##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-31309
 PHOENIX FOOTWEAR GROUP, INC.
  Delaware
    
    15-0327010(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)5759 Fleet Street, Suite 220
    
    92008Carlsbad, California(Address of principal executive offices)
    
    (Zip Code)
 (760) 602-9688
 [None]
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ
  Class
    
    Outstanding at May 5, 2006[Common Stock, $.01 par value per share]
    
    8,366,547 shares




---



##### 



PHOENIX FOOTWEAR GROUP, INC.
 QUARTERLY REPORT ON FORM 10-Q
 TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements and Notes to Financial Statements
    
    
    3Consolidated Condensed Balance Sheets as of April 1, 2006 (unaudited) and December 31, 2005
    
    
    3Consolidated Condensed Statements of Operations for the Three Months Ended April 1, 2006 and April 2, 2005 (unaudited)
    
    
    4Consolidated Condensed Statements of Cash Flows for the Three Months Ended April 1, 2006 and April 2, 2005 (unaudited)
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Default upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




---



##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 Item 1. Consolidated Condensed Financial Statements
 PHOENIX FOOTWEAR GROUP, INC.
 
  April 1,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    538,000
    
    
    $
    566,000Accounts receivable (less allowances of $1,751,000 in 2006 and $1,313,000 in 2005)
    
    
    32,489,000
    
    
    
    21,803,000Inventories  net
    
    
    38,162,000
    
    
    
    37,232,000Other current assets
    
    
    2,211,000
    
    
    
    1,915,000Deferred income tax asset
    
    
    473,000
    
    
    
    473,000Total current assets
    
    
    73,873,000
    
    
    
    61,989,000PLANT AND EQUIPMENT  Net
    
    
    4,520,000
    
    
    
    4,538,000OTHER ASSETS:Goodwill
    
    
    33,667,000
    
    
    
    35,976,000Unamortizable intangibles
    
    
    22,992,000
    
    
    
    22,992,000Intangible assets, net
    
    
    10,546,000
    
    
    
    12,082,000Other assets  net
    
    
    1,002,000
    
    
    
    1,314,000Total other assets
    
    
    68,207,000
    
    
    
    72,364,000TOTAL ASSETS
    
    $
    146,600,000
    
    
    $
    138,891,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    15,049,000
    
    
    $
    13,215,000Accrued expenses
    
    
    4,410,000
    
    
    
    3,752,000Notes payable  current
    
    
    60,191,000
    
    
    
    9,425,000Other current liabilities
    
    
    1,045,000
    
    
    
    1,466,000Income tax payable
    
    
    722,000
    
    
    
    79,000Total current liabilities
    
    
    81,417,000
    
    
    
    27,937,000OTHER LIABILITIES:Notes payable  noncurrent
    
    
    
    
    
    
    25,025,000Note payable, line of credit
    
    
    
    
    
    
    21,091,000Other long-term liabilities
    
    
    1,838,000
    
    
    
    2,685,000Deferred income tax liability
    
    
    8,129,000
    
    
    
    8,129,000Total other liabilities
    
    
    9,967,000
    
    
    
    56,930,000Total liabilities
    
    
    91,384,000
    
    
    
    84,867,000STOCKHOLDERS EQUITY:Common stock, $.01 par value  50,000,000 shares authorized; 8,367,000 shares issued
in 2006 and 2005
    
    
    84,000
    
    
    
    84,000Additional paid-in-capital
    
    
    45,902,000
    
    
    
    45,520,000Retained earnings
    
    
    12,524,000
    
    
    
    9,494,000Accumulated other comprehensive loss
    
    
    (32,000
    )
    
    
    (4,000
    )58,478,000
    
    
    
    55,094,000Less: Treasury stock at cost, 455,000 and 378,000 shares in 2006 and 2005, respectively
    
    
    (3,262,000
    )
    
    
    (1,070,000
    )Total stockholders equity
    
    
    55,216,000
    
    
    
    54,024,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    146,600,000
    
    
    $
    138,891,000
  3




---



##### Table of Contents



PHOENIX FOOTWEAR GROUP, INC.
 
 
 Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005NET SALES
    
    $
    40,342,000
    
    
    $
    26,400,000COST OF GOODS SOLD
    
    
    24,639,000
    
    
    
    15,842,000GROSS PROFIT
    
    
    15,703,000
    
    
    
    10,558,000OPERATING EXPENSES:Selling, general and administrative expenses
    
    
    11,687,000
    
    
    
    7,545,000Other (income) expense  net
    
    
    (1,394,000
    )
    
    
    613,000Total operating expenses
    
    
    10,293,000
    
    
    
    8,158,000OPERATING INCOME
    
    
    5,410,000
    
    
    
    2,400,000INTEREST EXPENSE
    
    
    1,369,000
    
    
    
    432,000EARNINGS BEFORE INCOME TAXES
    
    
    4,041,000
    
    
    
    1,968,000INCOME TAX PROVISION
    
    
    1,011,000
    
    
    
    787,000NET EARNINGS
    
    $
    3,030,000
    
    
    $
    1,181,000NET EARNINGS PER SHARE (Note 5)Basic
    
    $
    .38
    
    
    $
    .16Diluted
    
    $
    .37
    
    
    $
    .15SHARES OUTSTANDING:Basic
    
    
    7,874,235
    
    
    
    7,428,151Diluted
    
    
    8,206,983
    
    
    
    7,853,406
  4




---



##### Table of Contents



PHOENIX FOOTWEAR GROUP, INC.
 
 
 Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings
    
    $
    3,030,000
    
    
    $
    1,181,000Adjustments to reconcile net earnings to net cash used by operating activities:Depreciation and amortization
    
    
    591,000
    
    
    
    401,000Allocation of shares in defined contribution plan
    
    
    161,000
    
    
    
    233,000Loss on disposal of long-lived assets
    
    
    90,000
    
    
    
    Non-cash share-based compensation
    
    
    45,000
    
    
    
    Changes in assets and liabilities (net of impact of acquisitions):(Increase) decrease in:Accounts receivable  net
    
    
    (10,686,000
    )
    
    
    (5,542,000
    )Inventories  net
    
    
    (930,000
    )
    
    
    1,799,000Other current receivable
    
    
    54,000
    
    
    
    793,000Other current assets
    
    
    175,000
    
    
    
    842,000Other noncurrent assets
    
    
    52,000
    
    
    
    86,000Increase (decrease) in:Accounts payable
    
    
    1,835,000
    
    
    
    (2,599,000
    )Accrued expenses
    
    
    658,000
    
    
    
    (1,496,000
    )Other liabilities
    
    
    (132,000
    )
    
    
    (100,000
    )Income taxes payable
    
    
    643,000
    
    
    
    Net cash (used by) provided by operating activities
    
    
    (4,414,000
    )
    
    
    (4,402,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of equipment
    
    
    (271,000
    )
    
    
    (94,000
    )Proceeds from disposal of property and equipment
    
    
    13,000
    
    
    
    Net cash used by investing activities
    
    
    (258,000
    )
    
    
    (94,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings (payments) on note payable-line of credit
    
    
    5,600,000
    
    
    
    5,050,000Repayments of notes payable
    
    
    (956,000
    )
    
    
    (931,000
    )Issuance of common stock
    
    
    
    
    
    
    327,000Net cash provided by (used by) financing activities
    
    
    4,644,000
    
    
    
    4,446,000NET DECREASE IN CASH
    
    
    (28,000
    )
    
    
    (50,000
    )CASH  Beginning of period
    
    
    566,000
    
    
    
    694,000CASH  End of period
    
    $
    538,000
    
    
    $
    644,000SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for:
    
    $
    1,207,000
    
    
    $
    351,000InterestIncome taxes
    
    $
    398,000
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:In 2006, the Company received 196,967 of its Common Stock previously held in
escrow in connection with a reduction in the purchase price recorded for its
acquisition of Altama in 2004 (see note 13, Settlement of Claims).
    
    $
    2,500,000
    
    
    
    
  5




---



##### Table of Contents



PHOENIX FOOTWEAR GROUP, INC.
 
  Description of Business and Summary of Significant Accounting Policies
 1. Basis of Presentation
  Liquidity
  Classification of Obligations When a Violation Is Waived by the Creditor,
  Principles of Consolidation
  Accounting Period
  6




---



##### Table of Contents



Reclassifications
  Critical Accounting Policies
  2. Inventories
  April 1, 2006
    
    
    December 31, 2005Raw materials
    
    $
    4,898,000
    
    
    $
    3,995,000Work in process
    
    
    1,510,000
    
    
    
    1,286,000Finished goods
    
    
    31,754,000
    
    
    
    31,951,000$
    38,162,000
    
    
    $
    37,232,000
 3. Goodwill and Intangible Assets
  Non-AmortizableGoodwill
    
    
    IntangiblesBalance at December 31, 2005
    
    $
    35,976,000
    
    
    $
    22,992,000Adjustments to purchase price allocation from prior acquisitions
    
    
    (2,309,000
    )
    
    
    Balance at April 1, 2006
    
    $
    33,667,000
    
    
    $
    22,992,000
   Amortizable IntangiblesGross
    
    
    Amortization
    
    
    NetBalance at December 31, 2005
    
    $
    13,818,000
    
    
    $
    (1,736,000
    )
    
    $
    12,082,000Altama purchase price adjustment
    
    
    (1,704,000
    )
    
    
    495,000
    
    
    
    (1,209,000
    )Amortization Expense
    
    
    
    
    
    $
    (327,000
    )
    
    $
    (327,000
    )Balance at April 1, 2006
    
    $
    12,114,000
    
    
    $
    (1,568,000
    )
    
    $
    10,546,000
   7




---



##### Table of Contents



Useful Life(Years)
    
    
    2006
    
    
    2005Non-amortizing:Trademarks and tradenames
    
    
    
    
    
    $
    15,357,000
    
    
    $
    15,357,000DoD relationship
    
    
    
    
    
    
    7,635,000
    
    
    
    7,635,000Total
    
    
    
    
    
    $
    22,992,000
    
    
    $
    22,992,000Amortizing:Customer lists
    
    
    1-13
    
    
    $
    9,049,000
    
    
    $
    9,049,000Covenant not to compete
    
    
    2-5
    
    
    
    3,026,000
    
    
    
    4,730,000Other
    
    
    5
    
    
    
    39,000
    
    
    
    39,000Less: Accumulated Amortization
    
    
    
    
    
    
    (1,568,000
    )
    
    
    (1,736,000
    )Total
    
    
    
    
    
    $
    10,546,000
    
    
    $
    12,082,000
  4. Accounting for Stock-Based Compensation
   Three MonthsEndedApril 1, 2006Cost of sales
    
    $
    Selling, general and administrative
    
    
    45,000Pre-tax stock-based compensation expense
    
    
    45,000Income tax benefit
    
    
    8,000Total stock-based compensation expense
    
    $
    37,000
   8




---



##### Table of Contents



April 1,2006Expected life (years)
    
    
    6Risk-free interest rate
    
    
    3.95
    %Expected volatility
    
    
    43.76
    %Expected dividend yield
    
    
    0.0
    %
  April 1, 2006WeightedaverageWeighted
    
    
    remainingaverage
    
    
    contractual
    
    
    Aggregateexercise
    
    
    life
    
    
    intrinsicShares
    
    
    price
    
    
    (in years)
    
    
    valueOptions and rights outstanding December 31, 2005
    
    
    1,195,000
    
    
    $
    7.30Granted
    
    
    40,000
    
    
    
    0.00Exercised
    
    
    
    
    
    
    Canceled
    
    
    (50,000
    )
    
    
    7.01Options and rights outstanding April 1, 2006
    
    
    1,185,000
    
    
    $
    7.07
    
    
    
    7.8
    
    
    $
    553,000Options and rights exercisable April 1, 2006
    
    
    790,000
    
    
    $
    8.34
    
    
    
    7.0
    
    
    $
    2,000
      Three MonthsEndedApril 2, 2005Net earnings, as reported
    
    $
    1,181,000Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (2,610,000
    )Proforma net loss
    
    $
    (1,429,000
    )Basic earnings per common shareAs reported
    
    $
    0.16Proforma
    
    $
    (0.19
    )
 9




---



##### Table of Contents



Three MonthsEndedApril 2, 2005Diluted earnings per common shareAs reported
    
    $
    0.15Proforma
    
    $
    (0.19
    )
  April 2,2005Expected life (years)
    
    
    9Risk-free interest rate
    
    
    4.10
    %Expected volatility
    
    
    45
    %Expected dividend yield
    
    
    0
    %
 5. Per Share Data
  Three Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005Basic net earnings per share:Net earnings
    
    $
    3,030,000
    
    
    $
    1,181,000Weighted average common shares outstanding
    
    
    7,874,235
    
    
    
    7,428,151Basic net earnings per share
    
    $
    0.38
    
    
    $
    0.16Diluted net earnings per share:Net earnings
    
    $
    3,030,000
    
    
    $
    1,181,000Weighted average common shares outstanding
    
    
    7,874,235
    
    
    
    7,428,151Effect of stock options outstanding
    
    
    332,748
    
    
    
    425,255Weighted average common and potential common shares outstanding
    
    
    8,206,983
    
    
    
    7,853,406Diluted net earnings per share
    
    $
    0.37
    
    
    $
    0.15
  6. Contingent Liabilities
  10




---



##### Table of Contents



7. Debt
      April 1,
    
    
    December 31,2006
    
    
    2005Revolving line of credit to bank;
secured by accounts receivable, inventory
and equipment; interest due monthly at LIBOR
rate of 6.44%;
    
    $
    16,000,000
    
    
    $
    16,000,000Revolving line of credit to bank; secured by
accounts receivable, inventory and
equipment; interest due monthly at Prime
plus .375%;
    
    
    10,291,000
    
    
    
    5,091,000Term loan payable to bank in variable
quarterly installments through 2011,
interest due monthly at LIBOR plus 3.5%
    
    
    26,900,000
    
    
    
    27,450,000
 11




---



##### Table of Contents



April 1,
    
    
    December 31,2006
    
    
    2005Bridge loan payable to bank on June 1, 2006,
interest due monthly at LIBOR plus 3.5% or
the prime rate plus .75%
    
    
    7,000,000
    
    
    
    7,000,00060,191,000
    
    
    
    55,541,000Less: current portion
    
    
    60,191,000
    
    
    
    9,425,000Noncurrent portion
    
    $
    
    
    
    $
    46,116,000
  One year or less
    
    $
    60,191,000One to three years
    
    
    Three to five years
    
    
    Total
    
    $
    
 8. Other (income) expenses  net
  12




---



##### Table of Contents



9. Operating Segment Information
    13




---



##### Table of Contents



Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 1,
    
    
    April 2,2006
    
    
    2005Net RevenuesFootwear and Apparel
    
    $
    18,778,000
    
    
    $
    17,545,000Premium Footwear
    
    
    6,694,000
    
    
    
    2,036,000Military Boots
    
    
    7,186,000
    
    
    
    6,819,000Accessories
    
    
    7,684,000
    
    
    
    $
    40,342,000
    
    
    $
    26,400,000Operating Income (loss)Footwear and Apparel
    
    $
    4,609,000
    
    
    $
    3,475,000Premium Footwear
    
    
    (460,000
    )
    
    
    (38,000
    )Military Boots
    
    
    1,097,000
    
    
    
    1,054,000Accessories
    
    
    393,000
    
    
    
    Reconciling Items(1)
    
    
    (229,000
    )
    
    
    (2,091,000
    )$
    5,410,000
    
    
    $
    2,400,000Depreciation and AmortizationFootwear and Apparel
    
    $
    97,000
    
    
    $
    143,000Premium Footwear
    
    
    59,000
    
    
    
    40,000Military Boots
    
    
    185,000
    
    
    
    218,000Accessories
    
    
    250,000
    
    
    
    $
    591,000
    
    
    $
    401,000Capital ExpendituresFootwear and Apparel
    
    $
    58,000
    
    
    $
    26,000Premium Footwear
    
    
    5,000
    
    
    
    Military Boots
    
    
    109,000
    
    
    
    Accessories
    
    
    27,000
    
    
    
    Reconciling Items(2)
    
    
    72,000
    
    
    
    68,000$
    271,000
    
    
    $
    94,000
 As of
    
    
    As ofApril 1,
    
    
    December 31,2006
    
    
    2005Identifiable AssetsFootwear and Apparel
    
    $
    30,211,000
    
    
    $
    24,194,000Premium Footwear
    
    
    18,948,000
    
    
    
    15,357,000Military Boots
    
    
    14,427,000
    
    
    
    13,987,000Accessories
    
    
    22,131,000
    
    
    
    22,116,000GoodwillFootwear and Apparel
    
    
    6,553,000
    
    
    
    6,553,000Premium Footwear
    
    
    3,342,000
    
    
    
    3,168,000Military Boots
    
    
    18,077,000
    
    
    
    20,577,000Accessories
    
    
    5,695,000
    
    
    
    5,678,000Non-amortizable intangiblesFootwear and Apparel
    
    
    2,590,000
    
    
    
    2,590,000Premium Footwear
    
    
    3,577,000
    
    
    
    3,577,000Military Boots
    
    
    14,155,000
    
    
    
    14,155,000Accessories
    
    
    2,670,000
    
    
    
    2,670,000Reconciling Items(3)
    
    
    4,224,000
    
    
    
    4,269,000$
    146,600,000
    
    
    $
    138,891,000
 14




---



##### Table of Contents



(1)
    
    Represents corporate general and administrative expenses and other income (expense) not utilized by management in
determining segment profitability. Corporate general and administrative expenses include expenses such as salaries
and related expenses for executive management and support departments such as accounting, information technology and
human resources which benefit the entire corporation and are not segment specific. The decrease in corporate expenses
during the first quarter of fiscal 2006 is primarily due to the $1.5 million net gain related to the Altama purchase
price reduction settlement and the reduction of severance and management restructuring costs.(2)
    
    Represents capital expenditures of our corporate office not utilized by management in determining segment performance.(3)
    
    Identifiable assets are comprised of net receivables, net inventory, certain property and plant and equipment.
Reconciling items represent unallocated corporate assets not segregated between the four segments and includes
amortizable intangibles and other assets. 10. Acquisition
    Current assets
    
    $
    11,587,000Property, plant and equipment
    
    
    753,000Intangible assets, subject to amortization
    
    
    8,119,000Goodwill and unamortizable intangibles
    
    
    8,365,000Total assets acquired
    
    
    28,824,000Less liabilities
    
    
    (6,780,000
    )Net assets acquired
    
    $
    22,044,000
  ®
 ®
 15




---



##### Table of Contents



Current assets
    
    $
    5,432,000Property, plant and equipment
    
    
    66,000Intangible assets, subject to amortization
    
    
    462,000Goodwill and unamortizable intangibles
    
    
    2,578,000Total assets acquired
    
    
    8,538,000Less liabilities
    
    
    (2,071,000
    )Net assets acquired
    
    $
    6,467,000
  16




---



##### Table of Contents



Three MonthsEndedApril 2, 2005Pro forma net sales
    
    $
    40,852,000Pro forma net income
    
    $
    1,470,000Basic Pro forma net income per share
    
    $
    0.19Diluted Pro forma net income per share
    
    $
    0.18
  11. Related Parties
  12. Comprehensive Income
  Three Months EndedApril 1, 2006
    
    
    April 2, 2005Net income
    
    $
    3,030,000
    
    
    $
    1,181,000Other comprehensive income:Foreign currency translation
    
    
    32,000
    
    
    
    Comprehensive income
    
    $
    2,998,000
    
    
    $
    1,181,000
 13. Settlement of Claims
  17




---



##### Table of Contents



14. Subsequent Event
  18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with the historical consolidated
financial statements and the related notes and the other financial information included in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the fiscal
year ended December 31, 2005. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of any number of factors, including those set forth under
Risk Factors below.
 References to our   refer to our fiscal year ended January 1, 2005, references
to our   refer to our fiscal year ended December 31, 2005, and references to our   refer to our fiscal year ending December 30, 2006.
 Overview
 ® ® ® ® ® ® ®
    ®
 19




---



##### Table of Contents



Results of Operations
  Quarter EndedApril 1,

    
    
    April 2,2006

    
    
    2005Net sales
    
    
    100
    %
    
    
    100
    %Costs of goods sold
    
    
    61
    %
    
    
    60
    %Gross profit
    
    
    39
    %
    
    
    40
    %Selling, general and administrative and other expenses
    
    
    29
    %
    
    
    29
    %Operating income
    
    
    13
    %
    
    
    9
    %Interest expense
    
    
    3
    %
    
    
    2
    %Earnings before income taxes
    
    
    10
    %
    
    
    7
    %Income tax expense
    
    
    2
    %
    
    
    3
    %Net earnings
    
    
    8
    %
    
    
    4
    %
 Fiscal Quarter Ended April 1, 2006 Compared to Fiscal Quarter Ended April 2, 2005 .
 Consolidated Net Sales
  Consolidated Gross Profit
  Consolidated Operating Expenses
  Adoption of SFAS No. 123 (Revised 2004)
  20




---



##### Table of Contents



Consolidated Other (Income) Expense  Net
  Consolidated Interest Expense
  Consolidated Income Tax Provision
  Consolidated Net Earnings
  Footwear and Apparel Business
 Net Sales
  21




---



##### Table of Contents



Gross Profit
  Operating Expenses
  Premium Footwear Business
 Net Sales
  Gross Profit
  Operating Expenses
  Military Boot Business
 Net Sales
  22




---



##### Table of Contents



Gross Profit
  Operating Expenses
  Accessories Business
 Net Sales
  Gross Profit
  Operating Expenses
  Seasonal and Quarterly Fluctuations
  Fiscal 2005First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterNet sales
    
    $
    26,400
    
    
    $
    15,353
    
    
    $
    34,275
    
    
    $
    33,161Income (loss) from operations
    
    $
    2,400
    
    
    $
    (1,193
    )
    
    $
    2,814
    
    
    $
    1,640
 23




---



##### Table of Contents



Fiscal 2006First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterNet sales
    
    $
    40,342
    
    
    $
    
    
    
    $
    
    
    
    $
    Income (loss) from operations
    
    $
    5,410
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Liquidity and Capital Resources
    Classification of Obligations When a Violation Is Waived by the Creditor,
   24




---



##### Table of Contents



Cash Flows Used By Operations.
  Investing Activities.
  Financing Activities.
   25




---



##### Table of Contents



Inflation
  Contractual Obligations
  Off-Balance Sheet Arrangements
  Critical Accounting Policies:
  Adoption of SFAS No. 123 (Revised 2004)
   CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
   26




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Fluctuations
    Interest Rate Fluctuations
  
 Item 4. Evaluation of Disclosure Controls and Procedures
  27




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Part II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Defaults under our secured credit arrangement could result in a foreclosure on our assets by our bank
  28




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Default Upon Senior Securities
 See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources
 
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.1
    
    Amended and Restated Credit Facility Agreement Amendment No. 1 between Phoenix
Footwear Group, Inc. and Manufacturers and Traders Trust Company dated December
30, 2005 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K for January 5, 2006 by Phoenix Footwear Group, Inc. (SEC File No.
001-31309))10.2
    
    Amended and Restated Credit Facility Agreement Amendment No. 2 between Phoenix
Footwear Group, Inc. and Manufacturers and Traders Trust Company dated January
31, 2006 (incorporated by reference to Exhibit 10.27 to the Annual Report on
Form 10-K for December 31, 2005 by Phoenix Footwear Group, Inc. (SEC File No.
001-31309))10.3
    
    Amended and Restated Credit Facility Agreement Amendment No. 3 between Phoenix
Footwear Group, Inc. and Manufacturers and Traders Trust Company dated February
28, 2006 (incorporated by reference to Exhibit 10.28 to the Annual Report on
Form 10-K for December 31, 2005 by Phoenix Footwear Group, Inc. (SEC File No.
001-31309))10.4
    
    Amended and Restated Credit Facility Agreement Amendment No. 4 between Phoenix
Footwear Group, Inc. and Manufacturers and Traders Trust Company dated March
31, 2006 (incorporated by reference to Exhibit 10.29 to the Annual Report on
Form 10-K for December 31, 2005 by Phoenix Footwear Group, Inc. (SEC File No.
001-31309))10.5
    
    Covenant Waiver  Amendment No. 5 to Amended and Restated Credit Facility
Agreement between
 29




---



##### Table of Contents



Phoenix Footwear Group, Inc. and Manufacturers and Traders
Trust Company dated March 29, 2006 (incorporated by reference to Exhibit 10.30
to the Annual Report on Form 10-K for December 31, 2005 by Phoenix Footwear
Group, Inc. (SEC File No. 001-31309))10.6
    
    Settlement Agreement dated January 8, 2006 by and among W. Whitlow Wyatt,
Phoenix Footwear Group, Inc. and Altama Delta Corporation (incorporated by
reference to Exhibit 10.35 to the Annual Report on Form 10-K for December 31,
2005 by Phoenix Footwear Group, Inc. (SEC File No. 001-31309))10.7
    
    Amended and Restated Credit Facility Agreement Amendment No. 6 between Phoenix
Footwear Group, Inc. and Manufacturers and Traders Trust Company dated April
26, 2006 (incorporated by reference to Exhibit 10.1 on Form 8-K filed May 2,
2006 by Phoenix Footwear Group, Inc. (SEC File No. 001-31309))31.1
    
    Section 302 Certification of Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32.1
    
    Section 906 Certification of Chief Executive Officer and Chief Financial Officer
 30