ROCKY BRANDS, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

¨	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. Employer
Incorporation or Organization)	Identification No.)

39 E. Canal Street, Nelsonville, Ohio 45764

(Address of Principal Executive Offices, Including Zip Code)

(740) 753-1951

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ 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 July 29 , 2009, 5,547,215 shares of Rocky Brands, Inc. common stock, no par value, were outstanding.

FORM 10-Q

ROCKY BRANDS, INC.

TABLE OF CONTENTS

		PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets June 30, 2009 and 2008 (Unaudited), and December 31, 2008	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)	5

	Notes to Interim Unaudited Condensed Consolidated Financial Statements for the Three-Month and Six-Month Periods Ended June 30, 2009 and 2008	6 –16

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17 – 23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	Other Information	25

Item 6.	Exhibits	25

SIGNATURE		26

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2009			December 31, 2008			June 30, 2008
	(Unaudited)						(Unaudited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	2,865,461		$	4,311,313		$	3,025,144
Trade receivables – net		44,454,476			60,133,493			59,245,156
Other receivables		1,924,195			1,394,235			1,010,254
Inventories		79,286,477			70,302,174			85,542,820
Deferred income taxes		2,167,966			2,167,966			1,952,536
Prepaid and refundable income taxes		2,413,523			75,481			729,024
Prepaid expenses		1,983,480			1,455,158			2,703,446
Total current assets		135,095,578			139,839,820			154,208,380
FIXED ASSETS – net		23,777,945			23,549,319			24,090,519
IDENTIFIED INTANGIBLES		30,769,248			31,020,478			36,207,210
OTHER ASSETS		3,609,296			2,452,501			2,323,778
TOTAL ASSETS	$	193,252,067		$	196,862,118		$	216,829,887

LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable	$	8,504,099		$	9,869,948		$	13,238,830
Current maturities – long term debt		495,976			480,723			338,314
Accrued expenses:
Salaries and wages		830,733			480,500			722,646
Co-op advertising		522,670			636,408			468,922
Interest		459,483			451,434			468,959
Taxes – other		502,032			641,670			840,751
Commissions		339,379			387,242			449,110
Other		2,351,937			2,306,105			2,593,954
Total current liabilities		14,006,309			15,254,030			19,121,486
LONG TERM DEBT – less current maturities		87,023,125			87,258,939			101,042,347
DEFERRED INCOME TAXES		9,438,921			9,438,921			12,951,828
DEFERRED PENSION LIABILITY		3,860,920			3,743,552			969,218
DEFERRED LIABILITIES		195,264			216,920			288,388
TOTAL LIABILITIES		114,524,539			115,912,362			134,373,267
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and outstanding June 30, 2009 - 5,547,215; December 31, 2008 - 5,516,898 and June 30, 2008 - 5,508,278		54,384,172			54,250,064			54,168,292
Accumulated other comprehensive loss		(3,062,448	)		(3,222,215	)		(1,500,197	)
Retained earnings		27,405,804			29,921,907			29,788,525
Total shareholders' equity		78,727,528			80,949,756			82,456,620
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	193,252,067		$	196,862,118		$	216,829,887

See notes to the interim unaudited condensed consolidated financial statements.

ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
NET SALES	$	51,188,615		$	60,507,421		$	101,253,176		$	120,992,137

COST OF GOODS SOLD		33,470,943			36,111,328			63,443,016			70,646,379

GROSS MARGIN		17,717,672			24,396,093			37,810,160			50,345,758

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		18,119,173			20,875,459			38,065,301			43,936,946

(LOSS) INCOME FROM OPERATIONS		(401,501	)		3,520,634			(255,141	)		6,408,812

OTHER INCOME AND (EXPENSES):
Interest expense, net		(1,936,490	)		(2,409,515	)		(3,710,420	)		(4,816,186	)
Other – net		158,023			15,723			33,457			(2,869	)
Total other – net		(1,778,467	)		(2,393,792	)		(3,676,963	)		(4,819,055	)

(LOSS) INCOME BEFORE INCOME TAXES		(2,179,968	)		1,126,842			(3,932,104	)		1,589,757

INCOME TAX (BENEFIT) EXPENSE		(785,000	)		394,000			(1,416,000	)		556,000

NET (LOSS) INCOME	$	(1,394,968	)	$	732,842		$	(2,516,104	)	$	1,033,757

NET (LOSS) INCOME PER SHARE
Basic	$	(0.25	)	$	0.13		$	(0.45	)	$	0.19
Diluted	$	(0.25	)	$	0.13		$	(0.45	)	$	0.19

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		5,547,215			5,508,278			5,546,880			5,508,058
Diluted		5,547,215			5,520,625			5,546,880			5,523,265

See notes to the interim unaudited condensed consolidated financial statements.

ROCKY BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(2,516,104	)	$	1,033,757
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,175,594			3,070,687
Deferred compensation and other		255,479			128,493
Loss (gain) on disposal of fixed assets		8,468			(34,478	)
Stock compensation expense		134,108			170,332
Change in assets and liabilities
Receivables		15,149,057			6,350,389
Inventories		(8,984,303	)		(10,139,156	)
Other current assets		(2,866,364	)		(485,605	)
Other assets		355,705			(39,739	)
Accounts payable		(1,392,390	)		1,329,118
Accrued and other liabilities		102,875			(392,779	)
Net cash provided by operating activities		3,422,125			991,019

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(3,114,629	)		(2,347,911	)
Investment in trademarks and patents		(39,610	)		(30,387	)
Proceeds from sale of fixed assets		19,323			38,910

Net cash used in investing activities		(3,134,916	)		(2,339,388	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		117,213,842			128,927,562
Repayments of revolving credit facility		(117,197,776	)		(130,932,955	)
Repayments of long-term debt		(236,627	)		(158,978	)
Debt financing costs		(1,512,500	)		-
Net cash used in financing activities		(1,733,061	)		(2,164,371	)

DECREASE IN CASH AND CASH EQUIVALENTS		(1,445,852	)		(3,512,740	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		4,311,313			6,537,884

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,865,461		$	3,025,144

See notes to the interim unaudited condensed consolidated financial statements.

ROCKY BRANDS, INC.

AND SUBSIDIARIES

NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2009 AND 2008

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 and six-month periods ended June 30, 2009 and 2008 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, 2008.

We reviewed events for inclusion in our financial statements through July 31, 2009, the date that the accompanying financial statements were issued. No subsequent events were identified which required disclosure herein.

The components of total comprehensive (loss) income are shown below:

	(Unaudited)					(Unaudited)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2009			2008		2009			2008

Net (loss) income	$	(1,394,968	)	$	732,842	$	(2,516,104	)	$	1,033,757
Other comprehensive income:
Amortization of unrecognized transition obligation, service cost and net loss		79,883			37,853		159,767			77,885
Total comprehensive (loss) income	$	(1,315,085	)	$	770,695	$	(2,356,337	)	$	1,111,642

2. TRADE RECEIVABLES

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $1,793,000, $2,026,000 and $1,217,000 at June 30, 2009, December 31, 2008 and June 30, 2008, respectively. The allowance for uncollectible accounts is calculated based on the relative age and size of trade receivable balances.

3. INVENTORIES

Inventories are comprised of the following:

	June 30,			December 31,			June 30,
	2009			2008			2008
	(Unaudited)						(Unaudited)
Raw materials	$	9,560,424		$	7,311,837		$	9,388,532
Work-in-process		673,914			351,951			803,294
Finished goods		69,104,239			62,676,986			75,469,494
Reserve for obsolescence or lower of cost or market		(52,100	)		(38,600	)		(118,500	)
Total	$	79,286,477		$	70,302,174		$	85,542,820

4. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information, including cash paid for interest and Federal, state and local income taxes, net of refunds, was as follows:

	(Unaudited)
	Six Months Ended
	June 30,
	2009		2008

Interest	$	3,345,363	$	4,519,746

Federal, state and local income taxes	$	928,666	$	565,244

Fixed asset purchases in accounts payable	$	139,283	$	56,976

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 and six-month periods ended June 30, 2009 and 2008 is as follows:

	(Unaudited)				(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
Weighted average shares outstanding		5,547,215		5,508,278		5,546,880		5,508,058

Dilutive stock options		-		12,347		-		15,207

Dilutive weighted average shares outstanding		5,547,215		5,520,625		5,546,880		5,523,265

Anti-dilutive stock options/weighted average shares outstanding		403,534		343,889		403,534		343,889

6. RECENT FINANCIAL ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-2 defers implementation of SFAS 157 for certain non-financial assets and non-financial liabilities. SFAS 157 is effective for financial assets and liabilities in fiscal years beginning after November 15, 2007 and for non-financial assets and liabilities in fiscal years beginning after March 15, 2008. We have evaluated the impact of the provisions applicable to our financial assets and liabilities and have determined that there will not be a material impact on our consolidated financial statements. The aspects that have been deferred by FSP FAS 157-2 pertaining to non-financial assets and non-financial liabilities are effective for us beginning January 1, 2009. The adoption of FSP FAS 157-2 in 2009 did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141, “Business Combinations.” The objective of SFAS 141R is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase option; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first reporting period beginning on or after December 15, 2008. The adoption of SFAS 141R in 2009 did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing certain accounting and reporting standards that address: the ownership interests in subsidiaries held by parties other than the parent; the amount of net income attributable to the parent and non-controlling interest; changes in the parent’s ownership interest; and any retained non-controlling equity investment in a deconsolidated subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS 160 in 2009 did not have a material effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB No. 133” (“SFAS 161”). SFAS 161 intends to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS 161 also requires disclosure about an entity’s strategy and objectives for using derivatives, the fair values of derivative instruments and their related gains and losses. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of SFAS 161R in 2009 did not have a material effect on our consolidated financial statements.

In December 2008, the FASB issued FASB Staff Position FAS 132(R)-1, “Employer's Disclosures about Postretirement Benefit Plan Assets” ("FSP FAS 132(R)-1"). FSP FAS 132(R)-1 requires enhanced disclosures about plan assets currently required by SFAS No. 132, as revised, Employer's Disclosures about Pensions and Other Postretirement Benefits. FSP FAS 132(R)-1 requires more detailed disclosures about employers' plan assets, including employers' investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009, and early adoption is permitted. We are currently assessing the potential impact of the adoption of FSP FAS 132(R)-1 on our consolidated financial statement disclosures.

In April 2009, the FASB issued FASB Staff Position FAS-157-4, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed” (“FSP FAS 157-4”). FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. FSP FAS 157-4 is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures. FSP FAS 157-4 is required to be adopted no later than the periods ending after June 15, 2009. The adoption of FSP FAS 157-4 in 2009 did not have a material effect on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”) and (“FSP FAS 124-2”). FSP FAS 115-2 and FSP FAS 124-2 provide additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to improve presentation and disclosure of other-than-temporary impairments in the financial statements. FSP FAS 115-2 and FSP FAS 124-2 are required to be adopted no later than the periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FSP FAS 124-2 in 2009 did not have a material effect on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”) and (“APB 28-1”). FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements and amends APB Opinion No. 28 “Interim Financial Reporting”, to require those disclosures in interim financial statements. FSP FAS 107-1 and APB 28-1 are required to be adopted no later than the periods ending after June 15, 2009. The adoption of FSP FAS 107-1 in 2009 did not have a material effect on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 160”). The objective of SFAS 165 is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS 165 in 2009 did not have a material effect on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets an Amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 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. SFAS 166 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. SFAS 166 must be applied to transfers occurring on or after the effective date. We are currently assessing the potential impact of the adoption of SFAS 166 on our consolidated financial statement disclosures.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 intends to improve financial reporting by enterprises involved with variable interest entities. SFAS 167 addresses the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of Financial Assets; and constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 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. We are currently assessing the potential impact of the adoption of SFAS 167 on our consolidated financial statement disclosures.

In June 2009, the FASB issued SFAS no. 168, “The FASB Accounting Standards Codification™ (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”). The Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Since it is not intended to change or alter existing U.S. GAAP, the Codification is not expected to have any impact on our financial condition or results of operations.

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 June 30, 2009, accrued interest or penalties were not material, and no such expenses were recognized during the quarter.

We provided for income taxes at estimated effective tax rates of 36% and 35% for the three-month and six-month periods ended June 30, 2009 and 2008, respectively.

8. INTANGIBLE ASSETS

A schedule of intangible assets is as follows:

	Gross		Accumulated		Carrying
June 30, 2009 (unaudited)	Amount		Amortization		Amount
Trademarks:
Wholesale	$	27,243,578	$	-	$	27,243,578
Retail		2,900,000		-		2,900,000
Patents		2,349,152		1,823,482		525,670
Customer relationships		1,000,000		900,000		100,000
Total Identified Intangibles	$	33,492,730	$	2,723,482	$	30,769,248

	Gross		Accumulated		Carrying
December 31, 2008	Amount		Amortization		Amount
Trademarks:
Wholesale	$	27,243,578	$	-	$	27,243,578
Retail		2,900,000		-		2,900,000
Patents		2,309,541		1,632,641		676,900
Customer relationships		1,000,000		800,000		200,000
Total Identified Intangibles	$	33,453,119	$	2,432,641	$	31,020,478

	Gross		Accumulated		Carrying
June 30, 2008 (unaudited)	Amount		Amortization		Amount
Trademarks:
Wholesale	$	28,278,595	$	129,377	$	28,149,218
Retail		6,900,000		-		6,900,000
Patents		2,300,438		1,442,446		857,992
Customer relationships		1,000,000		700,000		300,000
Total Identified Intangibles	$	38,479,033	$	2,271,823	$	36,207,210

Amortization expense for intangible assets was $145,570 and $166,507 for the three months ended June 30, 2009 and 2008, respectively and $290,841 and $332,867 for the six months ended June 30, 2009 and 2008, respectively. The weighted average amortization period for patents is six years and for customer relationships is five years.

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

2010	$	43,190
2011		41,809
2012		41,809
2013		41,809
2014		41,809

In the fourth quarter of 2008 we recognized impairment losses on the carrying values of the Lehigh and Gates trademarks in the amounts of $4.0 million and $0.9 million, respectively. We estimated fair value based on projections of the future cash flows for each of the trademarks. We then compared the carrying value for each trademark to its estimated fair value. Since the fair value of the trademark was less than its carrying value we recognized the reductions in fair value as non-cash intangible impairment charges in our 2008 operating expenses. These charges are reflected in operating expenses under the caption, “Non-cash intangible impairment charges.” The Lehigh trademark is reported under our Retail segment. The Gates trademark is reported under our Wholesale segment.

9. CAPITAL STOCK

On May 11, 2004, our shareholders approved the 2004 Stock Incentive Plan. The Plan includes 750,000 of our common shares that may be granted for stock options and restricted stock awards. As of June 30, 2009, we were authorized to issue approximately 376,103 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, 2009 through June 30, 2009:

	Shares			Weighted Average Exercise Price
Options outstanding at January 1, 2009		435,801		$	15.88
Issued		-			-
Exercised		-			-
Forfeited		(56,301	)	$	7.53
Options outstanding at June 30, 2009		379,500		$	17.12

Options exercisable at:
January 1, 2009		412,051		$	15.80
June 30, 2009		372,000		$	17.17

Unvested options at January 1, 2009		23,750		$	17.27
Granted		-			-
Vested		(8,750	)	$	22.87
Forfeited		(7,500	)	$	13.61
Unvested options at June 30, 2009		7,500		$	14.40

During the six-month period ended June 30, 2009, we issued 30,317 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 the common stock. Such exercise would ultimately entitle the holders of the rights to purchase st 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.

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)						(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008

Service cost	$	28,843		$	26,963		$	57,686		$	53,926
Interest		151,454			143,061			302,908			286,123
Expected return on assets		(121,613	)		(171,313	)		(243,227	)		(342,626	)
Amortization of unrecognized net gain or loss		61,786			17,116			123,572			34,442
Amortization of unrecognized transition obligation		-			897			-			2,242
Amortization of unrecognized prior service cost		18,098			19,840			36,196			41,201
Net pension cost	$	138,568		$	36,564		$