10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2018

OR

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

Commission File Number: 001-34382

ROCKY BRANDS, INC.

(Exact name of Registrant as specified in its charter)

Ohio	No. 31‑1364046
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
39 East Canal Street, Nelsonville, Ohio 45764
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:(740) 753‑1951

Indicate by checkmark 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 the filing requirements for at least the past 90 days. Yes ☒  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, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Exchange Act Rule 12b-2).  (Check one):

☐Large accelerated filer  ☒Accelerated filer  ☐Non-accelerated filer  ☐Smaller reporting company  ☐ Emerging growth company

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

There were 7,406,801 shares of the Registrant's Common Stock outstanding on April 30, 2018.

TABLE OF CONTENTS

		Page
PART I – Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited), December 31, 2017, and March 31, 2017 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II – Other Information
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6.	Exhibits	19
SIGNATURES		20

1

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

		March 31,		December 31,		March 31,
		2018		2017		2017
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	10,115,863	$	3,680,776	$	2,693,078
Trade receivables, net		41,231,333		45,027,002		39,131,277
Contract receivables		13,518,203		-		-
Other receivables		410,570		806,468		768,729
Inventories		65,151,332		65,622,432		68,819,390
Income tax receivable		996,563		1,849,237		510,223
Prepaid expenses		2,442,001		2,199,648		2,619,898
Total current assets		133,865,865		119,185,563		114,542,595
PROPERTY, PLANT & EQUIPMENT – net		23,737,918		23,781,001		25,633,199
IDENTIFIED INTANGIBLES		30,303,843		30,314,749		33,383,261
OTHER ASSETS		190,292		197,977		225,670
TOTAL ASSETS	$	188,097,918	$	173,479,290	$	173,784,725
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable	$	14,130,491	$	12,982,535	$	14,620,330
Contract liabilities		13,518,203		-		-
Accrued expenses:
Salaries and wages		1,788,471		1,754,681		1,741,222
Taxes - other		94,338		599,793		692,267
Accrued freight		712,488		770,219		407,428
Commissions		415,464		455,845		401,663
Accrued duty		2,260,540		2,160,847		1,994,870
Other		1,182,746		1,301,931		1,302,558
Total current liabilities		34,102,741		20,025,851		21,160,338
LONG TERM DEBT		-		2,199,423		5,240,000
LONG TERM TAXES PAYABLE		2,286,512		2,286,512		-
DEFERRED INCOME TAXES		7,726,234		7,726,234		11,365,800
DEFERRED LIABILITIES		154,736		148,408		176,219
TOTAL LIABILITIES		44,270,223		32,386,428		37,942,357
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and outstanding March 31, 2018 - 7,406,801;  December 31, 2017 - 7,398,654 and March 31, 2017 - 7,435,467		69,272,506		68,973,927		69,362,641
Retained earnings		74,555,189		72,118,935		66,479,727
Total shareholders' equity		143,827,695		141,092,862		135,842,368
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	188,097,918	$	173,479,290	$	173,784,725

See Notes to Unaudited Condensed Consolidated Financial Statements

2

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

		Three Months Ended
		March 31,
		2018		2017
NET SALES	$	61,386,673	$	63,072,954
COST OF GOODS SOLD		40,421,491		43,324,874
GROSS MARGIN		20,965,182		19,748,080
OPERATING EXPENSES		16,737,507		17,381,909
INCOME FROM OPERATIONS		4,227,675		2,366,171
OTHER EXPENSES		(138,564)		(100,230)
INCOME BEFORE INCOME TAXES		4,089,111		2,265,941
INCOME TAX EXPENSE		838,000		770,000
NET INCOME	$	3,251,111	$	1,495,941
INCOME PER SHARE
Basic	$	0.44	$	0.20
Diluted	$	0.44	$	0.20
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic		7,406,620		7,435,000
Diluted		7,431,071		7,436,788

See Notes to Unaudited Condensed Consolidated Financial Statements

3

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Three Months Ended
		March 31,
		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,251,111	$	1,495,941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,379,422		1,857,590
Loss on disposal of fixed assets		-		21,552
Stock compensation expense		298,579		71,004
Change in assets and liabilities:
Receivables		5,044,241		2,366,282
Inventories		471,100		349,052
Other current assets		(242,353)		(265,791)
Other assets		7,685		6,839
Accounts payable		1,238,002		2,922,946
Accrued and other liabilities		(582,941)		409,138
Net cash provided by operating activities		10,864,846		9,234,553
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(1,415,478)		(866,152)
Proceeds from sales of fixed assets		-		6,081
Net cash used in investing activities		(1,415,478)		(860,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		156,770		12,563,546
Repayments on revolving credit facility		(2,356,193)		(21,907,554)
Dividends paid on common stock		(814,858)		(817,901)
Net cash used in financing activities		(3,014,281)		(10,161,909)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,435,087		(1,787,427)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD		3,680,776		4,480,505
END OF PERIOD	$	10,115,863	$	2,693,078

See Notes to Unaudited Condensed Consolidated Financial Statements

4

Rocky Brands, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1.   NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango and Lehigh. Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets: outdoor, work, duty, commercial military, western and lifestyle. In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

In the opinion of management, the accompanying 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 condensed consolidated financial statements are considered to be of a normal and recurring nature. The results of operations for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2017 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report on Form 10-Q should be read in connection with our Annual Report on Form 10-K for the year ended December 31, 2017, which includes all disclosures required by GAAP.

2.   ACCOUNTING STANDARDS UPDATES

Recently Issued Accounting Pronouncements

Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Unaudited Condensed Consolidated Financial Statements or Notes to the Unaudited Condensed Consolidated Financial Statements:

Standard	Description	Anticipated Adoption Period	Effect on the financial statements or other significant matters
ASU 2016-13,Measurement of Credit Losses on Financial Instruments	The pronouncement seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	Q1 2020	The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables.
ASU 2016-02, Leases (Topic 842).	The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.	Q1 2019	The Company has formed an internal project team to begin gathering data relating to leasing activity at the Company. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on the Company's financial statements.

5

Accounting Standards Adopted in the Current Year

Standard	Description	Effect on the financial statements or other significant matters
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).	The pronouncement provides specific guidance on eight cash flow classification issues to reduce the diversity in practice.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606).	The pronouncement outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements. The Company elected to adopt this standard using the modified retrospective method. For additional information please see Note 4.

3.   FAIR VALUE

Generally accepted accounting standards establish a framework for measuring fair value. The fair value accounting standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard clarifies how to measure fair value as permitted under other accounting pronouncements.

The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

· Level 1 – Quoted prices in active markets for identical assets or liabilities.

· Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (sales persons’ advances in excess of commissions earned and employee travel advances); other customer receivables, net of allowances; and expected insurance recoveries. The carrying amounts of our long-term credit facility and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year. The fair value of our revolving line of credit is categorized as Level 2.

4.   REVENUE

On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“New Revenue Standard”) for all contracts not yet completed as of January 1, 2018 using the modified retrospective method. This method requires a cumulative effect adjustment to reflect the impact of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The New Revenue Standard did not result in a material impact to the opening balance of retained earnings, and therefore no adjustment was made. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the New Revenue Standard to be immaterial to our net income on an ongoing basis.

6

Nature of Performance Obligations

Our products are distributed through three distinct channels, which represent our business segments: Wholesale, Retail, and Military. In our Wholesale business, we distribute our products through a wide range of distribution channels representing over ten thousand retail store locations in the U.S., Canada, and internationally. Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers. Our Retail business includes direct sales of our products to consumers through our e-commerce websites, our Rocky outlet store, and Lehigh business. We also sell footwear under the Rocky label to the U.S. Military.

Significant Accounting Policies and Judgements

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our products passes to the customer. The duration of our arrangements with our customers are typically one year or less. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products at a point in time and consists of either fixed or variable consideration or a combination of both.

Revenues from sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include prompt payment discounts, volume rebates, and product returns. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2018. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net revenue and earnings in the period such variances become known.

When a customer has a right to a prompt payment discount, we estimate the likelihood that the customer will earn the discount using historical data and adjust our estimate when the estimate of the likelihood that a customer will earn the discount changes or the consideration becomes fixed, whichever occurs earlier. The estimated amount of variable consideration is recognized as a credit to trade receivables and a reduction in revenue until the uncertainty of the variable consideration is alleviated. Because most of our customers have payment terms less than six months there is not a significant financing component in our contracts with customers.

When a customer is offered a rebate on purchases retroactively this is accounted for as variable consideration because the consideration for the current and past purchases is not fixed until it is known if the discount is earned. We estimate the expected discount the customer will earn at contract inception using historical data and projections and update our estimates when projections materially change or consideration becomes fixed.  The estimated rebate is recognized as a credit to trade receivables and offset against revenue until the rebate is earned or the earning period has lapsed.

When a right of return is part of the arrangement with the customer, we estimate the expected returns based on an analysis using historical data. We adjust our estimate either when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed, whichever occurs earlier. Previously, we recorded the returnreserve liability as a contra balance within accounts receivable, and we will continue to do so under ASC 606. Previously, the related return reserve asset for the right to recover cost of goods sold was recognized within the inventory balance, and we will continue to do so under ASC 606. Please see Notes5 and 6 for additional information. 

Trade receivables represent our right to unconditional payment that only relies on the passage of time.

Contract receivables represent contractual minimum payments required under non-cancellable contracts with the U.S. Military with a duration of one year or less.

7

Contract liabilities are performance obligations that we expect to satisfy or relieve within the next twelve months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancellable contracts before the transfer of goods or services to the customer has occurred. Our contract liability represents unconditional obligations to provide goods or services under non-cancellable contracts with the U.S. Military.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction, that are collected from customers, are excluded from revenue. Items considered immaterial within the context of the contract are recognized as an expense.

Costs associated with our manufacturer’s warranty continue to be recognized as expense when the products are sold in accordance with guidance surrounding product warranties.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in selling, general, and administrative expenses. This treatment is consistent with how we accounted for these costs in prior years.

Costs associated with obtaining a contract are expensed as incurred in accordance with the practical expedient in ASC 340-40 in instances where the amortization period is one year or less. We anticipate the majority of our costs incurred to obtain a contract would be subject to this practical expedient.

Contract Balances

The following table provides information about contract liabilities from contracts with our customers.

		March 31,		December 31,		March 31,
		2018		2017		2017
Contract liabilities	$	13,518,203	$	-	$	-

Significant changes in the contract liabilities balance during the period are as follows:

		Contract liabilities
Balance, December 31,2017		-
Non-cancelable contracts with customers recognized as a result of ASC 606 adoption	$	9,394,130
Non-cancelable contracts with customers entered into during the period		9,926,280
Revenue recognized related to non-cancelable contracts with customers during the period		(5,802,207)
Balance, March 31,2018	$	13,518,203

Disaggregation of Revenue

All revenues are recognized at a point in time when control of our products pass to the customer at point of shipment.Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC 606 disaggregation requirements. See Note 12 for segment disclosures.  

8

5.    TRADE RECEIVABLES

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $215,000,  $177,000 and $1,396,000 at March 31, 2018, December 31, 2017 and March 31, 2017, respectively.  We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy. However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates. If actual or expected future allowances were significantly greater or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination was made. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.

In accordance with ASC 606, the return reserve liability netted against trade receivables is $1,079,000 at March 31, 2018.  

6.   INVENTORIES

Inventories are comprised of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
Raw materials	$	11,557,579	$	11,394,657	$	13,672,167
Work-in-process		1,012,780		709,406		1,011,788
Finished goods		52,580,973		53,518,369		54,135,435
Total	$	65,151,332	$	65,622,432	$	68,819,390

In accordance with ASC 606, the returnreserve asset netted against inventories is $649,000 at March 31, 2018.

9

7.  IDENTIFIED INTANGIBLE ASSETS

A schedule of identified intangible assets is as follows:

		Gross		Accumulated		Carrying
March 31, 2018		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	683,915		211,562
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	683,915	$	30,303,843
		Gross		Accumulated		Carrying
December 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	673,009		222,468
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	673,009	$	30,314,749
		Gross		Accumulated		Carrying
March 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	29,343,578		-	$	29,343,578
Retail		2,900,000		-		2,900,000
Patents		2,595,477	$	2,389,127		206,350
Customer Relationships		2,200,000		1,266,667		933,333
Total Intangibles	$	37,039,055	$	3,655,794	$	33,383,261

The weighted average life for our patents is 4.3 years.

A schedule of approximate amortization expense related to finite-lived intangible assets for the three months ended is as follows:

		Three Months Ended
		March 31,
		2018		2017
Amortization expense	$	11,000	$	32,000

A schedule of approximate expected amortization expense related to finite-lived intangible assets for the years ending December 31, is as follows:

		Amortization
		Expense
2018	$	41,000
2019		33,000
2020		31,000
2021		26,000
2022		22,000
2023+		69,000

10

8.LONG-TERM DEBT

In December 2014, we amended and restated our financing agreement with PNC Bank (“PNC”) to increase the credit facility to $75.0 million and extend the term of the facility an additional five years to November 2019. The credit facility’s base interest rate is the current prime rate less 0.25%, however the credit facility provides us the option to borrow on up to eight fixed loans at LIBOR plus 1.25% in accordance with the 2014 amended and restated credit agreement. The LIBOR rate is determined based on the fixed loan maturities, which vary from 30, 60, 90, or 180 days.

Our credit facility borrowings consist of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
LIBOR borrowings	$	-		-	$	5,000,000
Prime borrowings		-	$	2,199,423		240,000
Total credit facility borrowings	$	-	$	2,199,423	$	5,240,000

The total amount available under our amended and restated revolving credit facility is subject to a borrowing base calculation based on various percentages of accounts receivable and inventory. As of March 31, 2018, we had total capacity of$61.0 million.

Credit Facility Covenants

Our amended and restated credit facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio.  This restrictive covenant is only in effect upon a triggering event taking place (as defined in the amended and restated credit facility agreement).  Our amended and restated credit facility places a restriction on the amount of dividends that may be paid. At March 31, 2018, there was no triggering event and the covenant was not in effect. 

9.   TAXES

We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:

	Earliest Exam Year
Taxing Authority Jurisdiction:
U.S. Federal	2014
Various U.S. States	2013
Puerto Rico (U.S. Territory)	2012
Canada	2012

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of March 31, 2018, no such expenses were recognized during the year.  We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.  Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard.  We did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.

We provided for income taxes at an effective tax rate of 20.5% and 34.0% for the three months ended March 31, 2018 and 2017.

10.    EARNINGS PER SHARE

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.

11

A reconciliation of the shares used in the basic and diluted income per common share computation for the three months ended March 31, 2018 and 2017is as follows:

	Three Months Ended
	March 31,
	2018	2017
Basic - weighted average shares outstanding	7,406,620	7,435,000
Dilutive restricted share units	-	1,764
Dilutive stock options	24,451	24
Diluted - weighted average shares outstanding	7,431,071	7,436,788
Anti-dilutive securities	83,250	83,537

11.   SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

		Three Months Ended
		March 31,
		2018		2017
Interest paid	$	46,065	$	99,546
Federal, state, and local income taxes (refund) paid, net	$	(14,675)	$	36,499
Change in contract receivables	$	(13,518,203)	$	-
Change in contract liabilities	$	13,518,203	$	-
Property, plant, and equipment purchases in accounts payable	$	90,045	$	108,345

12

12. 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, online retailers, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Retail includes all sales from our consumer websites, stores and all sales in our Lehigh division. Military includes sales to the U.S. Military. The following is a summary of segment results for the Wholesale, Retail, and Military segments.

		Three Months Ended
		March 31,
		2018		2017
NET SALES:
Wholesale	$	40,430,710	$	39,168,428
Retail		13,058,218		11,874,601
Military		7,897,745		12,029,925
Total Net Sales	$	61,386,673	$	63,072,954
GROSS MARGIN:
Wholesale	$	14,014,038	$	13,043,761
Retail		5,534,210		5,324,619
Military		1,416,934		1,379,700
Total Gross Margin	$	20,965,182	$	19,748,080

13

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 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 Unaudited Condensed Consolidated Financial Statements as well as our annual report on 10-K for the year ended December 31, 2017.

	Three Months Ended
	March 31,
	2018		2017
Net sales	100.0	%	100.0	%
Cost of goods sold	65.8		68.7
Gross margin	34.2		31.3
SG&A expense	27.3		27.6
Income from operations	6.9	%	3.8	%

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

Net sales.  Net sales decreased 2.7% to $61.4 million for the three months ended March 31, 2018 compared to $63.1 million in the prior year period.  Wholesale sales increased $1.3 million to $40.4 million for the three months ended March 31, 2018 compared to $39.2 million for the same period in 2017. The increase in 2018 was primarily the result of strong product lines, focused efforts to better partner with our bricks and mortar and E-tail accounts, and redirected marketing tactics which drove consumer engagement and generated greater brand awareness.  Retail sales increased to $13.1 million for the three months ended March 31, 2018 compared to $11.9 million for the prior year period.  The $1.2 million increase in retail sales resulted from an increase in both our Lehigh business, which includes our business to business web platforms, and our branded e-commerce websites.  Military segment sales were $7.9 million for the three months ended March 31, 2018 compared to $12.0 million for the same period in 2017.  We bid on military contracts when they become available.  Our U.S. Military sales are dependent on us winning bids for contracts and the purchase orders received on these contracts. We are currently fulfilling several multiyear contracts for the U.S. Military.

Gross margin.  Gross margin increased to $21.0 million or 34.2% of net sales for the three months ended March 31, 2018 compared to $19.7 million or 31.3% of net sales for the prior year period.  Wholesale gross margin for the three months ended March 31, 2018 was $14.0 million, or 34.7% of net sales, compared to $13.0 million, or 33.3% of net sales for the prior year period.  The 140 basis point increase was largely due to higher margins due to a dedicated focus to increase full price selling by offering less discounts.  Retail gross margin for the three months ended March 31, 2018 was $5.5 million or 42.4%, compared to $5.3 million or 44.8% in the prior year period.  The 250 basis point decrease was largely due to a combination of the increase in our Lehigh sales, which carries a lower margin than our e-commerce business, and increased sales of discontinued products on our e-commerce websites.  Military gross margin in the three months ended March 31, 2018 was $1.4 million, or 17.9% of net sales, compared to $1.4 million, or 11.5% of net sales in the three months ended March 31, 2017. The increase in military margin was primarily due to some older and lower margin contracts ending in late 2017, as well as increased efficiencies in our Puerto Rico facility.

SG&A expenses.  SG&A expenses were $16.7 million, or 27.3% of net sales for the three months ended March 31, 2018 compared to $17.4 million, or 27.6% of net sales for 2017.  The net decrease primarily reflected the reduction in expenses related to the Creative Recreation brand, which was sold in the fourth quarter of 2017.

Other expenses.  Interest expense was approximately $47,000 for the three months ended March 31, 2018, compared to approximately $90,000 for the prior year period.  The decrease in interest expense in the first quarter of 2018 from the prior year period was due to lower overall levels of debt.

Income taxes.  Income tax expense was $0.8 million for the three months ended March 31, 2018, compared to an income tax expense of $0.8 million for the same period a year ago. We provided for income taxes at an effective tax rate of 20.5% and 34.0% for the three months ended March 31, 2018 and 2017. The reduction in the effective tax rate was as a result of the Tax Cuts and Jobs Act (TCJA) passed in December 2017.

14

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal sources of liquidity have been our income from operations and 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 corporate offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology. Capital expenditures were $1.3 million and $0.9 million for the three months ended March 31, 2018 and 2017, respectively.  

We lease certain machinery, shoe centers, and manufacturing facilities under operating leases that generally provide for renewal options.

We believe that our credit facility coupled with cash generated from operations will provide sufficient liquidity to fund our operations for at least the next twelve months. Our continued liquidity, however, is contingent upon future operating performance, cash flows and our ability to meet financial covenants under our credit facility. For more information regarding our credit facility please see Note 8.

As a result of the TCJA,  we have recorded a liability of $2.5 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over eight years. The first installment was paid in April of 2018 for $510,000. We do not expect this to have a material impact on its current or future liquidity.

Cash Flows

		Three Months Ended
		March 31,
($ in millions)		2018		2017
Operating activities	$	10.9	$	9.2
Investing activities		(1.4)		(0.9)
Financing activities		(3.0)		(10.2)
Net change in cash and cash equivalents	$	6.5	$	(1.9)

Operating Activities.  Cash provided by operating activities was primarily impacted by a decrease in receivables for the three months ended March 31, 2018 and an increase in accounts payable for the three months ended March 31, 2017.

Investing Activities. Cash used in investing activities primarily related to investments in molds and equipment associated with our manufacturing operations, for information technology and for improvements to our distribution facility for the three months ended March 31, 2018 and 2017, respectively.

Financing Activities.Cash used in financing activities primarily related to net payments under the revolving credit facility and for the payment of dividends on our common stock for the three months ended March 31, 2018 and 2017, respectively.  

Inflation

Our financial performance is influenced by factors such as higher raw material costs as well as higher salaries and employee benefits.  Management attempts to minimize or offset the effects of inflation through increased selling prices, productivity improvements, and cost reductions.  We were able to mitigate the effects of inflation during 2017due to these factors.  It is anticipated that any inflationary pressures during 2018 could be offset through possible price increases.

15

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company’s Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions.

We have identified the critical accounting policies used in determining estimates and assumptions in the amounts reported in our Management Discussion and Analysis of Financial Conditions and Results of Operations in our 2017 Form 10-K.

On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“New Revenue Standard”) for all contracts not yet completed as of January 1, 2018 using the modified retrospective method. This method requires a cumulative effect adjustment to reflect the impact of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The New Revenue Standard did not result in a material impact to the opening balance of retained earnings therefore no adjustment was made. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the New Revenue Standard to be immaterial to our net income on an ongoing basis. For additional information regarding the adoption of ASC 606 see Note 4.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995

The matters discussed in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, 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, 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,” “strategy,” “future,” “likely” and similar expressions are intended to identify forward-looking statements.Investors are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand and expectations, seasonality, impact of weather, competition, reliance on suppliers, changing retail trends, risks related to cybersecurity, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, and other factors detailed from time to time in our filings with the Securities and Exchange Commission.  Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate.  Therefore, there can be no assurance that the forward-looking statements included herein 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.  We assume no obligation to update any forward-looking statements.

16

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes to our market risk as disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2017.

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, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

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, 2017.

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

The following table sets forth information concerning the Company’s purchases of common stock for the periods indicated:

17

Period	Total number of shares purchased (1)	Average price paid per share (or unit)		Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (2)
January 1, 2018 - January 31, 2018	-	-	$	6,811,663
February 1, 2018 - February 28, 2018	-	-		6,811,663
March 1, 2018 - March 31, 2018	-	-		7,500,000
Total	-	-	$	7,500,000

⁽¹⁾ The reported shares were repurchased pursuant to the Company’s publicly announced stock repurchase authorizations.

⁽²⁾ The number shown represents, as of the end of each period, the maximum number of shares (approximate dollar value) of Common Stock that may yet be purchased under publicly announced stock repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.

In March 2017, the Company announced a $7,500,000 share repurchase plan. The repurchase program terminated on March 1, 2018.On March 5, 2018, the Company announced a $7,500,000 share repurchase plan to replace the expired plan. The newly authorized repurchase program terminates on March 1, 2019.

18

ITEM 6.   EXHIBITS

Exhibit Number	Description
31.1*	Certification Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Principal Executive Officer.
31.2*	Certification Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Principal Financial Officer.
32**	Section 1350 Certification of Principal Executive Officer/Principal Financial Officer.
101*	Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.

* Filed with this Report.

** Furnished with this Report.

19

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 9, 2018	By:	/s/THOMAS ROBERTSON
		Thomas Robertson Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer)

20

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) OF THE PRINCIPAL EXECUTIVE OFFICER

I, Jason Brooks, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rocky Brands, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2018

/s/ Jason Brooks

Jason Brooks

Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) OF THE PRINCIPAL FINANCIAL OFFICER

I, Thomas Robertson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rocky Brands, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2018

/s/ Thomas Robertson

Thomas Robertson

Vice President, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO RULE 13a - 14(b) AND

SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE

UNITED STATES CODE AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Rocky Brands, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jason Brooks

Jason Brooks

Chief Executive Officer (Principal Executive Officer)

May 9, 2018

/s/ Thomas Robertson

Thomas Robertson

Vice President, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

May 9, 2018

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Rocky Brands, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		7,406,801
Amendment Flag	false
Entity Central Index Key	0000895456
Entity Filer Category	Accelerated Filer
Trading Symbol	rcky
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 10,115,863	$ 3,680,776	$ 2,693,078
Trade receivables, net	41,231,333	45,027,002	39,131,277
Contract receivables	13,518,203
Other receivables	410,570	806,468	768,729
Inventories	65,151,332	65,622,432	68,819,390
Income tax receivable	996,563	1,849,237	510,223
Prepaid expenses	2,442,001	2,199,648	2,619,898
Total current assets	133,865,865	119,185,563	114,542,595
PROPERTY, PLANT & EQUIPMENT – net	23,737,918	23,781,001	25,633,199
IDENTIFIED INTANGIBLES	30,303,843	30,314,749	33,383,261
OTHER ASSETS	190,292	197,977	225,670
TOTAL ASSETS	188,097,918	173,479,290	173,784,725
CURRENT LIABILITIES:
Accounts payable	14,130,491	12,982,535	14,620,330
Contract with Customer, Liability, Current	13,518,203
Accrued expenses:
Salaries and wages	1,788,471	1,754,681	1,741,222
Taxes - other	94,338	599,793	692,267
Accrued freight	712,488	770,219	407,428
Commissions	415,464	455,845	401,663
Accrued duty	2,260,540	2,160,847	1,994,870
Other	1,182,746	1,301,931	1,302,558
Total current liabilities	34,102,741	20,025,851	21,160,338
LONG TERM DEBT		2,199,423	5,240,000
LONG TERM TAXES PAYABLE	2,286,512	2,286,512
DEFERRED INCOME TAXES	7,726,234	7,726,234	11,365,800
DEFERRED LIABILITIES	154,736	148,408	176,219
TOTAL LIABILITIES	44,270,223	32,386,428	37,942,357
SHAREHOLDERS' EQUITY:
25,000,000 shares authorized; issued and outstanding December 31, 2017 - 7,398,654 and December 31, 2016 - 7,421,455	69,272,506	68,973,927	69,362,641
Retained earnings	74,555,189	72,118,935	66,479,727
Total shareholders' equity	143,827,695	141,092,862	135,842,368
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 188,097,918	$ 173,479,290	$ 173,784,725

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Consolidated Balance Sheets [Abstract]
Common Stock, Shares, Issued	7,406,801	7,398,654	7,435,467
Common stock Outstanding	7,406,801	7,398,654	7,435,467
Common stock Authorized	25,000,000	25,000,000	25,000,000
Common stock Par Value	$ 0	$ 0	$ 0

XML

Consolidated Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Consolidated Statements of Operations [Abstract]
NET SALES	$ 61,386,673	$ 63,072,954
COST OF GOODS SOLD	40,421,491	43,324,874
GROSS MARGIN	20,965,182	19,748,080
OPERATING EXPENSES
OPERATING EXPENSES	16,737,507	17,381,909
INCOME (LOSS) FROM OPERATIONS	4,227,675	2,366,171
OTHER INCOME AND (EXPENSES):
OTHER EXPENSES	(138,564)	(100,230)
INCOME (LOSS) BEFORE INCOME TAXES	4,089,111	2,265,941
INCOME TAX (BENEFIT) EXPENSE	838,000	770,000
Net Income (Loss) Attributable to Parent, Total	$ 3,251,111	$ 1,495,941
INCOME (LOSS) PER SHARE
Basic (in Dollars per share)	$ 0.44	$ 0.20
Diluted (in Dollars per share)	$ 0.44	$ 0.20
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic (in Shares)	7,406,620	7,435,000
Diluted (in Shares)	7,431,071	7,436,788

XML

Consolidated Statement of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss)	$ 3,251,111	$ 1,495,941
Adjustments to reconcile net income (Loss) to net cash provided by operating activities:
Depreciation and amortization	1,379,422	1,857,590
Loss on disposal of fixed assets		21,552
Stock compensation expense	298,579	71,004
Change in assets and liabilities:
Receivables	5,044,241	2,366,282
Inventories	471,100	349,052
Other current assets	(242,353)	(265,791)
Other assets	7,685	6,839
Accounts payable	1,238,002	2,922,946
Accrued and other liabilities	(582,941)	409,138
Net cash provided by operating activities	10,864,846	9,234,553
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets	(1,415,478)	(866,152)
Proceeds from sales of fixed assets		6,081
Net cash used in investing activities	(1,415,478)	(860,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	156,770	12,563,546
Repayments on revolving credit facility	(2,356,193)	(21,907,554)
Dividends paid on common stock	(814,858)	(817,901)
Net cash used in financing activities	(3,014,281)	(10,161,909)
(DECREASE) INCREASE IN CASH AND CASH	6,435,087	(1,787,427)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD	3,680,776	4,480,505
END OF PERIOD	$ 10,115,863	$ 2,693,078

XML

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango and Lehigh. Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets: outdoor, work, duty, commercial military, western and lifestyle. In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

In the opinion of management, the accompanying 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 condensed consolidated financial statements are considered to be of a normal and recurring nature. The results of operations for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2017 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report on Form 10-Q should be read in connection with our Annual Report on Form 10-K for the year ended December 31, 2017, which includes all disclosures required by GAAP.

XML

ACCOUNTING STANDARDS UPDATES

3 Months Ended

Mar. 31, 2018

ACCOUNTING STANDARDS UPDATES [Abstract]

ACCOUNTING STANDARDS UPDATES

2.   ACCOUNTING STANDARDS UPDATES

Recently Issued Accounting Pronouncements

Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Unaudited Condensed Consolidated Financial Statements or Notes to the Unaudited Condensed Consolidated Financial Statements:

Standard	Description	Anticipated Adoption Period	Effect on the financial statements or other significant matters
ASU 2016-13,Measurement of Credit Losses on Financial Instruments	The pronouncement seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	Q1 2020	The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables.
ASU 2016-02, Leases (Topic 842).	The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.	Q1 2019	The Company has formed an internal project team to begin gathering data relating to leasing activity at the Company. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on the Company's financial statements.

Accounting Standards Adopted in the Current Year

Standard	Description	Effect on the financial statements or other significant matters
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).	The pronouncement provides specific guidance on eight cash flow classification issues to reduce the diversity in practice.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606).	The pronouncement outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements. The Company elected to adopt this standard using the modified retrospective method. For additional information please see Note 4.

XML

REVENUE

3 Months Ended

Mar. 31, 2018

REVENUE [Abstract]

REVENUE

4.   REVENUE

On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“New Revenue Standard”) for all contracts not yet completed as of January 1, 2018 using the modified retrospective method. This method requires a cumulative effect adjustment to reflect the impact of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The New Revenue Standard did not result in a material impact to the opening balance of retained earnings, and therefore no adjustment was made. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the New Revenue Standard to be immaterial to our net income on an ongoing basis.

Nature of Performance Obligations

Our products are distributed through three distinct channels, which represent our business segments: Wholesale, Retail, and Military. In our Wholesale business, we distribute our products through a wide range of distribution channels representing over ten thousand retail store locations in the U.S., Canada, and internationally. Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers. Our Retail business includes direct sales of our products to consumers through our e-commerce websites, our Rocky outlet store, and Lehigh business. We also sell footwear under the Rocky label to the U.S. Military.

Significant Accounting Policies and Judgements

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our products passes to the customer. The duration of our arrangements with our customers are typically one year or less. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products at a point in time and consists of either fixed or variable consideration or a combination of both.

Revenues from sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include prompt payment discounts, volume rebates, and product returns. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2018. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net revenue and earnings in the period such variances become known.

When a customer has a right to a prompt payment discount, we estimate the likelihood that the customer will earn the discount using historical data and adjust our estimate when the estimate of the likelihood that a customer will earn the discount changes or the consideration becomes fixed, whichever occurs earlier. The estimated amount of variable consideration is recognized as a credit to trade receivables and a reduction in revenue until the uncertainty of the variable consideration is alleviated. Because most of our customers have payment terms less than six months there is not a significant financing component in our contracts with customers.

When a customer is offered a rebate on purchases retroactively this is accounted for as variable consideration because the consideration for the current and past purchases is not fixed until it is known if the discount is earned. We estimate the expected discount the customer will earn at contract inception using historical data and projections and update our estimates when projections materially change or consideration becomes fixed.  The estimated rebate is recognized as a credit to trade receivables and offset against revenue until the rebate is earned or the earning period has lapsed.

When a right of return is part of the arrangement with the customer, we estimate the expected returns based on an analysis using historical data. We adjust our estimate either when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed, whichever occurs earlier. Previously, we recorded the return reserve liability as a contra balance within accounts receivable, and we will continue to do so under ASC 606. Previously, the related return reserve asset for the right to recover cost of goods sold was recognized within the inventory balance, and we will continue to do so under ASC 606. Please see Notes 5 and 6 for additional information. 

Trade receivables represent our right to unconditional payment that only relies on the passage of time.

Contract receivables represent contractual minimum payments required under non-cancellable contracts with the U.S. Military with a duration of one year or less. 

Contract liabilities are performance obligations that we expect to satisfy or relieve within the next twelve months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancellable contracts before the transfer of goods or services to the customer has occurred. Our contract liability represents unconditional obligations to provide goods or services under non-cancellable contracts with the U.S. Military.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction, that are collected from customers, are excluded from revenue. Items considered immaterial within the context of the contract are recognized as an expense.

Costs associated with our manufacturer’s warranty continue to be recognized as expense when the products are sold in accordance with guidance surrounding product warranties.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in selling, general, and administrative expenses. This treatment is consistent with how we accounted for these costs in prior years.

Costs associated with obtaining a contract are expensed as incurred in accordance with the practical expedient in ASC 340-40 in instances where the amortization period is one year or less. We anticipate the majority of our costs incurred to obtain a contract would be subject to this practical expedient.

Contract Balances

The following table provides information about contract liabilities from contracts with our customers.

		March 31,		December 31,		March 31,
		2018		2017		2017
Contract liabilities	$	13,518,203	$	-	$	-

Significant changes in the contract liabilities balance during the period are as follows:

		Contract liabilities
Balance, December 31, 2017		-
Non-cancelable contracts with customers recognized as a result of ASC 606 adoption	$	9,394,130
Non-cancelable contracts with customers entered into during the period		9,926,280
Revenue recognized related to non-cancelable contracts with customers during the period		(5,802,207)
Balance, March 31, 2018	$	13,518,203

Disaggregation of Revenue

All revenues are recognized at a point in time when control of our products pass to the customer at point of shipment. Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC 606 disaggregation requirements. See Note 12 for segment disclosures.

XML

TRADE RECEIVABLES

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

TRADE RECEIVABLES

5.   TRADE RECEIVABLES

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $215,000,  $177,000 and $1,396,000 at March 31, 2018, December 31, 2017 and March 31, 2017, respectively.  We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy. However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates. If actual or expected future allowances were significantly greater or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination was made. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.

In accordance with ASC 606, the return reserve liability netted against trade receivables is $1,079,000 at March 31, 2018.  

XML

INVENTORIES

3 Months Ended

Mar. 31, 2018

INVENTORIES [Abstract]

INVENTORIES

6.INVENTORIES

Inventories are comprised of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
Raw materials	$	11,557,579	$	11,394,657	$	13,672,167
Work-in-process		1,012,780		709,406		1,011,788
Finished goods		52,580,973		53,518,369		54,135,435
Total	$	65,151,332	$	65,622,432	$	68,819,390

In accordance with ASC 606, the return reserve asset netted against inventories is $649,000 at March 31, 2018.

XML

IDENTIFIED INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2018

IDENTIFIED INTANGIBLE ASSETS [Abstract]

IDENTIFIED INTANGIBLE ASSETS

7.  IDENTIFIED INTANGIBLE ASSETS

A schedule of identified intangible assets is as follows:

		Gross		Accumulated		Carrying
March 31, 2018		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	683,915		211,562
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	683,915	$	30,303,843
		Gross		Accumulated		Carrying
December 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	673,009		222,468
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	673,009	$	30,314,749
		Gross		Accumulated		Carrying
March 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	29,343,578		-	$	29,343,578
Retail		2,900,000		-		2,900,000
Patents		2,595,477	$	2,389,127		206,350
Customer Relationships		2,200,000		1,266,667		933,333
Total Intangibles	$	37,039,055	$	3,655,794	$	33,383,261

The weighted average life for our patents is 4.3 years.

A schedule of approximate amortization expense related to finite-lived intangible assets for the three months ended is as follows:

		Three Months Ended
		March 31,
		2018		2017
Amortization expense	$	11,000	$	32,000

A schedule of approximate expected amortization expense related to finite-lived intangible assets for the years ending December 31, is as follows:

		Amortization
		Expense
2018	$	41,000
2019		33,000
2020		31,000
2021		26,000
2022		22,000
2023+		69,000

XML

LONG-TERM DEBT

3 Months Ended

Mar. 31, 2018

LONG-TERM DEBT [Abstract]

LONG-TERM DEBT

8.LONG-TERM DEBT

In December 2014, we amended and restated our financing agreement with PNC Bank (“PNC”) to increase the credit facility to $75.0 million and extend the term of the facility an additional five years to November 2019. The credit facility’s base interest rate is the current prime rate less 0.25%, however the credit facility provides us the option to borrow on up to eight fixed loans at LIBOR plus 1.25% in accordance with the 2014 amended and restated credit agreement. The LIBOR rate is determined based on the fixed loan maturities, which vary from 30, 60, 90, or 180 days.

Our credit facility borrowings consist of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
LIBOR borrowings	$	-		-	$	5,000,000
Prime borrowings		-	$	2,199,423		240,000
Total credit facility borrowings	$	-	$	2,199,423	$	5,240,000

The total amount available under our amended and restated revolving credit facility is subject to a borrowing base calculation based on various percentages of accounts receivable and inventory. As of March 31, 2018, we had total capacity of $61.0 million.

Credit Facility Covenants

Our amended and restated credit facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio.  This restrictive covenant is only in effect upon a triggering event taking place (as defined in the amended and restated credit facility agreement).  Our amended and restated credit facility places a restriction on the amount of dividends that may be paid. At March 31, 2018, there was no triggering event and the covenant was not in effect. 

XML

TAXES

3 Months Ended

Mar. 31, 2018

TAXES [Abstract]

TAXES

9.TAXES

We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:

	Earliest Exam Year
Taxing Authority Jurisdiction:
U.S. Federal	2014
Various U.S. States	2013
Puerto Rico (U.S. Territory)	2012
Canada	2012

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of March 31, 2018, no such expenses were recognized during the year.  We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.  Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard.  We did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.

We provided for income taxes at an effective tax rate of 20.5% and 34.0% for the three months ended March 31, 2018 and 2017.

XML

EARNINGS PER SHARE new

3 Months Ended

Mar. 31, 2018

EARNINGS PER SHARE [Abstract}

EARNINGS PER SHARE

10.    EARNINGS PER SHARE

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.

A reconciliation of the shares used in the basic and diluted income per common share computation for the three months ended March 31, 2018 and 2017 is as follows:

	Three Months Ended
	March 31,
	2018	2017
Basic - weighted average shares outstanding	7,406,620	7,435,000
Dilutive restricted share units	-	1,764
Dilutive stock options	24,451	24
Diluted - weighted average shares outstanding	7,431,071	7,436,788
Anti-dilutive securities	83,250	83,537

XML

SUPPLEMENTAL CASH FLOW INFORMATION

3 Months Ended

Mar. 31, 2018

SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]

SUPPLEMENTAL CASH FLOW INFORMATION

11.SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

		Three Months Ended
		March 31,
		2018		2017
Interest paid	$	46,065	$	99,546
Federal, state, and local income taxes (refund) paid, net	$	(14,675)	$	36,499
Change in contract receivables	$	(13,518,203)	$	-
Change in contract liabilities	$	13,518,203	$	-
Property, plant, and equipment purchases in accounts payable	$	90,045	$	108,345

XML

SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2018

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

12.  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, online retailers, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Retail includes all sales from our consumer websites, stores and all sales in our Lehigh division. Military includes sales to the U.S. Military. The following is a summary of segment results for the Wholesale, Retail, and Military segments.

		Three Months Ended
		March 31,
		2018		2017
NET SALES:
Wholesale	$	40,430,710	$	39,168,428
Retail		13,058,218		11,874,601
Military		7,897,745		12,029,925
Total Net Sales	$	61,386,673	$	63,072,954
GROSS MARGIN:
Wholesale	$	14,014,038	$	13,043,761
Retail		5,534,210		5,324,619
Military		1,416,934		1,379,700
Total Gross Margin	$	20,965,182	$	19,748,080

XML

ACCOUNTING STANDARDS UPDATES (Policies)

3 Months Ended

Mar. 31, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Trade Receivables

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $215,000,  $177,000 and $1,396,000 at March 31, 2018, December 31, 2017 and March 31, 2017, respectively.  We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy. However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates. If actual or expected future allowances were significantly greater or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination was made. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.

Shipping Costs

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in selling, general, and administrative expenses. This treatment is consistent with how we accounted for these costs in prior years.

Fair Value Measurements

3.   FAIR VALUE

Generally accepted accounting standards establish a framework for measuring fair value. The fair value accounting standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard clarifies how to measure fair value as permitted under other accounting pronouncements.

The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

· Level 1 – Quoted prices in active markets for identical assets or liabilities.

· Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (sales persons’ advances in excess of commissions earned and employee travel advances); other customer receivables, net of allowances; and expected insurance recoveries. The carrying amounts of our long-term credit facility and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year. The fair value of our revolving line of credit is categorized as Level 2.

Income Tax, Policy [Policy Text Block]

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense.

Earnings Per Share, Policy [Policy Text Block]

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.

XML

ACCOUNTING STANDARDS UPDATES (Tables)

3 Months Ended

Mar. 31, 2018

ACCOUNTING STANDARDS UPDATES [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

Standard	Description	Anticipated Adoption Period	Effect on the financial statements or other significant matters
ASU 2016-13,Measurement of Credit Losses on Financial Instruments	The pronouncement seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	Q1 2020	The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables.
ASU 2016-02, Leases (Topic 842).	The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.	Q1 2019	The Company has formed an internal project team to begin gathering data relating to leasing activity at the Company. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on the Company's financial statements.

Schedule of Prospective Adoption of New Accounting Pronouncements [Table Text Block]

Standard	Description	Effect on the financial statements or other significant matters
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).	The pronouncement provides specific guidance on eight cash flow classification issues to reduce the diversity in practice.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606).	The pronouncement outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.	The Company adopted this ASU in the first quarter of 2018, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements. The Company elected to adopt this standard using the modified retrospective method. For additional information please see Note 4.

XML

REVENUE (Tables)

3 Months Ended

Mar. 31, 2018

REVENUE [Abstract]

Summary of Contract Liabilities

		March 31,		December 31,		March 31,
		2018		2017		2017
Contract liabilities	$	13,518,203	$	-	$	-

Significant Changes in Contract Liabilities

		Contract liabilities
Balance, December 31, 2017		-
Non-cancelable contracts with customers recognized as a result of ASC 606 adoption	$	9,394,130
Non-cancelable contracts with customers entered into during the period		9,926,280
Revenue recognized related to non-cancelable contracts with customers during the period		(5,802,207)
Balance, March 31, 2018	$	13,518,203

XML

INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2018

INVENTORIES [Abstract]

Schedule of Inventory

Inventories are comprised of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
Raw materials	$	11,557,579	$	11,394,657	$	13,672,167
Work-in-process		1,012,780		709,406		1,011,788
Finished goods		52,580,973		53,518,369		54,135,435
Total	$	65,151,332	$	65,622,432	$	68,819,390

XML

IDENTIFIED INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2018

IDENTIFIED INTANGIBLE ASSETS [Abstract]

Schedule of Identified Intangible Assets

A schedule of identified intangible assets is as follows:

		Gross		Accumulated		Carrying
March 31, 2018		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	683,915		211,562
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	683,915	$	30,303,843
		Gross		Accumulated		Carrying
December 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	27,192,281		-	$	27,192,281
Retail		2,900,000		-		2,900,000
Patents		895,477	$	673,009		222,468
Customer Relationships		-		-		-
Total Intangibles	$	30,987,758	$	673,009	$	30,314,749
		Gross		Accumulated		Carrying
March 31, 2017		Amount		Amortization		Amount
Trademarks
Wholesale	$	29,343,578		-	$	29,343,578
Retail		2,900,000		-		2,900,000
Patents		2,595,477	$	2,389,127		206,350
Customer Relationships		2,200,000		1,266,667		933,333
Total Intangibles	$	37,039,055	$	3,655,794	$	33,383,261

Schedule of Amortization Expense

A schedule of approximate amortization expense related to finite-lived intangible assets for the three months ended is as follows:

		Three Months Ended
		March 31,
		2018		2017
Amortization expense	$	11,000	$	32,000

Schedule of Future Amortization Expense

A schedule of approximate expected amortization expense related to finite-lived intangible assets for the years ending December 31, is as follows:

		Amortization
		Expense
2018	$	41,000
2019		33,000
2020		31,000
2021		26,000
2022		22,000
2023+		69,000

XML

LONG TERM DEBT (Tables)

3 Months Ended

Mar. 31, 2018

LONG-TERM DEBT [Abstract]

Credit Facility Table

Our credit facility borrowings consist of the following:

		March 31,		December 31,		March 31,
		2018		2017		2017
LIBOR borrowings	$	-		-	$	5,000,000
Prime borrowings		-	$	2,199,423		240,000
Total credit facility borrowings	$	-	$	2,199,423	$	5,240,000

XML

TAXES (Tables)

3 Months Ended

Mar. 31, 2018

TAXES [Abstract]

Schedule of Income Tax Examinations

We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:

	Earliest Exam Year
Taxing Authority Jurisdiction:
U.S. Federal	2014
Various U.S. States	2013
Puerto Rico (U.S. Territory)	2012
Canada	2012

XML

EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2018

EARNINGS PER SHARE [Abstract}

Reconciliation of Basic and Diluted Income Per Common Share

A reconciliation of the shares used in the basic and diluted income per common share computation for the three months ended March 31, 2018 and 2017 is as follows:

	Three Months Ended
	March 31,
	2018	2017
Basic - weighted average shares outstanding	7,406,620	7,435,000
Dilutive restricted share units	-	1,764
Dilutive stock options	24,451	24
Diluted - weighted average shares outstanding	7,431,071	7,436,788
Anti-dilutive securities	83,250	83,537

XML

SUPPLEMENTAL CASH FLOW INFORMATION (Tables)

3 Months Ended

Mar. 31, 2018

SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]

Schedule of Supplemental Cash Flow

Supplemental cash flow information is as follows:

		Three Months Ended
		March 31,
		2018		2017
Interest paid	$	46,065	$	99,546
Federal, state, and local income taxes (refund) paid, net	$	(14,675)	$	36,499
Change in contract receivables	$	(13,518,203)	$	-
Change in contract liabilities	$	13,518,203	$	-
Property, plant, and equipment purchases in accounts payable	$	90,045	$	108,345

XML

SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2018

SEGMENT INFORMATION [Abstract]

Summary of Segment Results

		Three Months Ended
		March 31,
		2018		2017
NET SALES:
Wholesale	$	40,430,710	$	39,168,428
Retail		13,058,218		11,874,601
Military		7,897,745		12,029,925
Total Net Sales	$	61,386,673	$	63,072,954
GROSS MARGIN:
Wholesale	$	14,014,038	$	13,043,761
Retail		5,534,210		5,324,619
Military		1,416,934		1,379,700
Total Gross Margin	$	20,965,182	$	19,748,080

XML

REVENUE (Summary of Contract Liabilities) (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
REVENUE [Abstract]
Contract liabilities	$ 13,518,203

XML

REVENUE (Significant Changes in Contract Liabilities) (Details)	3 Months Ended
	Mar. 31, 2018 USD ($)
REVENUE [Abstract]
Balance
Non-cancelable contracts with customers recognized as a result of ASC 606 adoption	9,394,130
Non-cancelable contracts with customers entered into during the period	9,926,280
Revenue recognized related to non-cancelable contracts with customers during the period	(5,802,207)
Balance	$ 13,518,203

XML

TRADE RECEIVABLES (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Accounts Receivable, Net, Current [Abstract]
Allowance for Doubtful Accounts Receivable, Current	$ 215	$ 177	$ 1,396
Contract with Customer, Refund Liability, Current	$ 1,079

XML

INVENTORIES (Narrative) (Details)	Mar. 31, 2018 USD ($)
Accounting Standards Update 2014-09 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Return reserve asset netted against inventories	$ 649,000

XML

INVENTORIES (Schedule of Inventory) (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
INVENTORIES [Abstract]
Raw materials	$ 11,557,579	$ 11,394,657	$ 13,672,167
Work-in-process	1,012,780	709,406	1,011,788
Finished goods	52,580,973	53,518,369	54,135,435
Total	$ 65,151,332	$ 65,622,432	$ 68,819,390

XML

IDENTIFIED INTANGIBLE ASSETS (Narrative) (Details)	3 Months Ended
	Mar. 31, 2018
IDENTIFIED INTANGIBLE ASSETS [Abstract]
Patent and Customer Relationships WA Useful Life	4 years 3 months 18 days

XML

IDENTIFIED INTANGIBLE ASSETS (Schedule of Identified Intangible Assets) (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Finite-Lived Intangible Assets, Net [Abstract]
Accumulated Amortization	$ 683,915	$ 673,009	$ 3,655,794
Gross Amount	30,987,758	30,987,758	37,039,055
Carrying Amount	30,303,843	30,314,749	33,383,261
Wholesale (Member)
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Amount	27,192,281	27,192,281	29,343,578
Retail (Member)
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Amount	2,900,000	2,900,000	2,900,000
Patents [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Gross Amount	895,477	895,477	2,595,477
Accumulated Amortization	683,915	673,009	2,389,127
Carrying Amount	211,562	222,468	206,350
Customer Relationships [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Gross Amount			2,200,000
Accumulated Amortization			1,266,667
Carrying Amount			$ 933,333

XML

IDENTIFIED INTANGIBLE ASSETS (Schedule of Amortization Expense) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
IDENTIFIED INTANGIBLE ASSETS [Abstract]
Amortization Expense	$ 11,000	$ 32,000

XML

IDENTIFIED INTANGIBLE ASSETS (Schedule of Future Amortization Expense) (Details) $ in Thousands	Mar. 31, 2018 USD ($)
IDENTIFIED INTANGIBLE ASSETS [Abstract]
2018	$ 41
2019	33
2020	31
2021	26
2022	22
2023+	$ 69

XML

LONG-TERM DEBT (Narrative) (Details)	3 Months Ended
	Mar. 31, 2018 USD ($)
Line of Credit Facility [Line Items]
Line of Credit Facility, Current Borrowing Capacity	$ 61,000,000.0
Line of Credit Facility, Maximum Borrowing Capacity	$ 75,000,000
Prime Rate [Member]
Line of Credit Facility [Line Items]
Spread On Variable Rate Credit Facility	0.25%
LIBOR Rate [Member]
Line of Credit Facility [Line Items]
Spread On Variable Rate Credit Facility	1.25%

XML

LONG-TERM DEBT (Credit Facility Table) (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Line of Credit Facility [Line Items]
Credit facility borrowings		$ 2,199,423	$ 5,240,000
Prime Rate [Member]
Line of Credit Facility [Line Items]
Credit facility borrowings		2,199,423	240,000
LIBOR Rate [Member]
Line of Credit Facility [Line Items]
Credit facility borrowings			$ 5,000,000

XML

TAXES (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
TAXES [Abstract]
Unrecognized Tax Benefits	$ 0
Effective tax rate	20.50%	34.00%

XML

TAXES (Schedule of Income Tax Examinations) (Details)	3 Months Ended
	Mar. 31, 2018
Various U.S. States [Member]
Income Tax Contingency [Line Items]
Earliest Exam Year	2013
U.S. Federal [Member]
Income Tax Contingency [Line Items]
Earliest Exam Year	2014
Puerto Rico (U.S. Territory) [Member]
Income Tax Contingency [Line Items]
Earliest Exam Year	2012
Canada [Member]
Income Tax Contingency [Line Items]
Earliest Exam Year	2012

XML

EARNINGS PER SHARE (Details) - shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
EARNINGS PER SHARE [Abstract}
Basic - weighted average shares outstanding (in Shares)	7,406,620	7,435,000
Dilutive potential common shares (shares)		1,764
Diluted - weighted average shares outstanding (in Shares)	7,431,071	7,436,788
Anti-Dilutive securities	83,250	83,537
Dilutive stock options	24,451	24

XML

SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
SUPPLEMENTAL CASH FLOW INFORMATION [Abstract]
Interest paid	$ 46,065	$ 99,546
Federal, state, and local income taxes paid, net	(14,675)	36,499
Change in contract receivables	(13,518,203)
Change in contract liabilities	13,518,203
Property, plant, and equipment purchases in accounts payable	$ 90,045	$ 108,345

XML

SEGMENT INFORMATION (Narrative) (Details)	3 Months Ended
	Mar. 31, 2018 segment
SEGMENT INFORMATION [Abstract]
Number of operating segments	3

XML

SEGMENT INFORMATION (Summary of Segment Results) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Segment Reporting Information [Line Items]
NET SALES	$ 61,386,673	$ 63,072,954
Gross margin	20,965,182	19,748,080
Wholesale (Member)
Segment Reporting Information [Line Items]
NET SALES	40,430,710	39,168,428
Gross margin	14,014,038	13,043,761
Retail (Member)
Segment Reporting Information [Line Items]
NET SALES	13,058,218	11,874,601
Gross margin	5,534,210	5,324,619
Military [Member]
Segment Reporting Information [Line Items]
NET SALES	7,897,745	12,029,925
Gross margin	$ 1,416,934	$ 1,379,700