect our businesses and financial results and could cause actual results
to differ materially from plans and projections. Although we believe that the assumptions underlying the forward-looking statements
contained herein are reasonable, there can be no assurance that any of the forward-looking statements included in this Quarterly
Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. All forward-looking statements made in this Quarterly Report on Form 10-Q are based on information
presently available to our management. We assume no obligation to update any forward-looking statements.





21







ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



There have been no material changes since December 31, 2011.





ITEM 4 – CONTROLS AND PROCEDURES



Disclosure Controls and Procedures. Disclosure controls
and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose
in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to
allow timely decisions regarding required disclosure.



As of the end of the period covered by this report, our management,
with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness
of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Exchange Act. Based upon this evaluation,
our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were (1) designed
to ensure that material information relating to our Company is accumulated and made known to our management, including our chief
executive officer and chief financial officer, in a timely manner, particularly during the period in which this report was being
prepared, and (2) effective, in that they provide reasonable assurance that information we are required to disclose in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.



Management believes, however, that a controls system, no matter
how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.



Internal Controls. There has been no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal
quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. In April 2012, we implemented a new Enterprise Resources Planning system to replace our current system. This
implementation had no material effect on our internal control over financial reporting.





22







PART II -- OTHER INFORMATION



ITEM 1 - LEGAL PROCEEDINGS



None



ITEM 1A - RISK FACTORS



There have been no material changes to our risk factors
as disclosed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
2011.



ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS



None



ITEM 3 - DEFAULTS UPON SENIOR SECURITIES



None



ITEM 4 – MINE SAFETY DISCLOSRES



None



ITEM
5 - OTHER INFORMATION



None



ITEM 6 - EXHIBITS



| | EXHIBIT | EXHIBIT
| | ------- | -------

| | NUMBER | DESCRIPTION
| | ------ | -----------



| | 31 (a)* | Certification pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a) of the Chief Executive Officer.
| | ------- | ----------------------------------------------------------------------------------------------------



| | 31 (b)* | Certification pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a) of the Chief Financial Officer.
| | ------- | ----------------------------------------------------------------------------------------------------



| | 32 (a)+ | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32 (b)+ | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q
                                                                                for                                                                                 the quarter ended June 30, 2012
                                                                                formatted                                                                                 in XBRL (“eXtensible
                                                                                Business                                                                                 Reporting Language”) will be
                                                                                filed by amendment to this Form 10-Q within 30 days of the filing date of this Form 10-Q, as permitted by Rule 405
                                                                                (a)(2)(ii)                                                                                 of Regulation ST: (i) the
                                                                                Consolidated Balance Sheets, (ii)                                                                                 the
                                                                                Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of
                                                                                Cash Flows, and (vi) related notes to these financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



_____________________

| | * | Filed with this report.
| | - | -----------------------

| | + | Furnished with this report.
| | - | ---------------------------





23







SIGNATURE



Pursuant to the requirements 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.





|                    |  | Rocky Brands, Inc.                             
|------------------- |  | -----------------------------------------------
|                    |  |                                                
|                    |  |                                                
|Date: July 27, 2012 |  |                                                
|                    |  | /s/ James E. McDonald                          
|                    |  | James E. McDonald, Executive Vice President and
|                    |  | Chief Financial Officer*                       









| | * | In his capacity as Executive Vice President and Chief Financial Officer, Mr. McDonald is duly authorized to sign this report
on behalf of the Registrant.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------







24