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 March 31, 2010


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:  0-21026





ROCKY
BRANDS, INC.


(Exact
name of registrant as specified in its charter)





Ohio
              31-1364046(State
      or Other Jurisdiction of
              (I.R.S.
      EmployerIncorporation
      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.  YESxNO ̈





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   ̈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,” and
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





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


(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
April 27, 2010, 5,605,537 shares of Rocky Brands, Inc. common stock, no par
value, were outstanding.





FORM
10-Q





ROCKY
BRANDS, INC.





TABLE
OF CONTENTS


PAGENUMBERPART
      I. FINANCIAL INFORMATIONItem
      1.
                    Financial
      StatementsCondensed Consolidated Balance
      Sheets March 31,
      2010 and 2009 (Unaudited), and December 31, 2009
                    3Condensed Consolidated Statements
      of Operations for
      the Three Months Ended March 31, 2010 and 2009
      (Unaudited)
                    4Condensed Consolidated Statements
      of Cash Flows for
      the Three Months Ended March 31, 2010 and 2009
      (Unaudited)
                    5Notes
      to the Interim Unaudited Condensed Consolidated Financial Statements for
      the Three-Month Period Ended March 31, 2010 and 2009
                    6
      –15Item
      2.
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    16
      – 21Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    22Item
      4.
                    Controls
      and Procedures
                    22PART
      II.  OTHER INFORMATIONItem
      1.
                    Legal
      Proceedings
                    23Item
      1A.
                    Risk
      Factors
                    23Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    23Item
      3.
                    Defaults
      Upon Senior Securities
                    23Item
      4.
                    Reserved
                    23Item
      5.
                    Other
      Information
                    23Item
      6.
                    Exhibits
                    23SIGNATURE
                    
                    24


2


PART
I - FINANCIAL INFORMATION


ITEM
1 - FINANCIAL STATEMENTS





ROCKY
BRANDS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





March
      31, 2010
                                
                                
                                December
      31, 2009
                                
                                
                                March
      31, 2009(Unaudited)
                                
                                
                                
                                
                                
                                (Unaudited)ASSETS:CURRENT
      ASSETS:Cash
      and cash equivalents
                                
                                $
                                3,517,629
                                
                                
                                $
                                1,797,093
                                
                                
                                $
                                3,321,903Trade
      receivables – net
                                
                                
                                39,994,342
                                
                                
                                
                                45,831,558
                                
                                
                                
                                47,488,146Other
      receivables
                                
                                
                                1,216,568
                                
                                
                                
                                1,476,643
                                
                                
                                
                                1,806,231Inventories
                                
                                
                                53,123,111
                                
                                
                                
                                55,420,467
                                
                                
                                
                                78,432,082Deferred
      income taxes
                                
                                
                                1,475,695
                                
                                
                                
                                1,475,695
                                
                                
                                
                                2,167,966Prepaid
      and refundable income taxes
                                
                                
                                420,150
                                
                                
                                
                                -
                                
                                
                                
                                1,440,697Prepaid
      expenses
                                
                                
                                2,036,964
                                
                                
                                
                                1,309,138
                                
                                
                                
                                2,137,625Total
      current assets
                                
                                
                                101,784,459
                                
                                
                                
                                107,310,594
                                
                                
                                
                                136,794,650FIXED
      ASSETS – net
                                
                                
                                22,540,705
                                
                                
                                
                                22,669,876
                                
                                
                                
                                24,316,954IDENTIFIED
      INTANGIBLES
                                
                                
                                30,519,994
                                
                                
                                
                                30,516,910
                                
                                
                                
                                30,883,011OTHER
      ASSETS
                                
                                
                                2,817,110
                                
                                
                                
                                2,892,683
                                
                                
                                
                                4,005,577TOTAL
      ASSETS
                                
                                $
                                157,662,268
                                
                                
                                $
                                163,390,063
                                
                                
                                $
                                196,000,192LIABILITIES
      AND SHAREHOLDERS' EQUITY:CURRENT
      LIABILITIES:Accounts
      payable
                                
                                $
                                8,916,985
                                
                                
                                $
                                6,781,534
                                
                                
                                $
                                10,443,348Current
      maturities – long term debt
                                
                                
                                520,067
                                
                                
                                
                                511,870
                                
                                
                                
                                488,271Accrued
      expenses:Salaries
      and wages
                                
                                
                                940,916
                                
                                
                                
                                343,345
                                
                                
                                
                                805,303Co-op
      advertising
                                
                                
                                186,588
                                
                                
                                
                                460,190
                                
                                
                                
                                411,053Interest
                                
                                
                                1,617,629
                                
                                
                                
                                471,091
                                
                                
                                
                                1,598,394Income
      taxes payable
                                
                                
                                -
                                
                                
                                
                                26,242
                                
                                
                                
                                -Taxes
      – other
                                
                                
                                468,119
                                
                                
                                
                                440,223
                                
                                
                                
                                508,430Commissions
                                
                                
                                496,856
                                
                                
                                
                                487,340
                                
                                
                                
                                366,481Current
      portion of pension funding
                                
                                
                                700,000
                                
                                
                                
                                700,000
                                
                                
                                
                                -Other
                                
                                
                                2,483,527
                                
                                
                                
                                2,764,783
                                
                                
                                
                                2,195,492Total
      current liabilities
                                
                                
                                16,330,687
                                
                                
                                
                                12,986,618
                                
                                
                                
                                16,816,772LONG
      TERM DEBT – less current maturities
                                
                                
                                46,225,039
                                
                                
                                
                                55,079,776
                                
                                
                                
                                85,710,049DEFERRED
      INCOME TAXES
                                
                                
                                9,071,639
                                
                                
                                
                                9,071,639
                                
                                
                                
                                9,438,921DEFERRED
      PENSION LIABILITY
                                
                                
                                3,638,475
                                
                                
                                
                                3,589,875
                                
                                
                                
                                3,802,236DEFERRED
      LIABILITIES
                                
                                
                                186,227
                                
                                
                                
                                184,481
                                
                                
                                
                                193,518TOTAL
      LIABILITIES
                                
                                
                                75,452,067
                                
                                
                                
                                80,912,389
                                
                                
                                
                                115,961,496COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Common
      stock, no par value; 25,000,000 shares authorized; issued and
      outstanding March 31, 2010 - 5,605,537; December 31, 2009 - 5,576,465
      and March 31, 2009 - 5,547,215
                                
                                
                                54,801,424
                                
                                
                                
                                54,598,104
                                
                                
                                
                                54,380,256Accumulated
      other comprehensive loss
                                
                                
                                (3,127,193
                                )
                                
                                
                                (3,217,144
                                )
                                
                                
                                (3,142,331
                                )Retained
      earnings
                                
                                
                                30,535,970
                                
                                
                                
                                31,096,714
                                
                                
                                
                                28,800,771Total
      shareholders' equity
                                
                                
                                82,210,201
                                
                                
                                
                                82,477,674
                                
                                
                                
                                80,038,696TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                                
                                $
                                157,662,268
                                
                                
                                $
                                163,390,063
                                
                                
                                $
                                196,000,192





See notes
to the interim unaudited condensed consolidated financial
statements.


3


ROCKY
BRANDS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months EndedMarch31,2010
                
                
                2009NET
      SALES
                
                $
                56,078,986
                
                
                $
                50,064,561COST
      OF GOODS SOLD
                
                
                37,322,137
                
                
                
                29,972,073GROSS
      MARGIN
                
                
                18,756,849
                
                
                
                20,092,488SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                18,024,687
                
                
                
                19,946,128INCOME
      FROM OPERATIONS
                
                
                732,162
                
                
                
                146,360OTHER
      INCOME AND (EXPENSES):Interest
      expense, net
                
                
                (1,644,591
                )
                
                
                (1,773,930
                )Other
      – net
                
                
                36,685
                
                
                
                (124,566
                )Total
      other - net
                
                
                (1,607,906
                )
                
                
                (1,898,496
                )LOSS
      BEFORE INCOME TAXES
                
                
                (875,744
                )
                
                
                (1,752,136
                )INCOME
      TAX BENEFIT
                
                
                (315,000
                )
                
                
                (631,000
                )NET
      LOSS
                
                $
                (560,744
                )
                
                $
                (1,121,136
                )NET
      LOSS PER SHAREBasic
                
                $
                (0.10
                )
                
                $
                (0.20
                )Diluted
                
                $
                (0.10
                )
                
                $
                (0.20
                )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBasic
                
                
                5,603,125
                
                
                
                5,546,541Diluted
                
                
                5,603,125
                
                
                
                5,546,541





See notes
to the interim unaudited condensed consolidated financial
statements.


4


ROCKY
BRANDS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





Three Months EndedMarch 31,2010
                                  
                                  
                                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                  
                                  $
                                  (560,744
                                  )
                                  
                                  $
                                  (1,121,136
                                  )Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                  
                                  
                                  1,433,982
                                  
                                  
                                  
                                  1,583,101Deferred
      compensation and other
                                  
                                  
                                  140,297
                                  
                                  
                                  
                                  115,166Loss
      on disposal of fixed assets
                                  
                                  
                                  536
                                  
                                  
                                  
                                  73Stock
      compensation expense
                                  
                                  
                                  129,900
                                  
                                  
                                  
                                  130,192Change
      in assets and liabilitiesReceivables
                                  
                                  
                                  6,097,291
                                  
                                  
                                  
                                  12,233,351Inventories
                                  
                                  
                                  2,297,356
                                  
                                  
                                  
                                  (8,129,908
                                  )Other
      current assets
                                  
                                  
                                  (1,147,977
                                  )
                                  
                                  
                                  (2,047,683
                                  )Other
      assets
                                  
                                  
                                  75,573
                                  
                                  
                                  
                                  (40,576
                                  )Accounts
      payable
                                  
                                  
                                  2,139,438
                                  
                                  
                                  
                                  640,846Accrued
      and other liabilities
                                  
                                  
                                  1,200,421
                                  
                                  
                                  
                                  981,794Net
      cash provided by operating activities
                                  
                                  
                                  11,806,073
                                  
                                  
                                  
                                  4,345,220CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of fixed assets
                                  
                                  
                                  (1,317,282
                                  )
                                  
                                  
                                  (2,277,623
                                  )Investment
      in trademarks and patents
                                  
                                  
                                  (14,735
                                  )
                                  
                                  
                                  (7,804
                                  )Proceeds
      from sale of fixed assets
                                  
                                  
                                  19,600
                                  
                                  
                                  
                                  4,639Net
      cash used in investing activities
                                  
                                  
                                  (1,312,417
                                  )
                                  
                                  
                                  (2,280,788
                                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from revolving credit facility
                                  
                                  
                                  52,182,429
                                  
                                  
                                  
                                  61,113,849Repayments
      of revolving credit facility
                                  
                                  
                                  (60,904,022
                                  )
                                  
                                  
                                  (62,537,792
                                  )Debt
      financing costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,512,500
                                  )Repayments
      of long-term debt
                                  
                                  
                                  (124,947
                                  )
                                  
                                  
                                  (117,399
                                  )Proceeds
      from exercise of stock options
                                  
                                  
                                  73,420
                                  
                                  
                                  
                                  -Net
      cash used in financing activities
                                  
                                  
                                  (8,773,120
                                  )
                                  
                                  
                                  (3,053,842
                                  )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                                  
                                  
                                  1,720,536
                                  
                                  
                                  
                                  (989,410
                                  )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                                  
                                  
                                  1,797,093
                                  
                                  
                                  
                                  4,311,313CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                                  
                                  $
                                  3,517,629
                                  
                                  
                                  $
                                  3,321,903





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-MONTH PERIOD ENDED MARCH 31, 2010 AND 2009





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-month period ended March 31, 2010 and 2009 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, 2009.





The
components of total comprehensive income are shown below:





(Unaudited)Three Months EndedMarch 31,2010
                  
                  
                  2009Net
      loss
                  
                  $
                  (560,744
                  )
                  
                  $
                  (1,121,136
                  )Other
      comprehensive income:Amortization
      of unrecognized transition obligation, service cost and net
      loss
                  
                  
                  89,951
                  
                  
                  
                  79,884Total
      comprehensive loss
                  
                  $
                  (470,793
                  )
                  
                  $
                  (1,041,252
                  )





2.           TRADE
RECEIVABLES





Trade
receivables are presented net of the related allowance for uncollectible
accounts of approximately $954,000, $1,178,000 and $2,335,000 at March 31, 2010,
December 31, 2009 and March 31, 2009, respectively.  The allowance for
uncollectible accounts is calculated based on the relative age and size of trade
receivable balances.


6


3.           INVENTORIES





Inventories
are comprised of the following:





March 31,
                      
                      
                      December 31,
                      
                      
                      March 31,2010
                      
                      
                      2009
                      
                      
                      2009(Unaudited)
                      
                      
                      
                      
                      
                      (Unaudited)Raw
      materials
                      
                      $
                      8,894,581
                      
                      
                      $
                      5,438,055
                      
                      
                      $
                      9,034,852Work-in-process
                      
                      
                      613,874
                      
                      
                      
                      497,914
                      
                      
                      
                      706,941Finished
      goods
                      
                      
                      43,661,158
                      
                      
                      
                      49,522,542
                      
                      
                      
                      68,769,089Reserve
      for obsolescence or lower of cost or market
                      
                      
                      (46,502
                      )
                      
                      
                      (38,044
                      )
                      
                      
                      (78,800
                      )Total
                      
                      $
                      53,123,111
                      
                      
                      $
                      55,420,467
                      
                      
                      $
                      78,432,082





4.           SUPPLEMENTAL
CASH FLOW INFORMATION





Supplemental
cash flow information is as follows:





(Unaudited)Three Months EndedMarch 31,2010
                    
                    
                    2009Interest
                    
                    $
                    319,446
                    
                    
                    $
                    457,156Federal,
      state and local income taxes, net of refunds
                    
                    $
                    131,848
                    
                    
                    $
                    742,471Fixed
      asset purchases in accounts payable
                    
                    $
                    147,547
                    
                    
                    $
                    45,296


7


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-month periods ended March 31, 2010 and 2009 is
as follows:





(Unaudited)Three Months EndedMarch 31,2010
                          
                          
                          2009Weighted
      average shares outstanding
                          
                          
                          5,603,125
                          
                          
                          
                          5,546,541Dilutive
      stock options
                          
                          
                          -
                          
                          
                          
                          -Dilutive
      weighted average shares outstanding
                          
                          
                          5,603,125
                          
                          
                          
                          5,546,541Anti-dilutive
      stock options/weighted average shares outstanding
                          
                          
                          232,778
                          
                          
                          
                          416,690





6.           RECENT
FINANCIAL ACCOUNTING STANDARDS





Recently
adopted accounting standards





In June
2009, the FASB modified the accounting standard related to transfers and
servicing.  This standard, as modified, intends to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets.  This standard, as modified, must be
applied as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  This
standard, as modified, must be applied to transfers occurring on or after the
effective date.  The adoption of the transfers and servicing standard,
as modified, did not have a material effect on our consolidated financial
statements.





In June
2009, the FASB modified the accounting standard related to
consolidation.  This standard, as modified, intends to improve
financial reporting by enterprises involved with variable interest
entities.  This standard, as modified, addresses the effects on
certain provisions  relating to the Consolidation of Variable Interest
Entities, as a result of the elimination of the qualifying special-purpose
entity concept in the accounting standard related to  transfers and
servicing, and constituent concerns about the application of certain key
provisions of this standard, including those in which the accounting and
disclosures under the standard do not always provide timely and useful
information about an enterprise’s involvement in a variable interest
entity.  This standard, as modified, is effective as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited.  The adoption of the consolidation
standard, as modified, did not have a material effect on our consolidated
financial statements.


8


In
January 2010, the FASB issued “Fair Value Measurements and Disclosures -
Improving Disclosures about Fair Value Measurements.”  This statement
requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in FASB Statement “Fair
Value Measurement”.  The amendments are effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements.  Those
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.  The adoption of
this pronouncement did not have a material effect on our consolidated financial
statements.





Accounting
standards not yet adopted





In
September 2009, the Emerging Issues Task Force (“EITF”) issued “Revenue Arrangements with Multiple
Deliverables.”  This issue addresses how to determine whether
an arrangement involving multiple deliverables contains more than one unit of
accounting and how to allocate the consideration to each unit of
accounting.  This issue eliminates the use of the residual value
method for determining allocation of arrangement consideration and allows the
use of an entity's best estimate to determine the selling price if vendor
specific objective evidence and third-party evidence cannot be
determined.  This issue also requires additional disclosure to provide
both qualitative and quantitative information regarding the significant
judgments made in applying this issue.  In addition, for each
reporting period in the initial year of adoption, this issue requires disclosure
of the amount of revenue recognized subject to the measurement requirements of
this issue and the amount of revenue that would have been recognized if the
related transactions were subject to the measurement requirements of Issue
00-21.  This issue is effective for revenue arrangements entered into
or materially modified in fiscal years beginning after June 15,
2010.  Early adoption is permitted.  We are currently
assessing the potential impact of the adoption of these rules on our
consolidated financial statement disclosures.




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 2005.  State jurisdictions that remain
subject to examination range from 2004 to 2008.  Foreign jurisdiction
tax returns that remain subject to examination range from 2002 to 2008 for
Canada and from 2004 to 2008 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 March 31, 2010, 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% for the three-month periods ended March 31, 2010 and
2009.


9




8.           INTANGIBLE
ASSETS





A
schedule of intangible assets is as follows:


Gross
                              
                              
                              Accumulated
                              
                              
                              CarryingMarch 31, 2010 (unaudited)
                              
                              Amount
                              
                              
                              Amortization
                              
                              
                              AmountTrademarks:Wholesale
                              
                              $
                              27,243,578
                              
                              
                              $
                              -
                              
                              
                              $
                              27,243,578Retail
                              
                              
                              2,900,000
                              
                              
                              
                              -
                              
                              
                              
                              2,900,000Patents
                              
                              
                              2,403,734
                              
                              
                              
                              2,027,318
                              
                              
                              
                              376,416Customer
      relationships
                              
                              
                              1,000,000
                              
                              
                              
                              1,000,000
                              
                              
                              
                              -Total
      Identified Intangibles
                              
                              $
                              33,547,312
                              
                              
                              $
                              3,027,318
                              
                              
                              $
                              30,519,994Gross
                              
                              
                              Accumulated
                              
                              
                              CarryingDecember 31, 2009
                              
                              Amount
                              
                              
                              Amortization
                              
                              
                              AmountTrademarks:Wholesale
                              
                              $
                              27,243,578
                              
                              
                              $
                              -
                              
                              
                              $
                              27,243,578Retail
                              
                              
                              2,900,000
                              
                              
                              
                              -
                              
                              
                              
                              2,900,000Patents
                              
                              
                              2,388,999
                              
                              
                              
                              2,015,667
                              
                              
                              
                              373,332Customer
      relationships
                              
                              
                              1,000,000
                              
                              
                              
                              1,000,000
                              
                              
                              
                              -Total
      Identified Intangibles
                              
                              $
                              33,532,577
                              
                              
                              $
                              3,015,667
                              
                              
                              $
                              30,516,910Gross
                              
                              
                              Accumulated
                              
                              
                              CarryingMarch 31, 2009 (unaudited)
                              
                              Amount
                              
                              
                              Amortization
                              
                              
                              AmountTrademarks:Wholesale
                              
                              $
                              27,243,578
                              
                              
                              $
                              -
                              
                              
                              $
                              27,243,578Retail
                              
                              
                              2,900,000
                              
                              
                              
                              -
                              
                              
                              
                              2,900,000Patents
                              
                              
                              2,317,345
                              
                              
                              
                              1,727,912
                              
                              
                              
                              589,433Customer
      relationships
                              
                              
                              1,000,000
                              
                              
                              
                              850,000
                              
                              
                              
                              150,000Total
      Identified Intangibles
                              
                              $
                              33,460,923
                              
                              
                              $
                              2,577,912
                              
                              
                              $
                              30,883,011





Amortization
expense for intangible assets was $11,652 and $145,271 for the three months
ended March 31, 2010 and 2009, respectively.  The weighted average
amortization period for patents is 15 years.





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





2011
                    
                    $
                    45,4492012
                    
                    
                    45,4492013
                    
                    
                    45,4492014
                    
                    
                    45,4492015
                    
                    
                    45,449


10


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 March
31, 2010, we were authorized to issue approximately 360,031 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, 2010 through March 31, 2010:





Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceOptions
      outstanding at January 1, 2010
                  
                  
                  335,250
                  
                  
                  $
                  18.25Issued
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  (13,000
                  )
                  
                  $
                  5.65Forfeited
                  
                  
                  (32,500
                  )
                  
                  $
                  12.16Options
      outstanding at March 31, 2010
                  
                  
                  289,750
                  
                  
                  $
                  19.49Options
      exercisable at:January
      1, 2010
                  
                  
                  335,250
                  
                  
                  $
                  18.25March
      31, 2010
                  
                  
                  289,750
                  
                  
                  $
                  19.49Unvested
      options at January 1, 2010
                  
                  
                  -Granted
                  
                  
                  -Vested
                  
                  
                  -Forfeited
                  
                  
                  -Unvested
      options at March 31, 2010
                  
                  
                  -





During
the three-month period ended March 31, 2010, we issued 16,072 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.  These rights expire during July
2012.


11


10.         RETIREMENT
PLANS





We
sponsor 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.





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





(Unaudited)Three Months EndedMarch 31,2010
                  
                  
                  2009Service
      cost
                  
                  $
                  19,977
                  
                  
                  $
                  28,843Interest
                  
                  
                  161,677
                  
                  
                  
                  151,454Expected
      return on assets
                  
                  
                  (133,054
                  )
                  
                  
                  (121,614
                  )Amortization
      of unrecognized net gain or loss
                  
                  
                  71,853
                  
                  
                  
                  61,786Amortization
      of unrecognized transition obligation
                  
                  
                  -
                  
                  
                  
                  -Amortization
      of unrecognized prior service cost
                  
                  
                  18,098
                  
                  
                  
                  18,098Net
      pension cost
                  
                  $
                  138,551
                  
                  
                  $
                  138,567





Our
unrecognized benefit obligations existing at the date of transition for the
non-union plan are being amortized over 21 years.  Actuarial
assumptions used in the accounting for the plan were as follows:





2010
                    
                    
                    2009Discount
      rate
                    
                    
                    5.91
                    %
                    
                    
                    6.00
                    %Average
      rate of increase in compensation levels
                    
                    
                    3.0
                    %
                    
                    
                    3.0
                    %Expected
      long-term rate of return on plan assets
                    
                    
                    8.0
                    %
                    
                    
                    8.0
                    %





Our
desired investment result is a long-term rate of return on assets that is at
least 8%.  The target rate of return for the plan has been based upon
the assumption that returns will approximate the long-term rates of return
experienced for each asset class in our investment policy.  Our
investment guidelines are based upon an investment horizon of greater than five
years, so that interim fluctuations should be viewed with appropriate
perspective.  Similarly, the plan’s strategic asset allocation is
based on this long-term perspective.


12


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)Three Months EndedMarch 31,2010
                    
                    
                    2009NET
      SALES:Wholesale
                    
                    $
                    37,904,864
                    
                    
                    $
                    36,029,908Retail
                    
                    
                    12,925,940
                    
                    
                    
                    13,712,294Military
                    
                    
                    5,248,182
                    
                    
                    
                    322,359Total
      Net Sales
                    
                    $
                    56,078,986
                    
                    
                    $
                    50,064,561GROSS
      MARGIN:Wholesale
                    
                    $
                    12,177,996
                    
                    
                    $
                    13,304,288Retail
                    
                    
                    5,903,259
                    
                    
                    
                    6,766,486Military
                    
                    
                    675,594
                    
                    
                    
                    21,714Total
      Gross Margin
                    
                    $
                    18,756,849
                    
                    
                    $
                    20,092,488





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





12.         LONG-TERM
DEBT





In March
2009, we amended the terms of our revolving credit facility with GMAC Commercial
Finance (“GMAC”) which was set to expire on January 5, 2010.  The size
of the facility was reduced to $85 million from $100 million and the maturity
date was extended to April 30, 2012.  The interest rates for the term
of this amendment are LIBOR plus 3.75% or prime plus 2.25%, at our
option.  The financing costs associated with this amendment totaled
approximately $1.5 million.





Our
credit facilities contain certain restrictive covenants, which require us to
maintain a minimum fixed charge coverage ratio and limit the annual amount of
capital expenditures.  As of March 31, 2010, we were in compliance
with these restrictive covenants.


13




13.         FINANCIAL
INSTRUMENTS
 
 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
amount of the mortgages and other short-term financing obligations also
approximates fair value, as they are comparable to the available financing in
the marketplace during the year.




The
carrying amount and fair value of our long-term debt not measured on a recurring
basis subject to fair value reporting is as follows:





(Unaudited)March31,2010Carrying
                                
                                
                                FairAmount
                                
                                
                                ValueDebtLong-term
      debt andcurrent maturities
                                
                                $
                                46,745,106
                                
                                
                                $
                                42,699,800





We
estimated the fair value of debt using market quotations and calculations based
on market rates.


14


14.         RESTRUCTURING





During
the fourth quarter of 2009, we initiated a comprehensive series of actions to
reduce the operating cost structure and increase the operating efficiency of
both our wholesale and retail divisions.   These actions involved
the relocation of our wholesale division’s customer care function from Franklin,
TN to Nelsonville, OH; and the closing of underperforming mini-stores and trucks
in our retail division.  These charges were composed of severance and
employee benefits related costs, transition costs, and facility exit costs,
which includes facility shut down and lease contract termination
costs.





The
schedule below summarizes the charges included in the accompanying consolidated
financial statements for the first quarter of 2010 for our wholesale and retail
divisions:





Liability
                                    Beginning
                                    Balance
                                    12/31/2009
                                  
                                  
                                  (Unaudited)
                                    Expense
                                  
                                  
                                  (Unaudited)
                                    Payments
                                  
                                  
                                  (Unaudited)
                                    Liability
                                    Ending
                                    Balance
                                    3/31/2010WholesaleSeverance
      and employee benefits
                                  
                                  $
                                  148,080
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  134,018
                                  
                                  
                                  $
                                  14,062Transition
      costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Facility
      exit costs
                                  
                                  
                                  31,475
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  31,475
                                  
                                  
                                  
                                  -Total
      Wholesale
                                  
                                  $
                                  179,555
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  165,493
                                  
                                  
                                  $
                                  14,062RetailSeverance
      and employee benefits
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Transition
      costs
                                  
                                  
                                  36,091
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27,562
                                  
                                  
                                  
                                  8,529Facility
      exit costs
                                  
                                  
                                  160,717
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  97,132
                                  
                                  
                                  
                                  63,585Total
      Retail
                                  
                                  $
                                  196,808
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  124,694
                                  
                                  
                                  $
                                  72,114Total
                                  
                                  $
                                  376,363
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  290,187
                                  
                                  
                                  $
                                  86,176




The
liability ending balance at December 31, 2009 and March 31, 2010 is included in
our Consolidated Balance Sheet under Accrued Expenses.


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 EndedMarch
      31,2010
                        
                        
                        2009Net
      Sales
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %Cost
      Of Goods Sold
                        
                        
                        66.6
                        %
                        
                        
                        59.9
                        %Gross
      Margin
                        
                        
                        33.4
                        %
                        
                        
                        40.1
                        %Selling,
      General and Administrative Expenses
                        
                        
                        32.1
                        %
                        
                        
                        39.8
                        %Income
      From Operations
                        
                        
                        1.3
                        %
                        
                        
                        0.3
                        %





Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009





Net sales.  Net
sales for the three months ended March 31, 2010 were $56.1 million compared to
$50.1 million for the same period in 2009.  Wholesale sales for the
three months ended March 31, 2010 were $37.9 million compared to $36.0 million
for the same period in 2009.  The $1.9 million increase in wholesale
sales was the result of increased sales in our work, western and hunting
footwear categories, partially offset by a decrease in sales in our duty
category.  Retail sales for the three months ended March 31, 2010 were
$12.9 million compared to $13.7 million for the same period in
2009.  The $0.8 million decrease in retail sales resulted from plant
closings and layoffs in the manufacturing sector as the current economic
conditions have impacted a significant portion of our retail customer
base.  In addition, retail sales were negatively impacted by our
ongoing transition to more internet driven transactions and the decision to
remove a portion of our Lehigh mobile stores from operations which resulted in
reductions in SG&A expenses.  Military segment sales for the three
months ended March 31, 2010, were $5.2 million, compared to $0.3 million in the
same period in 2009.  Shipments in 2010 were under
the  $29.0 million contract, issued in July 2009.





Gross
margin.  Gross margin for the three months ended March 31, 2010
was $18.8 million, or 33.4% of net sales, compared to $20.1 million, or 40.1% of
net sales, in the same period last year.  Wholesale gross margin for
the three months ended March 31, 2010 was $12.2 million, or 32.1% of net sales,
compared to $13.3 million, or 36.9% of net sales, in the same period last
year.  The 480 basis point decrease is primarily the result of an
increase in manufacturing costs.  Retail gross margin for the three
months ended March 31, 2010 was $5.9 million, or 45.7% of net sales, compared to
$6.8 million, or 49.3% of net sales, for the same period in 2009.  The
360 basis point decrease reflects reduced sales via our mobile stores, which
carry the highest gross margin in our retail business.  Military gross
margin for the three months ended March 31, 2010 was $0.7 million, or 12.9% of
net sales, compared to less than $0.1 million, or 6.7% of net sales, for the
same period in 2009.


16





SG&A
expenses.  SG&A expenses were $18.0 million, or 32.1% of
net sales, for the three months ended March 31, 2010, compared to $19.9 million,
or 39.8% of net sales for the same period in 2009.  The net change
primarily reflects decreases in compensation and benefits of $1.2 million, bad
debt expense of $0.3 million and Lehigh store expenses of $0.2
million.





Interest
expense.  Interest expense was $1.6 million in the three months
ended March 31, 2010, compared to $1.8 million for the same period in the prior
year.  The decrease of $0.2 million resulted from a reduction in
average borrowings compared to the same period last year, partially offset by an
increase in interest rates.  Interest rates increased as a result of
the amendment to our revolving credit facility in March 2009.





Income
taxes.  Income tax benefit for the three months ended March 31,
2010 was $0.3 million, compared to $0.6 million for the same period a year
ago.  We provided for income taxes at effective tax rates of
36%.





Liquidity
and Capital Resources





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





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 $1.3 million for the first
three months of 2010, compared to $2.2 million for the same period in 2009.
Capital expenditures for all of 2010 are anticipated to be approximately $4.5
million.





In March
2009, we amended the terms of our revolving credit facility with GMAC Commercial
Finance (“GMAC”) which was set to expire on January 5, 2010.  The size
of the facility was reduced to $85 million from $100 million and the maturity
date was extended to April 30, 2012.  The financing costs associated
with this amendment totaled approximately $1.5 million.  The interest
rates for the term of this amendment are LIBOR plus 3.75% or prime plus 2.25%,
at our option.





The total
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 March 31, 2010, we had $4.4 million in borrowings
under this facility and total capacity of $45.5 million.  Our credit
facilities contain certain restrictive covenants, which require us to maintain a
minimum fixed charge coverage ratio and limit the annual amount of capital
expenditures.  As of March 31, 2010, we were in compliance with these
restrictive covenants.


17





We
believe that our existing credit facilities 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 facilities.





Operating
Activities.  Cash provided by operating activities totaled
$11.8 million for the three months ended March 31, 2010, compared to $4.3
million in the same period of 2009.  Cash provided by operating
activities for the three months ended March 31, 2010 was primarily impacted by
reductions in accounts receivable and inventory.  Cash provided by
operating activities for the three months ended March 31, 2009 was primarily
impacted by a reduction in accounts receivable, partially offset by an increase
in inventory.





Investing
Activities.  Cash used in investing activities was $1.3 million
for the three months ended March 31, 2010, compared to $2.3 million in the same
period of 2009.  Cash used in investing activities reflects an
investment in property, plant and equipment of $1.3 million in 2010 and $2.3
million in 2009. Our 2010 and 2009 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 three
months ended March 31, 2010 was $8.8 million and reflects a decrease in net
borrowings under the revolving credit facility of $8.7 million and repayments on
long-term debt of $0.1 million. Cash used in financing activities for the three
months ended March 31, 2009 was $3.1 million and reflects a decrease in net
borrowings under the revolving credit facility of $1.4 million, debt financing
costs associated with the amendment of our credit facility with GMAC of $1.5
million and repayments on long-term debt of $0.1 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.





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, 2009.


18




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, pension benefits 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 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.





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.


19





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.





Pension
benefits





Accounting
for pensions involves estimating the cost of benefits to be provided well into
the future and attributing that cost over the time period each employee
works.  To accomplish this, extensive use is made of assumptions about
inflation, investment returns, mortality, turnover, medical costs and discount
rates.  These assumptions are reviewed annually.





Pension
expenses are determined by actuaries using assumptions concerning the discount
rate, expected return on plan assets and rate of compensation
increase.  An actuarial analysis of benefit obligations and plan
assets is determined as of December 31 each year.





The
funded status of our plans and reconciliation of accrued pension cost is
determined annually as of December 31.  Further discussion of our
pension plan and related assumptions is included in Note 10, “Retirement Plans,”
to the unaudited condensed consolidated financial statements for the quarterly
period ended March 31, 2010. Actual results would be different using other
assumptions.  Management records an accrual for pension costs
associated with our sponsored non-contributory defined benefit pension plan
covering our non-union workers.  Future adverse changes in market
conditions or poor operating results of underlying plan assets could result in
losses or a higher accrual.  At December 31, 2005, we froze the
non-contributory defined benefit pension plan for all non-U.S. territorial
employees.





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.


20


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, 2009, 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, 2009.





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 March 31,
2010, that has materially affected, or is reasonably likely to materially
affect, 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, 2009.





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





None





ITEM
3 - DEFAULTS UPON SENIOR SECURITIES





None





ITEM
4 - RESERVED




ITEM
5 - OTHER INFORMATION





None





ITEM
6 - EXHIBITS





EXHIBIT
              
              EXHIBITNUMBER
              
              DESCRIPTION31
      (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.


_____________________


*                      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:   May
      3, 2010
              /s/ James E. McDonaldJames
      E. McDonald, Executive Vice President andChief
      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