RESULTS OF OPERATIONS

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

                                      Three Months Ended          Six Months Ended
                                           June 30,                   June 30,
                                      2009           2008         2009         2008
         Net Sales                      100.0 %       100.0 %      100.0 %      100.0 %
         Cost Of Goods Sold             65.4  %        59.7 %       62.7 %       58.4 %
         Gross Margin                    34.6 %        40.3 %       37.3 %       41.6 %

         Selling, General and
          Administrative Expenses        35.4 %        34.5 %       37.6 %       36.3 %

         Income From Operations          -0.8 %         5.8 %       -0.3 %        5.3 %

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Net sales. Net sales for the three months ended June 30, 2009 were $51.2 million compared to $60.5 million for the same period in 2008. Wholesale sales for the three months ended June 30, 2009 were $37.9 million compared to $42.5 million for the same period in 2008. The $4.6 million decrease in wholesale sales was the result of decreased sales in the majority of our footwear categories and apparel. Retail sales for the three months ended June 30, 2009 were $12.3 million compared to $16.2 million for the same period in 2008. The $3.9 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 June 30, 2009, were $0.9 million, compared to $1.8 million in the same period in 2008. Shipments in 2009 were under the $6.4 million contract issued in July 2007.

Gross margin. Gross margin for the three months ended June 30, 2009 was $17.7 million, or 34.6% of net sales, compared to $24.4 million, or 40.3% of net sales, in the same period last year. Wholesale gross margin for the three months ended June 30, 2009 was $11.9 million, or 31.3% of net sales, compared to $15.7 million, or 36.9% of net sales, in the same period last year. The 560 basis point decrease is the result of additional sales of closeouts at reduced gross margins, an increase in manufacturing costs, and a decrease in sales price per unit for competitive reasons. Retail gross margin for the three months ended June 30, 2009 was $5.8 million, or 47.2% of net sales, compared to $8.6 million, or 52.8% of net sales, for the same period in 2008. The 560 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 June 30, 2009 was less than $0.1 million, or 3.7% of net sales, compared to $0.2 million, or 8.6% of net sales, for the same period in 2008.

SG&A expenses. SG&A expenses were $18.1 million, or 35.4% of net sales, for the three months ended June 30, 2009, compared to $20.9 million, or 34.4% of net sales for the same period in 2008. The net change primarily reflects decreases in compensation and benefits expenses of $1.6 million, shipping expenses of $0.6 million, Lehigh mobile store expenses of $0.3 million, and travel expenses of $0.2 million, partially offset by a $0.4 million increase in bad debt expense.

Interest expense. Interest expense was $1.9 million in the three months ended June 30, 2009, compared to $2.4 million for the same period in the prior year. The decrease of $0.5 million resulted from a reduction in average borrowings combined with lower interest rates compared to the same period last year.

Income taxes. Income tax benefit for the three months ended June 30, 2009 was $0.8 million, compared to income tax expense of $0.4 million for the same period a year ago. We provided for income taxes at effective tax rates of 36%, our 2008 actual rate, and 35% for the three months ended June 30, 2009 and 2008, respectively.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net sales. Net sales for the six months ended June 30, 2009 were $101.3 million compared to $121.0 million for the same period in 2008. Wholesale sales for the six months ended June 30, 2009 were $73.9 million compared to $82.2 million for the same period in 2008. The $8.3 million decrease in wholesale sales is the result of decreased sales in the majority of our footwear categories and apparel. Retail sales for the six months ended June 30, 2009 were $26.1 million compared to $35.1 million for the same period in 2008. The $9.1 million decrease in retail sales results 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 to help lower costs. Military segment sales for the six months ended June 30, 2009, were $1.3 million, compared to $3.7 million in the same period in 2008. Shipments in 2009 were under the $6.4 million contract issued in July 2007.

Gross margin. Gross margin for the six months ended June 30, 2009 was $37.8 million, or 37.3% of net sales, compared to $50.3 million, or 41.6% of net sales, in the same period last year. Wholesale gross margin for the six months ended June 30, 2009 was $25.2 million, or 34.0% of net sales, compared to $32.0 million, or 38.9% of net sales, in the same period last year. The 490 basis point decrease is the result of additional sales of closeouts at reduced gross margins, an increase in manufacturing costs, and a decrease in sales price per unit for competitive reasons. Retail gross margin for the six months ended June 30, 2009 was $12.6 million, or 48.3% of net sales, compared to $18.0 million, or 51.4% of net sales, for the same period in 2008. The 310 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 six months ended June 30, 2009 was $0.1 million, or 4.5% of net sales, compared to $0.3 million or 9.3% of net sales for the same period in 2009.

SG&A expenses. SG&A expenses were $38.1 million, or 37.6% of net sales, for the six months ended June 30, 2009, compared to $43.9 million, or 36.3% of net sales for the same period in 2008. The net change primarily results from decreases in compensation and benefits expenses of $3.0 million, shipping expenses of $0.9, advertising expense of $0.6, Lehigh mobile store expenses of $0.5, travel expense of $0.4, and professional and consulting fees of $0.4 million, partially offset by a $0.6 million increase in bad debt expense.

Interest expense. Interest expense was $3.7 million in the six months ended June 30, 2009, compared to $4.8 million for the same period in the prior year. The decrease of $1.1 million resulted from a reduction in average borrowings combined with lower interest rates compared to the same period last year.

Income taxes. Income tax benefit for the six months ended June 30, 2009 was $1.4 million, compared to a benefit of $0.6 million for the same period a year ago. We provided for income taxes at effective tax rates of 36%, our 2008 actual rate, and 35% for the six months ended June 30, 2009 and 2008, respectively.

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 $3.1 million for the first six months of 2009, compared to $2.3 million for the same period in 2008. Capital expenditures for all of 2009 are anticipated to be approximately $4.0 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 June 30, 2009, we had $44.8 million in borrowings under this facility and total capacity of $60.8 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 June 30, 2009, we were in compliance with these restrictive covenants.

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 $3.4 million for the six months ended June 30, 2009, compared to $1.0 million in the same period of 2008. Cash provided by operating activities for the six months ended June 30, 2009 was primarily impacted by a reduction in accounts receivable which was partially offset by the seasonal buildup of inventory. Cash provided by operating activities for the six months ended June 30, 2008 was primarily impacted by the buildup of inventory to support our retail sales growth, the buildup of raw materials required to fulfill our military contracts offset by the reduction of trade receivables and accounts payable.

Investing Activities. Cash used in investing activities was $3.1 million for the six months ended June 30, 2009, compared to $2.3 million in the same period of 2008. Cash used in investing activities in 2009 reflects an investment in property, plant and equipment of $3.1 million. Our 2009 expenditures primarily relate to investments in our inventory fulfillment operations, investments in molds and equipment associated with our manufacturing operations and for information technology. Our 2008 expenditures primarily relate to investments in molds and equipment associated with our manufacturing operations and for information technology.

Financing Activities. Cash used in financing activities for the six months ended June 30, 2009 was $1.7 million and reflects debt financing costs associated with the amendment of our credit facility with GMAC of $1.5 million and repayments on long-term debt of $0.2 million. Cash used in financing activities for the six months ended June 30, 2008 was $2.2 million and reflects a decrease in net borrowings under the revolving credit facility of $2.0 million and repayments on long-term debt of $0.2 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, 2008.

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 doubtful 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. Management also records estimates for customer returns and discounts offered to customers. Should a greater proportion of customers return goods and take advantage of discounts than estimated by us, additional allowances may be required.

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. In performing the review of recoverability, we estimate future cash flows expected to result from the use of the asset and our eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management's subjective judgments. The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. We consider the likelihood of possible outcomes in determining the best estimate of future cash flows. A significant assumption of estimated cash flows from trademarks is future sales of branded products. Other assumptions include discount rates, royalty rates, cost of capital, and market multiples. An impairment charge may be recorded if the expected future cash flows decline.

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 June 30, 2009. 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.

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, 2008, 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.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since December 31, 2008.

ITEM 4 - CONTROLS AND PROCEDURES

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

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

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

Internal Controls. There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended June 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, 2008.

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

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2009 Annual Meeting of Shareholders was held on May 18, 2009, and the following proposal was acted upon:

Proposal 1: The election of Class I Directors of the Company, to serve until the 2011 Annual Meeting of Shareholders or until their successors are elected and qualified.

                                              Number of Shares Voted
                                                    WITHHOLD
                                       FOR         AUTHORITY          TOTAL
             Mike Brooks             4,452,599        144,787       4,597,386
             Glen E. Corlett         4,470.133        127,253       4,597,386
             Harley E Rouda, Jr.     4,418,931        178,456       4,597,386
             James L. Stewart        4,451,899        145,487       4,597,386

The following individuals continue to serve as Class II Directors of the Company:
J. Patrick Campbell, Michael L. Finn, G. Courtney Haning and Curtis A Loveland.

Proposal 2: To ratify the selection of Schneider Downs & Co., Inc. as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2009.

ITEM 5 - OTHER INFORMATION

None

ITEM 6 - EXHIBITS

EXHIBIT      EXHIBIT
NUMBER       DESCRIPTION

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

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