<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(MARK ONE)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                         COMMISSION FILE NUMBER: 0-21026

                            ROCKY SHOES & BOOTS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  OHIO                                NO. 31-1364046
     (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

                              39 EAST CANAL STREET
                             NELSONVILLE, OHIO 45764
          (Address of principal executive offices, including zip code)

                                 (740) 753-1951
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

 Securities registered pursuant to Section 12(g) of the Act: Common Stock,
                                                              without par value
                                                             Preferred Stock
                                                              Purchase Rights

         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, and (2) has been subject to the filing
requirements for at least the past 90 days. YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [ ] NO [X]

         The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $33,070,259 on June 30, 2003.

         There were 4,496,976 shares of the Registrant's Common Stock
outstanding on March 15, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for the 2004 Annual
Meeting of Shareholders are incorporated by reference in Part III.

<PAGE>

         This Annual Report on Form 10-K 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. The words
"anticipate," "believe," "expect," "estimate," and "project" and similar words
and expressions identify forward-looking statements which speak only as of the
date hereof. Investors are cautioned that such statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, the factors discussed in "Business - Business Risks." The Company
undertakes no obligation to publicly update or revise any forward-looking
statements.

                                     PART I

ITEM 1. BUSINESS.

         Rocky Shoes & Boots, Inc. has three subsidiaries: Five Star Enterprises
Ltd. ("Five Star"), a Cayman Islands corporation, which operates a manufacturing
facility in La Vega, Dominican Republic; Lifestyle Footwear, Inc. ("Lifestyle"),
a Delaware corporation, which operates a manufacturing facility in Moca, Puerto
Rico; and Rocky Canada, Inc, an Ontario corporation, a sales and distribution
operation in Waterloo, Ontario. Unless the context otherwise requires, all
references to "Rocky" or the "Company" include Rocky Shoes & Boots, Inc. and its
subsidiaries.

OVERVIEW

         The Company is the successor to the business of The Wm. Brooks Shoe
Company, a company established in 1932 by William Brooks, who was later joined
by F. M. Brooks, the grandfather of the Company's current Chairman, President
and Chief Executive Officer, Mike Brooks. The business was sold in 1959 to a
company headquartered in Lancaster, Ohio. John W. Brooks, the father of Mike
Brooks, remained as an employee of the business when it was sold. In 1975, John
W. Brooks formed John W. Brooks, Inc. (later known as Rocky Shoes & Boots Co.
("Rocky Co.")) as an Ohio corporation, reacquired the Nelsonville, Ohio
operating assets of the original company and moved the business's principal
executive offices back to Nelsonville, Ohio. In 1993, the Company, Rocky Co.,
Lifestyle and Five Star were parties to a reorganization, and in 1996, Rocky Co.
was merged with and into the Company, and in 2003 Rocky Canada, Inc. was
established resulting in the Company's present corporate structure. In April
2003, the company acquired certain assets of Gates-Mills, Inc., including the
Gates brand name.

         In the past, the Company has benefited from a relatively low effective
tax rate. Rocky and Lifestyle are subject to U.S. Federal income taxes. Five
Star is incorporated in the Cayman Islands and conducts its operations in a
"free trade zone" in the Dominican Republic and, accordingly, is currently not
subject to Cayman Islands or Dominican Republic income taxes. In 2003, as a
result of the formation of Rocky Canada, Inc., the Company is now subject to
Canadian income tax. As of December 31, 2003, a provision has not been made for
U.S. taxes on the accumulated undistributed earnings of Five Star through
December 31, 2003 of approximately $8,180,000 that would become payable upon
repatriation to the United States. It is the intention of the Company to
reinvest all such earnings of Five Star in operations and facilities outside of
the United States.

         The Company operates in one financial reporting segment, footwear and
related apparel and accessories. Financial information, including revenues,
pre-tax income, and assets are included in the consolidated financial
statements.

         ROCKY(R) and GATES(R) are federally registered trademarks of Rocky
Shoes & Boots, Inc. This report also refers to trademarks of corporations other
than the Company. See "Business - Patents, Trademarks and Trade Names."

STRATEGY

         The Company's objective is to design, supply and market innovative,
high performance, branded footwear and related apparel and accessories that
enhance shareholder value while improving the quality of life of our employees,
customers and the communities in which we operate. Key elements of the Company's
strategy are as follows:

                                       2

<PAGE>

         Leverage the ROCKY Brand. The Company believes the ROCKY brand has
become a recognizable and established name for performance and quality conscious
consumers in the rugged outdoor and occupational segments of the men's footwear
market. The Company intends to continue leveraging ROCKY with emphasis on the
occupational shoe market, including recent product introductions into the
western work boot segment of the occupational market, and complementary outdoor
apparel and accessories in an effort to extend the brand.

         Build customer and consumer relationships. The Company believes it can
improve customer and consumer relationships through innovative sales and
marketing methods. These enhanced relationships will enable the Company to
better understand and satisfy its customers' and consumers' needs.

         Maximize benefit of current infrastructure. The Company believes it
must more extensively utilize the recent significant investments made in
distribution and information systems. These systems will enable the Company to
better service its customers in a more cost efficient manner.

         Focus future investment. The Company believes it needs to continue as
the leader in design and engineering of new and innovative products and to focus
future investments on achieving this goal.

         Expand Product Sourcing. The Company's sourced products represented
approximately 66% of net sales in 2003. The Company sources products which are
manufactured to its specifications from independent manufacturers in the Far
East. This enables the Company to offer product for sale at price points that
cannot generally be achieved with products manufactured in its own plants in
Puerto Rico and the Dominican Republic.

PRODUCT LINES

         The Company's product lines consist of rugged outdoor, occupational,
military and casual footwear and outdoor apparel and Gates. ROCKY branded
products emphasize quality, patented materials, such as GORE-TEX waterproof
breathable fabric, CORDURA nylon fabric, CAMBRELLE cushioned lining and
THINSULATE thermal insulation. The following table summarizes the Company's
product lines:

<TABLE>
<CAPTION>
                                                          SUGGESTED
                                                            RETAIL
 PRODUCT LINE                 TARGET MARKET                  PRICE                    DISTRIBUTION CHANNELS
---------------    -----------------------------------    ---------    --------------------------------------------------
<S>                <C>                                    <C>          <C>
RUGGED OUTDOOR     Hunters and outdoorsmen                  $59 -      Sporting goods stores, outdoor specialty stores,
                                                            $ 259      mail order catalogs, independent retail stores and
                                                                       mass merchandisers

 OCCUPATIONAL      Law enforcement and military             $69 -      Retail uniform stores, mail order catalogs,
                   personnel, security  guards, postal      $ 179      specialty safety stores
                   workers, paramedics, industrial
                   workers and construction workers

   MILITARY        U. S. Government                          NA        U.S. government supply chain

    CASUAL         Retail customers of premium casual       $69 -      Independent retail stores, sporting goods stores,
                   wear                                     $ 189      mail order catalogs and sporting goods stores

OUTDOOR APPAREL    Hunters and outdoorsmen                $7 - $200    Sporting goods stores, outdoor specialty stores,
                                                                       mail order catalogs, independent retail stores and
                                                                       mass merchandisers

     GATES         Skiers, hunters and outdoorsmen and    $7 - $70     Sporting goods stores, outdoor specialty stores,
                   retail customers of premium casual                  mail order catalogs, independent retail stores and
                   wear                                                mass merchandisers
</TABLE>

                                       3

<PAGE>

         Rugged Outdoor Footwear. Rugged outdoor footwear is the Company's
largest product line, representing $48.1 million, or 45.3%, of Fiscal 2003 net
sales. The Company's rugged outdoor footwear line consists of all season
sport/hunting boots that are typically waterproof and insulated and a line of
rubber footwear. These products are designed to keep outdoorsmen comfortable in
extreme conditions. Most of the Company's rugged outdoor footwear styles have
outsoles which are designed to provide excellent cushioning and traction.
Although Rocky's rugged outdoor footwear is regularly updated to incorporate new
camouflage patterns, the Company believes its products in this category are
relatively insensitive to changing fashion trends.

         Occupational Footwear. Occupational footwear, the Company's second
largest product line, represented $34.6 million, or 32.6%, of Fiscal 2003 net
sales. All occupational footwear styles are designed to be comfortable,
flexible, lightweight, slip resistant and durable and are typically worn by
people who are required to spend a majority of their time at work on their feet.
This product category includes work/steel toe footwear designed for industrial,
construction and manufacturing workers who demand leather work boots that are
durable, flexible and comfortable and black duty footwear sold to security
guards and law enforcement agents.

         Military Footwear. Sales of military footwear were $0.4 million in
Fiscal 2003, accounting for 0.4% of net sales. These sales are part of a $6.1
million contract awarded the Company in September 2003. The remaining $5.7
million of boots are expected to ship by the end of April 2004.

         Casual Footwear. Sales of the Company's casual footwear were $2.5
million in Fiscal 2003, accounting for 2.4% of net sales. The Company's casual
products target the upscale segment of the market and include well-styled,
comfortable leather shoes of a variety of constructions, including traditional
handsewn. Most of the Company's footwear in this segment is waterproof and
highly functional for outdoor activity. The Company reduced its emphasis on the
casual footwear segment beginning in Fiscal 2000. While continuing to offer high
performance rugged casual footwear, the Company's emphasis is on marketing this
line through its traditional dealer base.

         Outdoor Apparel. In 2002 the Company began marketing outdoor gear
consisting of hunting apparel, socks and accessories. Sales of the Company's
outdoor gear were $4.5 million in Fiscal 2003, accounting for 4.2% of net sales.
Outdoor gear is currently marketed through the Company's rugged outdoor footwear
channels and is designed to leverage the Company's reputation within this
product line by offering products directly complementary to the needs of hunters
and outdoorsmen.

         Gates. In April 2003 the Company acquired certain assets of
Gates-Mills, Inc., including the Gates brand name. Sales of Gates branded
products were $10.2 million in Fiscal 2003, accounting for 9.6% of net sales.
Gates branded products are primarily hunting, ski and dress gloves.

         Factory outlet stores. During 2003 the Company operated factory outlet
stores in Nelsonville, Ohio and Edgefield, South Carolina. The Edgefield, South
Carolina store was opened in August 2002. Products principally include first
quality products, factory damaged goods and close-outs from the Company and
Rocky licensed products. In addition, related products from other manufacturers
are sold in the stores. For Fiscal 2003, net sales for factory outlet stores
were $4.6 million, or 4.3% of the Company's total net sales.

         Other. The Company manufactures and/or markets a variety of
accessories, including innersole support systems, foot warmers, laces and foot
powder. Sales of other products were $1.3 million in Fiscal 2003, accounting for
1.2% of net sales.

                                       4

<PAGE>

Net Sales Composition. The following table indicates the percentage of net sales
derived from each major product line and the factory outlet stores for the
periods indicated. Historical percentages may not be indicative of the Company's
future product mix.

<TABLE>
<CAPTION>
                               FISCAL        FISCAL      FISCAL
                                2003          2002        2001
                              ---------    ---------    ---------
<S>                           <C>          <C>          <C>
Rugged outdoor ..........          45.3%        46.7%        54.7%
Occupational ............          32.6         33.3         26.2
Military ................            .4          7.2          8.7
Casual ..................           2.4          2.6          4.3
Outdoor apparel .........           4.2          3.1            -
Gates ...................           9.6            -            -
Factory outlet stores ...           4.3          4.6          4.6
Other ...................           1.2          2.5          1.5
                              ---------    ---------    ---------
                                  100.0%       100.0%       100.0%
                              =========    =========    =========
</TABLE>

PRODUCT DESIGN AND DEVELOPMENT

         Product design and development are initiated both internally by the
Company's development staff and externally by customers and suppliers. The
Company's product development personnel, marketing personnel and sales
representatives work closely together to identify opportunities for new styles,
camouflage patterns, design improvements and the incorporation of new materials.
These opportunities are reported to the Company's development staff which
oversees the development and testing of the new products. The Company strives to
develop products which respond to the changing needs and tastes of consumers.

SALES, MARKETING AND ADVERTISING

         The Company has developed comprehensive marketing and advertising
programs to gain national exposure and create brand awareness for the ROCKY and
GATES branded products in targeted markets. By creating strong brand awareness,
the Company seeks to increase the general level of retail demand for its
products, expand the customer base and increase brand loyalty. The Company's
footwear and apparel is sold by more than 3,000 retail and mail order companies
in the United States and Canada. No single customer accounted for more than 10%
of the Company's revenues in Fiscal 2003. The Company believes the loss of any
single customer would not have a material adverse effect on the Company's
financial position.

         The Company's sales and marketing personnel are responsible for
developing and implementing all aspects of advertising and promotion of the
Company's products. In addition, the Company maintains a network of sales
representatives who sell the Company's products throughout the United States and
Canada. These representatives are either independent representatives who carried
ROCKY and GATES branded products as well as other non-competing products or
company employees who carry the ROCKY and GATES branded products exclusively.

         The Company advertises and promotes its brands through a variety of
methods, including product packaging, national print and television advertising
and a telemarketing operation. In addition, the Company attends numerous
tradeshows, which have historically been an important source of new orders, and
also works to establish the ROCKY and GATES brands within the trade industry.
The Company's marketing personnel have developed a product list, product catalog
and dealer support system which includes attractive point-of-sale displays and
co-op advertising programs.

         The Company believes its long-term reputation for quality has increased
awareness of the ROCKY and GATES brands. To further increase the strength of its
brands, the Company has targeted the majority of its advertising efforts toward
consumers. A key component of this strategy includes advertising through
cost-effective cable broadcasts and national print publications aimed at
audiences which share the demographic profile of the Company's typical
customers. The Company's print advertisements and television commercials
emphasize the waterproof nature of the Company's products as well as its high
quality, comfort, functionality and durability. Management believes that by
continuing to target consumers, the ROCKY and GATES brands will become more

                                       5

<PAGE>

recognizable and establish the Company as an overall leader in the industry
leading to greater retail demand for the product.

MANUFACTURING AND SOURCING

         The Company's manufactures footwear in the Company's facilities located
in the Dominican Republic and Puerto Rico, and sources footwear, apparel and
accessories from factories in the Far East.

         In September 2001, the Board of Directors approved a plan to
consolidate and realign the Company's footwear manufacturing operations. Under
this plan, the Company moved the footwear manufacturing operations at the
Nelsonville, Ohio factory to the Company's factory in Puerto Rico. The
restructuring plan was completed in the fourth quarter of 2001.

         Approximately 34% of the Company's fiscal 2003 net sales were
attributable to products produced in its own facilities in the Dominican
Republic and Puerto Rico. The Company also sources products from manufacturers
in the Far East, which accounted for approximately 66% of net sales in Fiscal
2003. A greater portion of the Company's products may be sourced in the future
since the Company can generally achieve higher initial gross margins on sourced
products. The Company sources products from manufacturers who have demonstrated
the intent and ability to maintain the high quality that has become associated
with the ROCKY and GATES brands.

         Quality control is stressed at every stage of the manufacturing process
and is monitored by trained quality assurance personnel at each of the Company's
manufacturing facilities. Every pair of ROCKY footwear, or its component parts,
produced at the Company's facilities is inspected at least five times during the
manufacturing process with some styles inspected up to nine times. Every
GORE-TEX waterproof fabric bootie liner is individually tested by filling it
with compressed air and submerging it in water to verify that it is waterproof.
Quality control personnel at the finished goods distribution facility located
near Logan, Ohio conduct quality control testing on incoming sourced finished
goods and raw materials and inspect random samples from the finished goods
inventory from each of the Company's manufacturing facilities to ensure that all
items meet the Company's high quality standards. A portion of the manufacturing
employees' compensation is based on the level of product quality of their work
group.

         As part of the Company's quality control process, the Company uses
employees in its China office to visit foreign factories to conduct quality
control reviews of raw materials, work in process inventory, and finished goods.
In addition, upon arrival at the Company's Ohio distribution center, another
inspection of sourced products is conducted by the Director of Quality Control.
The Company does not use hedging instruments with respect to foreign sourced
products.

         Compliance with federal, state and local regulations with respect to
the environment has not had any material effect on the earnings, manufacturing
process, capital expenditures or competitive position of the Company. Compliance
with such laws or changes therein could have a negative impact.

         The Company's products are distributed nationwide and in Canada from
the Company's finished goods distribution facilities located near Logan, Ohio
and Waterloo, Ontario.

SUPPLIERS

         The Company purchases raw materials from a number of domestic and
foreign sources. The Company does not have any long-term supply contracts for
the purchase of its raw materials, except for limited blanket orders on leather
to protect wholesale selling prices for an extended period of time. The
principal raw materials used in the production of the Company's products, in
terms of dollar value, are leather, GORE-TEX waterproof breathable fabric,
CORDURA nylon fabric and soling materials. The Company believes that these
materials will continue to be available from its current suppliers and, with the
possible exception of GORE-TEX waterproof breathable fabric, there are
acceptable alternatives to these suppliers and materials.

                                       6

<PAGE>

         GORE-TEX waterproof fabric is purchased under license directly from W.
L. Gore & Associates, Inc. ("Gore"). A majority of the Company's footwear
incorporates GORE-TEX waterproof breathable fabric. The Company, which has been
a customer of Gore since 1980, was the first footwear manufacturer licensed by
Gore to manufacture, promote, sell and distribute footwear worldwide using
GORE-TEX waterproof breathable fabric. The Company is currently one of the
largest customers of GORE-TEX waterproof breathable fabric for footwear.
Although other waterproofing techniques or materials are available, the Company
places a high value on its GORE-TEX license because the GORE-TEX trade name has
high brand name recognition and the GORE-TEX waterproof breathable fabric used
in the manufacture of ROCKY footwear has a reputation for quality and proven
performance.

         Under the Company's licensing agreement with Gore, a prototype or
sample of each style of shoe or boot designed and produced by the Company that
incorporates GORE-TEX waterproof breathable fabric must be tested and approved
by Gore before the Company is permitted to manufacture or sell commercial
quantities of that style of footwear. Gore's testing involves immersing the
Company's footwear prototype for days in a water exclusion tester and flexing
the prototype 500,000 times, simulating a 500-mile march through several inches
of water. The prototype is then placed in a sweat absorption and transmission
tester to measure "breathability," which is the amount of perspiration that can
escape from the footwear.

         All of the Company's GORE-TEX fabric footwear is guaranteed to be
waterproof for one year from the date of purchase. When a customer claims that a
product is not waterproof, the product is returned to the Company for further
testing. If the product fails this testing process, it is either replaced or
credit is given, at the customer's discretion. The Company believes that the
claims associated with this guarantee have been consistent with guarantee claims
in the footwear industry.

SEASONALITY AND WEATHER

         The Company has historically experienced significant seasonal
fluctuations in the sale of rugged outdoor footwear. A majority of orders are
placed in January through April for delivery in July through October. In order
to meet demand, the Company must manufacture rugged outdoor footwear year round
to be in a position to ship advance orders during the last two quarters of each
calendar year. Accordingly, average inventory levels have been highest during
the second and third quarters of each calendar year and sales have been highest
in the last two quarters of each calendar year. Because of seasonal
fluctuations, there can be no assurance that the results for any particular
interim period will be indicative of results for the full year or for future
interim periods.

         Many of the Company's products, particularly its rugged outdoor
footwear and outdoor apparel lines, are used by consumers in cold or wet
weather. Mild or dry weather conditions can have a material adverse effect on
sales of the Company's products, particularly if they occur in broad
geographical areas during late fall or early winter. Also, due to variations in
weather conditions from year to year, results for any single quarter or year may
not be indicative of results for any future quarter or year.

         Retailers in general have begun placing orders closer to the selling
season. This increases the Company's business risk because it must produce and
carry inventories for relatively longer periods. In addition, the later
placement of orders may change the historical pattern of orders and sales and
increase the seasonal fluctuations in the Company's business. There can be no
assurance that the results for any particular interim period or year will be
indicative of results for the full year or for any future interim period or
year.

BACKLOG

         At December 31, 2003, backlog was $11.4 million, including
approximately $5.7 million related to a military contract. At December 31, 2002,
backlog was $4.4 million and included no backlog related to a military contract.
Because a majority of the Company's orders are placed in January through April
for delivery in July through October, the Company's backlog is lowest during the
October through December period and peaks during the April through June period.
Factors other than seasonality could have a significant impact on the Company's
backlog and, therefore, the Company's backlog at any one point in time may not
be indicative of future results. Generally, orders may be canceled by customers
prior to shipment without penalty.

                                       7

<PAGE>

PATENTS, TRADEMARKS AND TRADE NAMES

         The Company owns numerous United States design and utility patents for
footwear. The Company is not aware of any infringement of its patents or that it
is infringing any patents owned by third parties.

         The Company owns United States federal registrations for its marks
ROCKY(R), ROCKY BOOTS and Design(R) (which claims a ram's head Design as part of
the mark), ROCKY and Design(R) (which claim a ram's head Design as part of the
mark), ROCKY and Design(R) (which claims a mountain range and ram's head inside
a triangle), ADIRONDACK COLLECTION(R), ALPHA FORCE(R), AOG(R), AQUA GUARD(R),
BEAR CLAW(R), CAMO-TEK(R), CORNSTALKERS(R), FIRSTMED(R), GATES(R), GATES
GLOVES(R), GATES LIGHT (Stylized)(R), GATES ULTRA LITE(R), LONGBEARD(R),
PROHUNTER(R), ROCKY and Design(R) for cigars, ROCKY ELIMINATOR(R), ROCKY 911
SERIES and Design(R), SAWBLADE(R), SILENTHUNTER(R), SNOW STALKER(R),
STALKERS(R), TACoTEAM(R), TRIAD(R) and WILD WOLF(R). Additional mark variations
for ROCKY(TM) and Design (which claims a ram's head Design as part of the mark),
BIG MOUNTAIN(TM), G and Design(TM), GATES(TM), GATES SMART GLOVE(TM),
PRO-HIKER(TM), and SMART GLOVE BY GATES(R) are the subject of pending United
States federal applications for registration. In addition, the Company uses and
has common law rights in the marks ROCKY(R) MOUNTAIN STALKERS(R), and other
ROCKY(R) marks. During 1994, the Company began to increase distribution of its
goods in several countries, including countries in Western Europe, Canada and
Japan. The Company has applied for trademark registration of its ROCKY(R) mark
in a number of foreign countries.

         The Company also uses in its advertising and in other documents the
following trademarks owned by corporations other than the Company: GORE-TEX(R)
and CROSSTECH(R) are registered trademarks of W.L. Gore & Associates, Inc.;
CORDURA(R) is a registered trademark of E.I. DuPont de Nemours and Company;
THINSULATE(R) is a registered trademark of Minnesota Mining and Manufacturing
Company; and CAMBRELLE(R) is a trademark of Koppers Industries, Inc. The Company
is not aware of any material conflicts concerning its marks or its use of marks
owned by other corporations.

COMPETITION

         The Company operates in a very competitive environment. Product
function, design, comfort, quality, technological improvements, brand awareness,
timeliness of product delivery and pricing are all important elements of
competition in the markets for the Company's products. The Company believes
that, based on these factors, it competes favorably in its rugged outdoor
footwear and occupational footwear market niches. The Company competes in
markets against competitors with greater financial, distribution and marketing
resources. These competitors have strong brand name recognition in the markets
they serve.

         The footwear industry is subject to rapid changes in consumer
preferences. The Company's casual product line and certain styles within its
rugged outdoor and occupational product lines are susceptible to fashion trends.
Therefore, the success of these products and styles are more dependent on the
Company's ability to anticipate and respond to changing fashion trends and
consumer demands within its niche market in a timely manner. The Company's
inability or failure to do so could adversely affect consumer acceptance of
these product lines and styles and could have a material adverse effect on the
Company's business, financial condition and results of operations.

EMPLOYEES

         At December 31, 2003, the Company had approximately 1,010 full-time
employees and 16 part-time employees. Approximately 864 of these full-time
employees are in the Dominican Republic and Puerto Rico. The Company has
approximately 738 employees engaged in production and the balance in managerial
and administrative positions. Management considers its relations with all of its
employees to be good. The collective bargaining agreement between the Company
and the Union of Needletrades, Industrial and Textile Employees ("UNITE") was
cancelled with the closing of the Company's Nelsonville, Ohio manufacturing
facility in November, 2001.

                                       8
<PAGE>

BUSINESS RISKS

         The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
addition to the other information in this report, readers should carefully
consider that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual consolidated results of operations for Fiscal 2004
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.

         Dependence on Sales Forecasts. The Company's investments in
infrastructure and product inventory are based on sales forecasts and are
necessarily made in advance of actual sales. The markets in which the Company
does business are highly competitive, and the Company's business is affected by
a variety of factors, including brand awareness, changing consumer preferences,
product innovations, susceptibility to fashion trends, retail market conditions,
weather conditions and economic and other factors. One of management's principal
challenges is to improve its ability to predict these factors, in order to
enable the Company to better match production with demand. In addition, the
Company's growth over the years has created the need to increase the investment
in infrastructure and product inventory and to enhance the Company's systems. To
the extent sales forecasts are not achieved, costs associated with the
infrastructure and carrying costs of product inventory would represent a higher
percentage of revenue, which would adversely affect the Company's financial
performance.

         Changes in Consumer Demand. Demand for the Company's products,
particularly the Company's casual product line and certain styles within its
rugged outdoor and occupational product lines, may be adversely affected by
changing fashion trends. The future success of the Company will depend upon its
ability to anticipate and respond to changing consumer preferences and fashion
trends in a timely manner. The Company's failure to adequately anticipate or
respond to such changes could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, sales of
the Company's products may be negatively affected by weak consumer spending as a
result of adverse economic trends or uncertainties regarding the economy. See
"Business -- Competition."

         Seasonality. The Company has historically experienced, and expects to
continue to experience, significant seasonal fluctuations in the sale of its
products. The Company's operating results have varied significantly in the past,
and may vary significantly in the future, partly due to such seasonal
fluctuations. A majority of the orders for the Company's rugged outdoor footwear
are placed in January through April for delivery in July through October. To
meet demand, the Company must manufacture its products year-round. Accordingly,
average inventory levels have been highest during the second and third quarters
of each calendar year, and sales have been highest in the last two quarters of
each calendar year. The Company believes that sales of its products will
continue to follow this seasonal cycle. Additionally, the Company does not have
long-term contracts with its customers. Accordingly, there is no assurance that
the results for any particular quarter will be indicative of results for the
full year or for the future. The Company believes that comparisons of its
interim results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to the factors mentioned
above as well as factors discussed elsewhere in this Form 10-K, it is possible
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock will likely be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Seasonality and Weather."

         Impact of Weather. Many of the Company's products, particularly its
rugged outdoor footwear and apparel lines, are used primarily in cold or wet
weather. Mild or dry weather has in the past and may in the future have a
material adverse effect on sales of the Company's products, particularly if mild
or dry weather conditions occur in broad geographical areas during late fall or
early winter. Also, due to variations in weather conditions from year to year,
results for any single quarter or year may not be indicative of results for any
future period. See "Business -- Seasonality and Weather."

         Competition. The footwear and apparel industries are intensely
competitive, and the Company expects competition to increase in the future. Many
of the Company's competitors have greater financial, distribution and marketing
resources than the Company. The Company's ability to succeed depends on its
ability to remain competitive with respect to the quality, design, price and
timely delivery of products. Competition could materially

                                       9

<PAGE>

adversely affect the Company's business, financial condition and results of
operations. See "Business -- Competition."

         Reliance on Suppliers. The Company purchases raw materials from a
number of domestic and foreign sources. The Company does not have any long-term
supply contracts for the purchase of its raw materials, except for limited
blanket orders on leather. The principal raw materials used in the production of
the Company's footwear, in terms of dollar value, are leather, GORE-TEX
waterproof breathable fabric, CORDURA nylon fabric and soling materials. The
Company currently believes there are acceptable alternatives to these suppliers
and materials, with the exception of the GORE-TEX waterproof breathable fabric.

         The Company is currently one of the largest customers of GORE-TEX
waterproof fabric for use in footwear. The Company's licensing agreement with
W.L. Gore & Associates, Inc. may be terminated by either party upon advance
written notice to the other party by October 1 of the current year of the
agreement that the agreement will terminate, effective December 31 of that same
year. Although other waterproofing techniques and materials are available, the
Company places a high value on its GORE-TEX waterproof breathable fabric license
because GORE-TEX has high brand name recognition and the GORE-TEX waterproof
fabric used in the manufacture of ROCKY footwear has a reputation for quality
and proven performance. Even though the Company does not believe that its supply
of GORE-TEX waterproof breathable fabric will be interrupted in the future, no
assurance can be given in this regard. The Company's loss of its license to use
GORE-TEX waterproof breathable fabric could have a material adverse effect on
the Company's competitive position, which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Suppliers."

         Changing Retailing Trends. A continued shift in the marketplace from
traditional independent retailers to large discount mass merchandisers has
increased the pressure on many footwear manufacturers to sell products to large
discount mass merchandisers at less favorable margins. Because of competition
from large discount mass merchandisers, a number of small retailing customers of
the Company have gone out of business, and in the future more of these customers
may go out of business, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Although
progressive independent retailers have attempted to improve their competitive
position by joining buying groups, stressing personal service and stocking more
products that address specific local needs, a continued shift to discount mass
merchandisers could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company established the Wild
Wolf(R) by Rocky(R) brand in Fiscal 2000 to offer rugged outdoor footwear for
sale in another segment of retail. This footwear includes some, but not all, of
the components of the traditional ROCKY brand. Therefore, this line is sold to
the mass merchandise channel of distribution at lower retail prices than
historically available in ROCKY brand products. See "Business -- Sales,
Marketing and Advertising."

         Reliance on Key Personnel. The development of the Company's business
has been, and will continue to be, highly dependent upon Mike Brooks, Chairman,
President and Chief Executive Officer, David Sharp, Executive Vice President and
Chief Operating Officer, and James McDonald, Vice President and Chief Financial
Officer. Mr. Brooks has an at-will employment agreement with the Company. The
employment agreement provides that in the event of termination of employment
with the Company, he will receive a severance benefit and may not compete with
the Company for a period of one year. The loss of the services of any of these
officers could have a material adverse effect upon the Company's business,
financial condition and results of operations.

         Reliance on Foreign Manufacturing. A majority of the Company's products
are produced in the Dominican Republic and Far East. Therefore, the Company's
business is subject to the risks of doing business offshore, such as: the
imposition of additional United States legislation and regulations relating to
imports, including quotas, duties, taxes or other charges or restrictions;
weather conditions in the Dominican Republic and Far East; foreign governmental
regulation and taxation; fluctuations in foreign exchange rates; changes in
economic conditions; changes in the political stability of the these countries;
and changes in relationships between the United States and these countries. If
any such factors were to render the conduct of business in these countries
undesirable or impracticable, the Company would have to source its products
elsewhere. There can be no assurance that additional sources or products would
be available to the Company or, if available, that such sources could be relied
on to provide product at terms favorable to the Company. Such a development
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing and
Sourcing."

                                       10

<PAGE>

         Changes in Tax Rates. In past years, the Company's effective tax rate
typically has been substantially below the United States federal statutory
rates. The Company has paid minimal income taxes on income earned by its
subsidiary in Puerto Rico due to tax credits afforded the Company under Section
936 of the Internal Revenue Code and local tax abatements. However, Section 936
of the Internal Revenue Code has been repealed such that future tax credits
available to the Company are capped beginning in 2002 and terminate in 2006. In
addition, the Company's local tax abatements in Puerto Rico are scheduled to
expire in 2004. The Company provided no U.S. income tax on the unrepatriated
income generated by its subsidiary in the Dominican Republic. Consequently, no
income taxes are provided on these cumulative earnings of approximately
$8,180,000. During fourth quarter Fiscal 1996 through December 31, 1998, the
Company elected to repatriate future earnings of its subsidiary in the Dominican
Republic and provided taxes on the earnings during that period. In 1999, the
Company elected not to repatriate all 1999 and future earnings of its subsidiary
in the Dominican Republic.

         The Company's future tax rate will vary depending on many factors,
including the level of relative earnings and tax rates in each jurisdiction in
which it operates and the repatriation of any foreign income to the United
States. The Company cannot anticipate future changes in such laws. Increases in
effective tax rates or changes in tax laws may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

         Manufacturing. The Company currently plans to retain its internal
manufacturing capability in order to continue benefiting from expertise the
Company has gained with respect to footwear manufacturing methods conducted at
its manufacturing facilities. The Company continues to evaluate its
manufacturing facilities and independent manufacturing alternatives in order to
determine the appropriate size and scope of its manufacturing facilities. There
can be no assurance that the costs of products that continue to be manufactured
by the Company can remain competitive with sourced products. In an effort to
enhance its competitive position, during the first quarter of 2000 the Company
began to curtail manufacturing at its Nelsonville, Ohio plant and to consolidate
production at its plants in Puerto Rico and the Dominican Republic. As of
November 16, 2001, the Company closed its Nelsonville, Ohio manufacturing
facility.

         Concentration of Stock Ownership; Certain Corporate Governance
Measures. The directors and executive officers of the Company beneficially own
approximately 12.4% of the Company's outstanding Common Stock. As a result,
these shareholders are able to exert significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
The Company has also adopted certain corporate governance measures which,
individually or collectively, could delay or frustrate the removal of incumbent
directors and could make a merger more difficult, tender offer or proxy contest
involving the Company even if such events might be deemed by certain
shareholders to be beneficial to the interest of the shareholders.

         Volatility of Market Price. From time to time, there may be significant
volatility in the market price of the Common Stock. The Company believes that
the current market price of its Common Stock reflects expectations that the
Company will be able to continue to market its products profitably and develop
new products with market appeal. If the Company is unable to market its products
profitably and develop new products at a pace that reflects the expectations of
the market, investors could sell shares of the Common Stock at or after the time
that it becomes apparent that such expectations may not be realized, resulting
in a decrease in the market price of the Common Stock.

         In addition to the operating results of the Company, changes in
earnings estimates by analysts, changes in general conditions in the economy or
the financial markets or other developments affecting the Company or its
industry could cause the market price of the Common Stock to fluctuate
substantially. In recent years, the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies, including the Company, for
reasons unrelated to their operating performance. See "Market for the
Registrant's Common Equity and Related Matters."

                                       11

<PAGE>

         Accounting Standards. Changes in the accounting standards promulgated
by the Financial Accounting Standards Board or other authoritative bodies could
have an adverse effect on the Company's future reported operating results.

         Environmental and Other Regulation. The Company is subject to various
environmental and other laws and regulations, which may change periodically.
Compliance with such laws or changes therein could have a negative impact on the
Company's future reported operating results.

         Limited Protection of Intellectual Property. The Company regards
certain of its footwear designs as proprietary and relies on patents to protect
those designs. The Company believes that the ownership of the patents is a
significant factor in its business. Existing intellectual property laws afford
only limited protection of the Company's proprietary rights, and it may be
possible for unauthorized third parties to copy certain of the Company's
footwear designs or to reverse engineer or otherwise obtain and use information
that the Company regards as proprietary. The Company believes its patents
provide a measure of security against competition, and the Company intends to
enforce its patents against infringement by third parties. However, if the
Company's patents are found to be invalid, to the extent they have served, or
would in the future serve, as a barrier to entry to the Company's competitors,
such invalidity could have a material adverse effect on the Company's business,
financial condition and results of operations.

         The Company owns United States federal registrations for a number of
its trademarks, trade names and designs. Additional trademarks, trade names and
designs are the subject of pending federal applications for registration. The
Company also uses and has common law rights in certain trademarks. During 1994,
the Company began to increase distribution of its goods in several foreign
countries. Accordingly, the Company has applied for trademark registrations in a
number of these countries. The Company intends to enforce its trademarks and
trade names against unauthorized use by third parties. See "Business -- Patents,
Trademarks and Trade Names."

         Risks Associated with Forward Looking Statements. This Annual Report on
Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which are intended to be covered by the safe harbors created
thereby. Those statements include, but may not be limited to, all statements
regarding the intent, belief and expectations of the Company and its management,
such as statements concerning the Company's future profitability and its
operating and growth strategy. Investors are cautioned that all forward-looking
statements involve risks and uncertainties including, without limitation, the
factors set forth under the caption "Business Risks" in this Annual Report on
Form 10-K and other factors detailed from time to time in the Company's filings
with the Securities and Exchange Commission. Although the Company believes 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 in this Annual Report
on Form 10-K 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 the
Company or any other person that the objectives and plans of the Company will be
achieved. The Company does not assume any obligation to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.

ITEM 2. PROPERTIES.

         The Company owns, subject to a mortgage, executive offices and a
factory outlet store which are located in Nelsonville, Ohio in a two-story
25,000 square foot building. The first floor of this building, which consists of
approximately 12,500 square feet, houses the Company's factory outlet store
which was opened in late 1994. The second floor houses the Company's executive
offices.

         The Company owns a 5,000 square foot office building in Nelsonville,
Ohio, subject to a mortgage, which is currently under lease to an unrelated
entity.

                                       12

<PAGE>

         The Company owns, subject to a mortgage, a 98,000 square foot
distribution warehouse in Nelsonville, Ohio. This facility is currently under
lease to an unrelated entity.

         The Company leases a 41,000 square foot facility in Nelsonville, Ohio,
from the William Brooks Real Estate Company, which is 20% owned by Mike Brooks,
Chairman and CEO of the Company. This building was used for manufacturing and
presently houses additional outlet store retail space. A portion of the space
not currently needed for the Company's use is under lease to unrelated entities.
The lease with the William Brooks Real Estate Company expires in February 2005
with options for 1 year extensions and an option to purchase.

         Lifestyle leases two manufacturing facilities, one of which contains
44,978 square feet and the other which contains 39,581 square feet in Moca,
Puerto Rico. These buildings are leased from the Puerto Rico Industrial
Development Company under a net operating lease which expires in 2009.

         Five Star's manufacturing facility, consisting of three connected
buildings and a stand-alone building, is located in a tax-free trade zone in the
Dominican Republic. Five Star leases 82,000 square feet of this facility from
the Dominican Republic Corporation for Industrial Development (the "DRCID")
under a Consolidation of Lease Contract, dated as of February 1997, the term of
which expires on June 1, 2004. Five Star leases an additional stand-alone 37,000
square foot building from the DRCID under a lease that expires March 1, 2008.

         The Company owns, subject to a mortgage, a finished goods distribution
facility near Logan, Ohio. The building contains 192,000 square feet and is
situated on 17.9 acres of land. The finished goods distribution facility became
fully operational in the first quarter of 2000.

         Rocky Canada leases an approximately 5,000 square foot facility in
Waterloo, Ontario, from Marshland Centre Limited. The facility is used for
distribution of certain of the Company's products in Canada. The lease expires
on July 31, 2006 with an option for a five-year extension.

ITEM 3. LEGAL PROCEEDINGS.

         The Company is, from time to time, a party to litigation which arises
in the normal course of its business. Although the ultimate resolution of
pending proceedings cannot be determined, in the opinion of management, the
resolution of such proceedings in the aggregate will not have a material adverse
effect on the Company's financial position, results of operations, or liquidity.

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

         Not applicable.

                                       13

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

MARKET INFORMATION

         The Company's Common Stock trades on the NASDAQ National Market under
the symbol "RCKY." The following table sets forth the range of high and low
sales prices for the Common Stock for the periods indicated, as reported by the
NASDAQ National Market:

<TABLE>
<CAPTION>
      QUARTER ENDED            HIGH          LOW
-------------------------    ---------    ---------
<S>                          <C>          <C>
March 31, 2002 ..........    $    7.75    $    5.20
June 30, 2002 ...........    $    8.90    $    5.40
September 30, 2002 ......    $    6.30    $    4.18
December 31, 2002 .......    $    5.65    $    4.25
March 31, 2003 ..........    $    7.30    $    4.77
June 30, 2003 ...........    $    9.54    $    6.50
September 30, 2003 ......    $   11.72    $    9.10
December 31, 2003 .......    $   26.01    $   11.12
</TABLE>

         On March 15, 2004, the last reported sales price of the Common Stock on
the NASDAQ National Market was $22.79 per share. As of March 15, 2004, there
were approximately 170 shareholders of record of the Common Stock.

         The Company presently intends to retain its earnings to finance the
growth and development of its business and does not anticipate paying any cash
dividends in the foreseeable future. Future dividend policy will depend upon the
earnings and financial condition of the Company, the Company's need for funds
and other factors. Presently, the Line of Credit restricts the payment of
dividends on the Common Stock. At December 31, 2003, the Company had no retained
earnings available for distribution.

                                       14

<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

                   ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
                      SELECTED CONSOLIDATED FINANCIAL DATA
                    (in thousands, except for per share data)

<TABLE>
<CAPTION>
                                                     FIVE YEAR FINANCIAL SUMMARY
                                     ------------------------------------------------------------
                                     12/31/03     12/31/02     12/31/01     12/31/00     12/31/99
                                     --------     --------     --------     --------     --------
<S>                                  <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA

Net sales                            $106,165     $ 88,959     $103,320     $103,229     $ 98,781
Gross margin % of sales                  30.9%        26.3%        22.5%        23.8%        15.7%
Net income (loss)                    $  6,039     $  2,843     $  1,531     $     96     $ (5,130)

PER SHARE

Net income (loss):

      Basic                          $   1.44     $   0.63     $   0.34     $   0.02     $  (1.09)
      Diluted                        $   1.32     $   0.62     $   0.34     $   0.02     $  (1.09)

Weighted average number of common
 shares outstanding:

      Basic                             4,190        4,500        4,489        4,489        4,710
      Diluted                           4,561        4,590        4,549        4,493        4,710

BALANCE SHEET DATA

Inventories                          $ 38,068     $ 23,182     $ 27,714     $ 32,035     $ 32,573
Total assets                         $ 86,175     $ 68,417     $ 74,660     $ 86,051     $ 89,333
Working capital                      $ 54,210     $ 41,751     $ 44,267     $ 50,201     $ 48,468
Long-term debt, less current
   maturities                        $ 17,515     $ 10,488     $ 16,976     $ 26,445     $ 25,177
Shareholders' equity                 $ 58,385     $ 52,393     $ 51,043     $ 50,326     $ 50,229
</TABLE>

                                       15

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

         This Management's Discussion and Analysis of Financial Condition and
Result of Operations ("MD&A") describes the matters that we consider to be
important to understanding the results of our operations for each of the three
years in the period ended December 31, 2003, and our capital resources and
liquidity as of December 31, 2003 and 2002. Use of the terms "Rocky", "we", "us"
and "our" in this discussion refer to Rocky Shoes & Boots, Inc. and
subsidiaries. Our fiscal year begins on January 1 and ends on December 31. We
analyze the results of our operations for the last three years, including the
trends in the overall business followed by a discussion of our cash flows and
liquidity, our credit facility, and contractual commitments. We then provide a
review of the critical accounting judgments and estimates that we have made
which we believe are most important to an understanding of our MD&A and our
consolidated financial statements. We conclude our MD&A with information on
recent accounting pronouncements which we adopted during the year, as well as
those not yet adopted that are expected to have an impact on our financial
accounting practices.

         The following discussion should be read in conjunction with the
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes thereto, all included elsewhere herein. The forward-looking
statements in this section and other parts of this document involve risks and
uncertainties including statements regarding our plans, objectives, goals,
strategies, and financial performance. Our actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of factors set forth under the caption "Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995" below. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
statements made by or on behalf of Rocky Shoes & Boots, Inc. and its
subsidiaries ("Rocky" or the "Company").

         We have one reportable segment: the design, manufacture and
distribution of high quality men's and women's footwear and related apparel and
accessories. We sell our products primarily to large and small retailers
throughout the United States of America and Canada.

2003 OVERVIEW

         The Company continued to implement its growth strategy in 2003 through
key line extensions in apparel and footwear. This strategy was initially focused
on leveraging the ROCKY brand from footwear to outdoor apparel and accessories.
During 2003, the strategy was expanded to include the GATES brand, which was
acquired in April 2003 along with certain assets of Gates-Mills, Inc.

         HIGHLIGHTS OF OUR 2003 FINANCIAL PERFORMANCE INCLUDE THE FOLLOWING:

             -    Net sales, led by a 28% increase in branded sales, rose to
                  $106.2 from $89.0 million in 2002.

             -    The Company's gross profit margin increased 460 basis points
                  to a record 30.9% of net sales for 2003 versus 26.3% the prior
                  year.

             -    Net income more than doubled in 2003 to $6.0 million from $2.8
                  million the prior year. Diluted earnings per common share were
                  $1.32 in 2003 compared with $0.62 per share in 2002.

             -    Capital expenditures were $2.2 million in 2003 compared to
                  $2.3 million in 2002. A majority of these expenditures were
                  for footwear patterns and lasts that are used to produce new
                  footwear styles for men and women.

             -    Net debt (total debt minus cash, cash equivalents, marketable
                  securities and interest-bearing deposits) was $15.9 million or
                  20.8% of total capitalization at December 31, 2003 compared to
                  $6.7 million or 10.6% of total capitalization at year-end
                  2002. Total debt was $18.0 million or 23.6% of total
                  capitalization at December 31, 2003 compared to $11.0 million
                  or 17.3% of total capitalization at year-end 2002.

                                       16

<PAGE>

         Market conditions improved during 2003 compared to 2002. For the
Company's rugged outdoor products, this was due to solid sell-through at retail
during the fall and winter seasons in 2002 which benefited initial orders for
products in the Company's outdoor category for 2003. Additionally, increased
demand for the Company's branded products in the second half of 2003 combined
with relatively colder and wetter weather conditions contributed to higher
product re-orders, especially during the fourth quarter of 2003.

         The Company anticipates further benefits from its growth strategy in
2004 due to increased net sales resulting from broader product lines and
increased demand for its branded products. Improvement in net sales and
profitability is anticipated from full-year sales of line extensions introduced
during 2003, new footwear and clothing products introduced in 2004, and a higher
level of footwear sales for delivery to the U.S. military than in 2003.

         Sales of boots for delivery to the U.S. military occur from time to
time based on competitively bid contracts. The Company entered into a $6.1
million contract with Belleville Shoe Manufacturing Company ("Belleville") in
September 2003 for Intermediate Cold Wet Boots ("ICWs"). Initial shipments, $0.4
million, of these ICWs began in the fourth quarter 2003 and the remaining amount
of these ICWs, $5.7 million, are expected to be shipped by May 2004.

         On March 9, 2004, the Company announced a $16.4 million contract with
Belleville to produce 200,000 pairs of Infantry Combat Boots ("ICBs"). Shipments
are expected to begin in June 2004 and continue at the rate of 20,000 pairs per
30 day period. All of the ICBs will be manufactured in the Company's factory in
Puerto Rico. This agreement includes a provision permitting Belleville, at its
sole option, to order up to an additional 675,000 pairs of ICBs to be produced
by the Company following shipment of the 200,000 pairs of ICBs.

         Sales of the Company's work products, which are sold year-round,
increased significantly in 2003 compared to 2002 due to new product
introductions, especially in western influenced footwear. The Company is
pursuing key line extensions in its work and duty markets. Building on its
success in branded outdoor apparel, the Company introduced a line of work
apparel in the first quarter of 2004.

         The Company's gross profit margin increased 460 basis points to a
record 30.9% of net sales for 2003 versus 26.3% the prior year. This was
primarily due to increased sales of sourced products, which represented 66% of
net sales in 2003 compared to 49% in 2002. For 2004, we anticipate that
incremental improvement can be achieved in gross margin dollars; however, the
Company anticipates a slightly lower gross profit margin expressed as a
percentage of net sales compared to last year due to a higher sales mix of
footwear manufactured for the U.S. military, which traditionally has lower gross
margins than branded products.

         Most of the Company's selling, general & administrative ("SG&A")
expenses are generally fixed costs with the exception of commissions and
incentive compensation, which fluctuate in response to changes in sales and
profitability from period to period. SG&A expenses for 2004 are expected to be
higher in absolute dollars in response to anticipated sales growth and improved
profitability.

         The Company's effective tax rate for 2003 was 28.7%. We anticipate a
slightly higher tax rate in 2004 as most of our sourced products are taxed at
U.S. rates.

PERCENTAGE OF NET SALES

         References to 2003, 2002 and 2001 are to years ended December 31 of the
respective year.

<TABLE>
<CAPTION>
                                                        2003         2002        2001
                                                      ---------    --------    --------
<S>                                                   <C>          <C>         <C>
Net sales ........................................        100.0%      100.0%      100.0%
Costs of goods sold ..............................         69.1        73.7        77.5
                                                      ---------    --------    --------
Gross margin .....................................         30.9        26.3        22.5
SG&A expenses and plant closing costs in 2001 ....         21.9        20.9        19.0
                                                      ---------    --------    --------
Income from operations ...........................          9.0%        5.4%        3.5%
                                                      =========    ========    ========
</TABLE>

                                       17

<PAGE>

2003 COMPARED TO 2002

NET SALES

         Net sales rose 19.3% to $106.2 million for the year ended December 31,
2003 from $89.0 million the prior year. This was attributable to a 28% increase
in branded product sales, which include ROCKY footwear, apparel and accessories
and GATES products. Shipments of boots to the U.S. military for the year ended
December 31, 2003 were $6.0 million below the prior year. These sales fluctuate
in response to specific competitively bid contracts to produce boots for the
U.S. military.

         Footwear sales increases were led by the rugged outdoor category, which
sales increased 15.7% to $48.1 million for 2003. These sales benefited from
increased demand and more seasonal weather conditions in most regions of the
U.S. where the Company's rugged outdoor footwear is sold. Initial sell-through
and re-orders were particularly strong during the fall and winter season due to
the weather conditions which also benefited from increased demand for the ROCKY
brand. Occupational footwear increased 16.7% to $34.6 million reflecting product
line extensions, particularly a line of western influenced footwear. Casual
footwear sales increased $0.2 million to $2.5 million in 2003, consistent with
the Company's emphasis on controlled growth within this category through its
existing dealer network.

         ROCKY branded apparel, particularly for the outdoor market, was
introduced in 2002. Net sales in this category increased 67% to $4.5 million for
2003 compared to $2.7 the prior year.

         GATES branded product sales were $10.2 million for 2003 due to the
acquisition of the Gates brand in April 2003.

         Military sales, which occur from time to time, were $0.4 million in
2003 versus $6.4 million in 2002. This represented initial shipments under a
$6.1 million contract to produce boots for delivery to the U.S. military. The
remaining amount of this contract is expected to be shipped by the second
quarter 2004.

         Net sales for the Company's factory outlet stores increased 13% to $4.6
million in 2003 compared with $4.1 million the prior year. The retail sales
increase was the result of more traditional seasonal weather, expansion of the
Company's Nelsonville store, and refocused merchandising of the retail stores.

         Average list prices for the Company's footwear, apparel and accessories
were similar in 2003 compared to 2002.

GROSS MARGIN

         Gross margin rose to $32.8 million for 2003 from $23.4 million the
prior year. Expressed as a percentage of net sales, gross margin increased 460
basis points to 30.9% of net sales in 2003 compared with 26.3% in 2002. This
increase in gross margin was attributable to sales mix and a 17 percentage point
increase in sourced product sales. The 2003 gross margin benefited from lower
shipments of boots to the U.S. military in 2003. Historically, these boots are
produced at gross margins below the Company's overall average.

         The Company has been sourcing footwear from outside the United States
since 1993. In 2003, sourced footwear, apparel and accessories increased to 66%
of net sales from 49% in 2002. The increase in sourced products sales as a
percentage of total sales is expected to continue in the future; however, such
increase is not expected to be at the same year-over-year growth rate as the
Company experienced in 2003.

SELLING, GENERAL & ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses were $23.3
million, or 21.9% of net sales, for 2003 versus $18.7 million, or 21.0% of net
sales, the prior year. The increase in SG&A expenses for the year ended December
31, 2003 was due to higher commissions paid, additional distribution costs, and
higher incentive compensation. All of these factors are attributable to the
increase in net sales and profitability compared to the prior

                                       18

<PAGE>

year. Most of the Company's SG&A expenses are relatively fixed and changes
between periods are generally in response to increased sales and profitability.

INTEREST EXPENSE

         Interest expense was $1.4 million for both of the years 2003 and 2002.
The Company benefited from generally lower interest rates, which was partially
offset by higher average outstanding borrowings.

         The Company's funded debt increased to $18.0 million at December 31,
2003 versus $11.0 million a year ago. The increase in funded debt in 2003 was
due to the purchase of certain assets of Gates-Mills, Inc., the repurchase of
483,500 shares of common stock, and increased inventory to support sales growth.
The Company's investment in capital assets was substantially below depreciation
expense for 2003 and 2002.

INCOME TAXES

         Income tax expense increased $1.4 million to $2.4 million in 2003
compared to $1.0 million in 2002. The Company's effective tax rate was 28.7% for
2003 compared to 25.1% the previous year. This effective rate is lower than the
statutory rate of 35.0% due to a portion of income being earned in offshore
jurisdictions where effective tax rates are lower than the U.S. effective tax
rate and the Company's decision not to repatriate foreign earnings to the U.S.
The increase in the effective tax rate in 2003 over 2002 is due primarily to the
increase in sales of sourced products which are taxed at U.S. effective tax
rates.

2002 COMPARED TO 2001

NET SALES

         Net sales declined 13.9% to $89.0 million for 2002 compared to $103.3
million for 2001. This decline was primarily due to reduced sales of rugged
outdoor footwear, which declined $15.0 million to $41.5 million in 2002. Due to
relatively mild fall and winter weather conditions and sluggish economic
conditions, the Company's customers had higher inventories than planned at the
end of the 2001. As a result, orders for rugged outdoor footwear in 2002 were
adversely affected. Demand increased during the 2002 fall and winter seasons;
however, sales in 2002 remained below the prior year.

         Occupational footwear sales increased $2.6 million to $29.6 million in
2002. These sales are less susceptible to weather conditions and occur
throughout the year. The Company introduced additional work styles in 2002 that
were well received by customers.

         Sales of military boots for delivery to the U.S. government declined
$2.5 million to $6.4 million in 2002 due to fulfillment of a contract that began
in 2001 which was completed in the second quarter 2002. These sales are
dependent on specific awards from the U.S. government based on a competitive
bidding process, which occur from time to time.

         Casual footwear sales declined $2.1 million to $2.3 million in 2002,
consistent with the Company's reduced emphasis on this footwear category.

         Rocky branded apparel and accessories were introduced in the first
quarter 2002. This line extension of the ROCKY brand achieved strong
sell-through in 2002, resulting in sales of approximately $2.7 million.
Consistent with its strategy to leverage the ROCKY brand, the Company reacquired
the licensing rights to ROCKY(R) Kids and ROCKY(R) socks in the first quarter
2002.

         The Company's factory outlet stores had net sales of $4.1 million in
2002 compared with $4.7 million the prior year. This was primarily due to lower
sales in the Company's Nelsonville store.

         Average list prices for the Company's footwear, clothing and
accessories were similar in 2002 compared with 2001.

                                       19

<PAGE>

GROSS MARGIN

         Gross margin increased slightly in 2002 to $23.4 million from $23.3
million the prior year. Expressed as a percentage of net sales, gross margin
increased to 26.3% of net sales in 2002 compared to 22.5% in 2001. Benefits from
the Company's manufacturing realignment, increased sourcing, and more favorable
product mix contributed to the improvement. The Company closed its Nelsonville,
Ohio factory in the fourth quarter 2001 and moved that production capacity to
its factory in Puerto Rico. The manufacturing realignment was completed in the
fourth quarter 2001, contributing to improved operating efficiencies and lower
manufacturing costs in 2002.

         The Company has been sourcing footwear from outside the United States
since 1993. In 2002, sourced footwear and branded apparel and accessories
represented 49% of total net sales versus 41% in 2001.

         Military boots are manufactured for the U.S. government based on
specific, competitively bid, contract awards. The Company manufactured military
boots from second quarter 2001 to second quarter 2002. These military boots were
produced at margins substantially below the Company's overall gross margin as a
percentage of net sales.

SELLING, GENERAL & ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses were $18.7 million in 2002
compared to $18.2 million in 2001. Higher pension expenses, relatively small
increases in multiple expense categories and start-up costs associated with
launching the Company's work western boot line (a sub-category of the
occupational category) accounted for the small increase in SG&A. The more
significant increase in SG&A as a percentage of net sales was the result of
reduced net sales for the year. SG&A expenses were 21.0% of net sales in 2002
versus 17.6% the prior year, principally due to the 13.9% decline in net sales
in 2002.

INTEREST EXPENSE

         Interest expense declined to $1.4 million for 2002 from $2.5 million in
2001. The Company benefited from substantial improvement in cash from
operations, a portion of which was used to reduce outstanding debt under the
Company's credit facility. Lower interest rates also contributed to the
reduction in interest expense in 2002.

         The Company's funded debt decreased 37.1% to $11.0 million at December
31, 2002 versus $17.4 million a year ago. The Company's investment in capital
assets was substantially below depreciation expense for 2002. It was also able
to continue to reduce inventory balances and accounts receivable. These factors,
along with the reinvestment back into the Company of income, contributed to the
reduced reliance on borrowings.

INCOME TAXES

         The Company recognized income tax expense of $1.0 million for 2002
compared to an income tax benefit of $0.1 million for 2001. The Company's
effective tax rate was 25% for 2002, which is lower than the statutory rate of
35% due to proportionately more income being earned in offshore jurisdictions
where effective tax rates are lower than the U.S. effective tax rate and the
Company's decision not to repatriate foreign earnings to the U.S. The income tax
benefit recognized during 2001 principally resulted from an abatement of
tollgate taxes in Puerto Rico on all earnings subsequent to June 30, 1994. This
resulted in a deferred tax benefit of $0.4 million.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

         The Company principally funds its working capital requirements and
capital expenditures through income from operations, borrowings under its credit
facility and other indebtedness. During 2003, the Company primarily relied upon
borrowings under its revolving credit facility. Working capital is used to
support changes in accounts receivable and inventory as a result of the
Company's seasonal business cycle and business expansion. These

                                       20

<PAGE>

requirements are generally lowest in the months of January through March of each
year and highest during the months of May through October of each year. The
Company had working capital of $54.2 million and $41.8 million at December 31,
2003 and 2002, respectively.

         Inventory was $38.1 million at December 31, 2003 compared to $23.2
million at year-end 2002. This increase was primarily to support sales of
branded products, including line extensions of footwear and apparel during the
past twelve months as well as additional inventory to support sales of GATES(R)
branded products.

         Capital expenditures were $2.2 million for 2003 versus $2.3 million for
2002. This included projects for the Company's two manufacturing plants and new
lasts for footwear styles introduced and developed during 2003. Capital
expenditures for the year 2004 are anticipated to be similar to 2003.

         We believe that our existing credit facilities coupled with our
available cash generated from operations will provide sufficient liquidity to
fund our operations in 2004. Our continued liquidity, however, is contingent
upon future operating performance, cash flows, and our ability to continue to
meet financial covenants in our credit facilities.

CASH FLOWS

<TABLE>
<CAPTION>
                                                  2003       2002       2001
                                                         $ IN MILLIONS
<S>                                              <C>        <C>        <C>
CASH FLOW SUMMARY
      Cash provided by (used in):
            Operating activities                 $  (1.7)   $  10.1    $  12.1
            Investing activities                    (7.0)      (2.3)      (1.2)
            Financing activities                     6.6       (6.5)     (10.1)
                                                 -------    -------    -------
      Net change in cash and cash equivalents    $  (2.1)   $   1.3    $   0.8
                                                 =======    =======    =======
</TABLE>

         Operating Activities. Net cash used by operating activities totaled
$1.7 million for the year ended December 31, 2003, compared to net cash provided
by operating activities of $10.1 million in 2002 and $12.1 million in 2001. The
principal uses of net cash in 2003 included $14.9 million in increased inventory
to support the Company's growth and a $3.9 increase in accounts receivable-trade
related to the Company's sales growth. For 2002, the Company had $10.1 million
of net cash provided by operating activities, which benefited from a $4.5
million reduction in inventories, as well as reductions in deferred compensation
and pension (net of taxes) and accrued expenses of $1.6 million and $1.5
million, respectively.

         Investing Activities. Net cash used in investing activities was $7.0
million in 2003 compared to $2.3 million of net cash used in investing
activities in 2002. The principal uses of cash in 2003 were for the purchase of
fixed assets ($2.2 million), and the acquisition of certain assets of
Gates-Mills, Inc. ($4.8 million). For 2002, the Company purchased $2.3 million
of fixed assets.

         Financing Activities. The Company's financing activity during 2003
totaled $6.6 million, which included the repurchase of common stock ($3.1
million) which was partially offset by proceeds from the exercise of stock
options including the related tax effect ($2.6 million), and increased
borrowings ($7.0 million) to support sales growth as well as inventory acquired
in conjunction with the acquisition of Gates-Mills, Inc. For the year 2002, cash
provided in financing activities was $6.5 million due to a reduction in total
debt outstanding.

                                       21

<PAGE>

BORROWINGS AND EXTERNAL SOURCES OF FUNDS

The Company's borrowings and external sources of funds are as follows:

<TABLE>
<CAPTION>
                                           DECEMBER 31,
                                    --------------------------
                                       2003           2002
                                    -----------    -----------
                                         $ IN MILLIONS
<S>                                 <C>            <C>
Bank - revolving credit facility    $      12.5    $       5.0
Equipment and other obligations             0.3            0.5
Real estate obligations                     5.2            5.5
                                    -----------    -----------
         Total debt                        18.0           11.0
Less current maturities                     0.5            0.5
                                    -----------    -----------
Net long-term debt                  $      17.5    $      10.5
                                    ===========    ===========
</TABLE>

         The Company and GMAC Business Credit, LLC entered into a two-year
extension to its credit facility on October 21, 2002. This new $45 million
credit facility replaced the previous $50 million credit facility and includes
terms more favorable to the Company, lower interest rates, and, to a lesser
extent, reduced administrative fees. The agreement expires September 30, 2005.
As of December 31, 2003, borrowings under the revolving line of credit were
$12.5 million and $0.3 million under the term loan agreement and the amount
available for the borrowings was $19.2 million at December 31, 2003. We were in
compliance with all lender covenants on that date.

         Our real estate obligations were $5.2 million at December 31, 2003. The
mortgage financing, completed in the year 2000, includes three of the Company's
facilities, with monthly payments of approximately $0.1 million through 2014.

         We lease certain machinery and manufacturing facilities under operating
leases that generally provide for renewal options. Future minimum lease payments
under non-cancelable operating leases are $0.7 million, $0.7 million, $0.6
million, and $0.3 million for years 2004 through 2007, respectively, and $0.7
million for all years after 2008, or approximately $3.0 million in total. We
continually evaluate our external credit arrangements in light of our growth
strategy and new opportunities. We anticipate no changes in our credit
arrangements in 2004.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The following table summarizes our contractual obligations at December
31, 2003 resulting from financial contracts and commitments. We have not
included information on our recurring purchases of materials for use in our
manufacturing operations. These amounts are generally consistent from year to
year, closely reflect our levels of production, and are not long-term in nature
(less than three months).

Contractual Obligations at December 31, 2003:

                    PAYMENTS DUE BY YEAR
                    $ MILLIONS

<TABLE>
<CAPTION>
                                                                      2005 &        2007 &
                                         TOTAL          2004          2006          2008        THEREAFTER
<S>                                    <C>           <C>           <C>           <C>            <C>
Long-term debt                         $     18.0    $      0.5    $     13.4    $       0.9    $      3.2

Pension benefits (1)                          5.0           1.5           1.5            2.0             -
Minimum operating lease commitments           3.0           0.7           1.4            0.6           0.3
                                       ----------    ----------    ----------    -----------    ----------
Total contractual obligations          $     26.0    $      2.7    $     16.3    $       3.5    $      3.5
                                       ==========    ==========    ==========    ===========    ==========
</TABLE>

(1) Assumes no plan termination and includes estimated pension plan
contributions.

                                       22
<PAGE>

         From time to time we enter into purchase commitments with our suppliers
under customary purchase order terms. Any significant losses implicit in these
contracts would be recognized in accordance with generally accepted accounting
principles. At December 31, 2003, no such losses existed.

         The Company's ongoing business activities continue to be subject to
compliance with various laws, rules and regulations as may be issued and
enforced by various federal, state and local agencies. With respect to
environmental matters, costs are incurred pertaining to regulatory compliance.
Such costs have not been, and are not anticipated to become, material.

         The Company is contingently liable with respect to lawsuits, taxes and
various other matters that routinely arise in the normal course of business. The
Company does not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"Variable Interest Entities." Additionally, the Company does not have any
related party transactions that materially affect the result of operations, cash
flow or financial condition.

INFLATION

         The Company's 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. The
Company was able to mitigate the effects of inflation during 2003 due to these
factors. It is anticipated that inflationary pressures during 2004 will be
offset through increases in sales and profitability, due to improved operating
leverage in the Company's business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's Discussion and Analysis of Financial Condition and Results
of Operations discuss the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. A summary
of our significant accounting policies is included in the Notes to Consolidated
Financial Statements included in this Annual Report.

         Management regularly reviews its accounting policies to make certain
they are current and also provide readers of the consolidated financial
statements with useful and reliable information about our operating results and
financial condition. These include, but are not limited to, matters related to
accounts receivable, inventories, pension benefits, and income taxes.
Implementation of these accounting policies includes estimates and judgments by
management based on historical experience and other factors believed to be
reasonable. This may include judgments about the carrying value of assets and
liabilities based on considerations that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

         Management believes the following critical accounting policies are most
important to the portrayal of the Company's financial condition and results of
operations, and require more significant judgments and estimates in the
preparation of its consolidated financial statements.

Revenue Recognition:

         Customer sales are recognized when revenue is realized and earned. The
Company recognizes revenue when the risk and title passes to the customer,
generally at the time of shipment. Customer sales are recorded net of allowances
for estimated returns, trade promotions and other discounts, which are
recognized as a deduction from sales at the time of sale.

Accounts receivable allowances:

         Management maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Management

                                       23

<PAGE>

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

Inventories:

         Management identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related to these inventories. Historically, these
loss provisions have not been significant as the vast majority of the Company's
inventories are considered saleable and the Company has been able to liquidate
slow moving or obsolete inventories through the Company's factory outlet stores
or through various discounts to customers. Should management encounter
difficulties liquidating slow moving or obsolete inventories, additional
provisions may be necessary. Management regularly reviews the adequacy of its
inventory reserves and makes adjustments to them as required.

Pension benefits:

         Accounting for pensions and other postretirement benefits involves
estimating the cost of benefits to be provided well into the future and
attributing that cost over the time period each employee works. To accomplish
this, extensive use is made of assumptions about inflation, investment returns,
mortality, turnover, medical costs and discount rates. These assumptions are
reviewed annually. See Note 9, "Retirement Plans," of this Form 10-K for
information on these plans and the assumptions used.

         Pension and post-retirement benefit expenses are determined by
actuaries using assumptions concerning the discount rate, expected return on
plan assets and rate of compensation increase. An actuarial analysis of benefit
obligations and plan assets is determined as of September 30 each year. The
funded status of the Company's plans and reconciliation of accrued pension cost
is determined annually as of December 31. Further discussion of the Company's
pension and post-retirement benefit plans and related assumptions is included in
Note 9, Retirement Plans, to the consolidated financial statements included in
the Annual Report on Form 10-K. Actual results would be different using other
assumptions. Management records an accrual for pension costs associated with the
Company sponsored noncontributory defined benefit pension plans covering the
union and non-union workers of the Company. The union plan was frozen in 2001
and no additional benefits have been earned under this plan since that time.
Future adverse changes in market conditions or poor operating results of
underlying plan assets could result in losses or a higher accrual.

Income taxes:

         Currently, management has not recorded a valuation allowance to reduce
its deferred tax assets to the amount that it believes is more likely than not
to be realized. The Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for a
valuation allowance, however in the event the Company were to determine that it
would not be able to realize all or part of its net deferred tax assets in the
future, an adjustment to the deferred tax assets would be charged to income in
the period such determination was made. Finally, if the Company decided to
repatriate any of its earnings in its Five Star subsidiary to the United States,
the Company's effective tax rate would increase.

Sales returns and allowances:

         Revenue principally consists of sales to customers, and, to a lesser
extent, license fees. Revenue is recognized upon shipment of product to
customers, while license fees are recognized when earned. The Company records a
reduction to gross sales based on estimated customer returns and allowances.
These reductions are influenced by historical experience, based on customer
returns and allowances. The actual amount of sales returns and allowances
realized may differ from the Company's estimates. If the Company determines that
sales returns or allowances should be either increased or decreased, then the
adjustment would be made to net sales in the period in which such a
determination is made.

Intangible Assets:

         The Company has $4.1 million of intangible assets at December 31, 2003.
Goodwill and trademarks are tested for impairment at least annually by comparing
the fair value of the reporting units to their carrying values. Fair values are
estimated using discounted cash flow methodologies that are based on projections
of the amounts and timing of future revenues and cash flows. Based on this
testing, none of our goodwill nor trademarks were impaired as of December 31,
2003.

                                       24

<PAGE>

IMPACT OF ACCOUNTING STANDARDS

RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDS--In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. This statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that
statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This statement also rescinds SFAS No. 44, Accounting for
Intangible Assets of Motor Carriers. This statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. This statement is
effective for the first quarter in the year ended December 31, 2003. The
adoption of SFAS No. 145 had no effect on the Company's consolidated financial
statements.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 had no effect on the Company's consolidated financial statements.

         In November 2002, the FASB issued FASB Interpretation 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires a guarantor to
recognize a liability, at the inception of the guarantee, for the fair value of
obligations it has undertaken in issuing the guarantee and also includes more
detailed disclosures with respect to guarantees. FIN 45 is effective for
guarantees issued or modified starting January 1, 2003. The adoption of FIN 45
did not have a significant impact on the Company's consolidated financial
statements.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value-based
method of accounting for stock-based employee compensation and amends the
disclosure requirements of SFAS No. 123. The transition provisions and the
disclosure requirements of this Statement are effective for fiscal years ending
after December 15, 2002. We continue to apply the intrinsic value-based method
to account for stock options and have complied with the new disclosure
requirements.

         In April 2003, the FASB issued SFAS No. 149, Amendments of Statement
133 on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for certain derivative instruments,
and hedging activities for decisions made as part of the Derivatives
Implementation Group. This Statement is generally effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did
not have an impact on the Company's consolidated financial statements.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances), even though
it might previously have been classified as equity. This statement was effective
for financial instruments entered into or modified after May 31, 2003, and
applies to all other financial instruments in the first interim period beginning
after June 15, 2003. The adoption of this statement did not have a material
effect on the Company's consolidated financial statements.

         In December 2003, the FASB issued SFAS No. 132 (revised 2003),
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
Statement revises employers' disclosures about pension plans and other
postretirement benefit plans. It requires additional disclosures to those in the
original Statement 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined

                                       25

<PAGE>

benefit postretirement plans. SFAS 132 was effective for fiscal years ending
after December 15, 2003. The Company adopted this statement as of December 31,
2003 and revised its disclosure accordingly.

NEW ACCOUNTING STANDARDS--New accounting standards which could impact the
Company include FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities, and an Interpretation No. 46 Revised (FIN 46R), Consolidation
of Variable Interest Entities, Interpretation of ARB 51. In December 2003, the
FASB issued a revision to Interpretation 46 (FIN 46R) to clarify some of the
provisions of FASB Interpretation No. 46, Consolidation of Variable Interest
Entities. Variable interests in a variable interest entity are contractual,
ownership, or other pecuniary interests in an entity that change with changes in
the entity's net asset value. Variable interests are investments or other
interests that will absorb a portion of an entity's expected losses if they
occur or receive portions of the entity's expected residual returns if they
occur. FIN 46R defers the effective date of FIN 46 for certain entities and
makes several other changes to FIN 46. The Company does not expect the
recognition provisions of FIN 46 or FIN 46R to have a material impact on the
Company's consolidated financial statements.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995

         This Management's Discussion and Analysis of Financial Conditions and
Results of Operations 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 the intent, belief and expectations of the
Company and its management. Investors are cautioned that all forward-looking
statements involve risk and uncertainties including, without limitations,
dependence on sales forecasts, changes in consumer demand, seasonality, impact
of weather, competition, reliance on suppliers, changing retail trends, economic
changes, as well as other factors set forth under the caption "Business Risks"
in this Annual Report on Form 10-K and other factors detailed from time to time
in the Company's filings with the Securities and Exchange Commission. Although
the Company believes 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 the Company or any other person that the objectives and plans
of the Company will be achieved. The Company assumes no obligation to update any
forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company's primary market risk results from fluctuations in interest
rates. The Company is also exposed to changes in the price of commodities used
in its manufacturing operations. However, commodity price risk related to the
Company's current commodities is not material as price changes in commodities
can generally be passed along to the customer. The Company does not hold any
material market risk sensitive instruments for trading purposes.

         The following three items are market rate sensitive for interest rates
for the Company: (1) long-term debt consisting of a credit facility with a
balance at December 31, 2003 of $12.5 million, under which interest is payable
monthly at the lender's LIBOR (London Interbank Offered Rate) plus 237.5 basis
points (2.375 percentage points) or prime; (2) equipment and other obligations
totaling $0.3 million at December 31, 2003 that bear interest at a variable rate
of prime; and (3) real estate obligations of $5.2 million at December 31, 2003,
that bears interest at a fixed rate of 8.275%. The credit facility agreement
referenced above under (1) permits the Company to borrow up to 75% of its
revolving loan balance under 30-day notes bearing interest at LIBOR plus 237.5
basis points (2.375 percentage points) with the remaining balance bearing
interest at prime.

                                       26

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Company's consolidated balance sheets as of December 31, 2003 and
2002 and the related consolidated statements of income, shareholders' equity,
and cash flows for the years ended December 31, 2003, 2002, and 2001, together
with the independent auditors' report thereon appear on pages F-1 through F-25
hereof and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.

ITEM 9A. CONTROLS AND PROCEDURES.

         As of the end of the period covered by this report, the Company's
management carried out an evaluation, with the participation of the Company's
principal executive officer and principal financial officer, of the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934). Based upon that evaluation, the Company's principal executive officer and
principal financial officer concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report. It
should be noted that the design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.

         There were no changes in the Company's internal controls over financial
reporting that occurred during the Company's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required by this item is included under the captions
"ELECTION OF DIRECTORS" and "INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE
OFFICERS, AND PRINCIPAL SHAREHOLDERS - EXECUTIVE OFFICERS" and "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Company's Proxy Statement for
the 2004 Annual Meeting of Shareholders (the "Proxy Statement") to be held on
May 11, 2004, and is incorporated herein by reference.

         We have adopted a Code of Business Conduct and Ethics that applies to
our directors, officers and all employees. The Code of Business Conduct and
Ethics will be posted on our website at www.rockyboots.com by the date of the
Annual Meeting of Shareholders, May 11, 2004, or shortly thereafter. Until that
time, the Code of Business Conduct and Ethics may be obtained free of charge by
writing to Rocky Shoes & Boots, Inc., Attn: Chief Financial Officer, 39 East
Canal Street, Nelsonville, Ohio 45764.

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this item is included under the captions
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
in the Company's Proxy Statement, and is incorporated herein by reference.

                                       27

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - OWNERSHIP OF COMMON STOCK BY MANAGEMENT" and "- OWNERSHIP OF
COMMON STOCK BY PRINCIPAL SHAREHOLDERS," in the Company's Proxy Statement, and
is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in
the Company's Proxy Statement, and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The information required by this item is included under the caption
"REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS" in the Company's Proxy
Statement, and is incorporated herein by reference.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)      THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

         (1) The following Financial Statements are included in this Annual
Report on Form 10-K on the pages indicated below:

<TABLE>
<S>                                                                      <C>
Independent Auditors' Report........................................        F-1

Consolidated Balance Sheets as of December 31, 2003 and 2002........     F-2 - F-3
Consolidated Statements of Income for the years ended
            December 31, 2003, 2002, and 2001.......................        F-4
Consolidated Statements of Shareholders' Equity for the
            years ended December 31, 2003, 2002, and 2001...........        F-5
Consolidated Statements of Cash Flows for the years ended
            December 31, 2003, 2002, and 2001.......................        F-6
Notes to Consolidated Financial Statements for the years ended
            December 31, 2003, 2002, and 2001.......................     F-7 - F-25
</TABLE>

         (2)      The following financial statement schedule for the years ended
December 31, 2003, 2002, and 2001 is included in this Annual Report on Form 10-K
and should be read in conjunction with the Consolidated Financial Statements
contained in the Annual Report.

                  Schedule II -- Consolidated Valuation and Qualifying Accounts.

                  Independent Auditors' Report on Financial Statement Schedule.

Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements or the notes thereto.

                                       28

<PAGE>

(3) Exhibits:

EXHIBIT
NUMBER                              DESCRIPTION

2.1      Asset Purchase Agreement by and among Rocky Shoes & Boots, Inc. as
         Buyer, Gates-Mills, Inc. as seller, Robert Gates and Elizabeth Gates
         Camarra as Shareholders of Seller (incorporated by reference to Exhibit
         2(a) to the Current Report on Form 8-K dated April 15, 2003, filed with
         the Securities and Exchange Commission on April 30, 2003.)

3.1      Second Amended and Restated Articles of Incorporation of the Company
         (incorporated by reference to Exhibit 3.1 to the Annual Report on Form
         10-K for the fiscal year ended December 31, 1997).

3.2      Amended and Restated Code of Regulations of the Company (incorporated
         by reference to Exhibit 3.2 to the Registration Statement on Form S-1,
         registration number 33-56118 (the "Registration Statement").

4.1      Form of Stock Certificate for the Company (incorporated by reference to
         Exhibit 4.1 to the Registration Statement).

4.2      Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and
         Thirteenth of the Company's Amended and Restated Articles of
         Incorporation (see Exhibit 3.1).

4.3      Articles I and II of the Company's Code of Regulations (see Exhibit
         3.2).

10.1     Form of Employment Agreement, dated July 1, 1995, for executive
         officers (incorporated by reference to Exhibit 10.1 to the Company's
         Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the
         "1995 Form 10-K")).

10.2     Information concerning Employment Agreements substantially similar to
         Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to the 1995
         Form 10-K).

10.3     Deferred Compensation Agreement, dated May 1, 1984, between Rocky Shoes
         & Boots Co. and Mike Brooks (incorporated by reference to Exhibit 10.3
         to the Registration Statement).

10.4     Information concerning Deferred Compensation Agreements substantially
         similar to Exhibit 10.3 (incorporated by reference to Exhibit 10.4 to
         the Registration Statement).

10.5     Form of Company's amended 1992 Stock Option Plan (incorporated by
         reference to Exhibit 10.5 to the 1995 Form 10-K).

10.6     Form of Stock Option Agreement (incorporated by reference to Exhibit
         10.6 to the Registration Statement).

10.7     Indemnification Agreement, dated December 21, 1992, between the Company
         and Mike Brooks (incorporated by reference to Exhibit 10.10 to the
         Registration Statement).

10.8     Information concerning Indemnification Agreements substantially similar
         to Exhibit 10.7 (incorporated by reference to Exhibit 10.11 to the
         Company's Annual Report on Form 10-K for the fiscal year ended June 30,
         1993 (the "1993 Form 10-K")).

10.9     Trademark License Agreement and Manufacturing Certification Agreement,
         each dated May 14, 1994, between Rocky Shoes & Boots Co. and W. L. Gore
         & Associates, Inc. (incorporated by reference to Exhibit 10.12 to the
         Company's Annual Report on Form 10-K for the fiscal year ended June 30,
         1994 (the "1994 Form 10-K")).

                                       29

<PAGE>

EXHIBIT
NUMBER                              DESCRIPTION

10.10    Decree of Tax Exemption from the Government of the Commonwealth of
         Puerto Rico (incorporated by reference to Exhibit 10.13 to the
         Registration Statement).

10.10A   English Translation of Addendum to Exhibit 10.16 (incorporated by
         reference to Exhibit 10.13A to the Registration Statement).

10.11    Amended and Restated Lease Agreement, dated March 1, 2002, between
         Rocky Shoes & Boots Co. and William Brooks Real Estate Company
         regarding Nelsonville factory (incorporated by reference to Exhibit
         10.11 to the Company's Annual Report on Form 10-K for the fiscal year
         ended December 31, 2002).

10.12    Lease Contract, dated August 31, 1988, between Lifestyle Footwear, Inc.
         and The Puerto Rico Industrial Development Company regarding factory
         location 1 (incorporated by reference to Exhibit 10.15 to the
         Registration Statement).

10.13    Lease Contract, undated, between Lifestyle Footwear, Inc. and The
         Puerto Rico Industrial Development company regarding factory location 2
         (incorporated by reference to Exhibit 10.16 to the Registration
         Statement).

10.13A   English translation of Exhibit 10.13 (incorporated by reference to
         Exhibit 10.16A to the Registration Statement).

10.14    Lease Agreement, dated December 13, 1993, between Five Star Enterprises
         Ltd. and the Dominican Republic Corporation for Industrial Development
         regarding buildings and annexes of a combined manufacturing surface of
         75,526 square feet, located in the Industrial Free Zone of La Vega
         (incorporated by reference to Exhibit 10.17 to the Company's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1995 (the
         "September 30, 1995 Form 10-Q")).

10.14A   English translation of Exhibit 10.20 (incorporated by reference to
         Exhibit 10.2A to the September 30, 1995 Form 10-Q).

10.17    Company's Amended and Restated 1995 Stock Option Plan (incorporated by
         reference to Exhibit 4(a) to the Registration Statement on Form S-8,
         registration number 333-67357).

10.18    Form of Stock Option Agreement under the 1995 Stock Option Plan
         (incorporated by reference to Exhibit 10.28 to the 1995 Form 10-K).

10.22    Form of Employment Agreement, dated September 7, 1995, for executive
         officers (incorporated by reference to Exhibit 10.5 to the September
         30, 1995 Form 10-Q).

10.23    Information covering Employment Agreements substantially similar to
         Exhibit 10.23 (incorporated by reference to Exhibit 10.5 to the
         September 30, 1995 Form 10-Q).

10.24    Promissory Note, dated December 30, 1999, in favor of General Electric
         Capital Business Asset Funding Corporation in the amount of $1,050,000
         (incorporated by reference to Exhibit 10.1 to the Quarterly Report on
         Form 10-Q for the quarter ended June 30, 2000 (the "June 30, 2000 Form
         10-Q")).

10.25    Promissory Note, dated December 30, 1999, in favor of General Electric
         Capital Business Asset Funding Corporation in the amount of $1,500,000
         (incorporated by reference to Exhibit 10.2 to the June 30, 2000 Form
         10-Q).

                                       30

<PAGE>

EXHIBIT
NUMBER                              DESCRIPTION

10.26    Promissory Note, dated December 30, 1999, in favor of General Electric
         Capital Business Asset Funding Corporation in the amount of $3,750,000
         (incorporated by reference to Exhibit 10.3 to the June 30, 2000 Form
         10-Q).

10.27    Limited Waiver and Modification Agreement, dated May 14, 2000, by and
         among the Company, Five Star Enterprises Ltd., Lifestyle Footwear,
         Inc., Bank One, NA, The Huntington National Bank, and Bank One, NA, as
         agent (incorporated by reference to Exhibit 10.4 to the June 30, 2000
         Form 10-Q).

10.28    Extension of Limited Waiver and Modification Agreement, dated June 30,
         2000, by and among the Company, Five Star Enterprises Ltd., Lifestyle
         Footwear, Inc., Bank One, NA, The Huntington National Bank, and Bank
         One, NA, as agent (incorporated by reference to Exhibit 10.5 to the
         June 30, 2000 Form 10-Q).

10.29    Loan and Security Agreement, dated September 18, 2000, among the
         Company, Lifestyle Footwear, Inc., and GMAC Business Credit, LLC
         (incorporated by reference to Exhibit 10.1 to the Current Report on
         Form 8-K, filed on September 20, 2000).

10.30    First Amendment to Loan and Security Agreement, dated November 20,
         2000, among the Company, Lifestyle Footwear, Inc., and GMAC Business
         Credit, LLC (incorporated by reference to Exhibit 10.33 to the Annual
         Report on Form 10-K for the year ended December 31, 2000).

10.31    Second Amendment to Loan and Security Agreement, dated March 27, 2001,
         among the Company, Lifestyle Footwear, Inc., and GMAC Business Credit,
         LLC (incorporated by reference to Exhibit 10.34 to the Annual Report on
         Form 10-K for the year ended December 31, 2000).

10.32    Third Amendment to Loan and Security Agreement, dated July 9, 2001,
         among the Company, Lifestyle Footwear, Inc., and GMAC Business Credit,
         LLC (incorporated by reference to Exhibit 10.35 to the Annual Report on
         Form 10-K for the year ended December 31, 2001).

10.33    Fourth Amendment to Loan and Security Agreement, dated February 22,
         2002, among the Company, Lifestyle Footwear, Inc., and GMAC Business
         Credit, LLC (incorporated by reference to Exhibit 10.36 to the Annual
         Report on Form 10-K for the year ended December 31, 2001).

10.34    Fifth Amendment to Loan and Security Agreement, dated June 21, 2002,
         among the Company, Lifestyle Footwear, Inc., and GMAC Business Credit,
         LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report
         on Form 10-Q for the quarter ended June 30, 2002).

10.35    Sixth Amendment to Loan and Security Agreement, dated as of August 6,
         2002, among Rocky Shoes & Boots, Inc., Lifestyle Footwear, Inc., and
         GMAC Business Credit, LLC (incorporated by reference to Exhibit 10.1 to
         the Quarterly Report on Form 10-Q for the quarter ended September 30,
         2002).

10.36    Seventh Amendment to Loan and Security Agreement, dated as of September
         30, 2002, among Rocky Shoes & Boots, Inc., Lifestyle Footwear, Inc.,
         and GMAC Business Credit, LLC (incorporated by reference to Exhibit
         10.2 to the Quarterly Report on Form 10-Q for the quarter ended
         September 30, 2002).

10.37    Eighth Amendment to Loan and Security Agreement, dated as of October
         21, 2002, among Rocky Shoes & Boots, Inc., Lifestyle Footwear, Inc.,
         and GMAC Business Credit, LLC (incorporated by reference to Exhibit
         10.12 to the Current Report on Form 8-K, filed on October 24, 2002).

                                       31

<PAGE>

EXHIBIT
NUMBER                              DESCRIPTION

10.38    Company's Second Amended and Restated 1995 Stock Option Plan
         (incorporated by reference to the Company's Definitive Proxy Statement
         for the 2002 Annual Meeting of Shareholders held on May 15, 2002, filed
         on April 15, 2002).

21*      Subsidiaries of the Company.

23*      Independent Auditors' Consent and Report on Schedules of Deloitte &
         Touche LLP.

24*      Powers of Attorney.

31.1*    Rule 13a-14(a) Certification of Principal Executive Officer.

31.2*    Rule 13a-14(a) Certification of Principal Financial Officer.

32.1**   Section 1350 Certification of Principal Executive Officer.

32.2**   Section 1350 Certification of Principal Financial Officer.

99.1*    Independent Auditors' Report of Deloitte & Touche LLP on Schedules
         (incorporated by reference to Exhibit 23).

99.2*    Financial Statement Schedule.

 * Filed with this Annual Report on Form 10-K.

** Furnished with this Annual Report on Form 10-K.

The Registrant agrees to furnish to the Commission upon its request copies of
any omitted schedules or exhibits to any Exhibit filed herewith.

(b)      REPORTS ON FORM 8-K

                  We filed the following Current Reports on Form 8-K with the
         Securities and Exchange Commission during the quarter ended December
         31, 2003:

                           (i) A current report on Form 8-K, dated October 29,
         2003, was filed with the Securities and Exchange Commission on October
         29, 2003 (Item 5).

(c)      EXHIBITS

         The exhibits to this report begin immediately following the F-pages.

(d)      FINANCIAL STATEMENT SCHEDULES

         The Independent Auditors' Report and financial statement schedule are
         included in this Annual Report on Form 10-K as Exhibit 99.1 and Exhibit
         99.2, respectively.

                                       32

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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 SHOES & BOOTS, INC.

Date: March 29, 2004                   By: /s/ James E. McDonald
                                           -------------------------------------
                                           James E. McDonald, Vice President and
                                           Chief Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.

<TABLE>
<CAPTION>
          SIGNATURE                                   TITLE                            DATE
          ---------                                   -----                            ----
<S>                                <C>                                             <C>
/s/ Mike Brooks                    Chairman, President, Chief                      March 29, 2004
-----------------------------      Executive Officer and Director (Principal
Mike Brooks                        Executive Officer)

/s/ James E. McDonald              Vice President and Chief Financial Officer      March 29, 2004
-----------------------------      (Principal Financial and Accounting Officer)
James E. McDonald

* CURTIS A. LOVELAND               Secretary and Director                          March 29, 2004
-----------------------------
Curtis A. Loveland

* LEONARD L. BROWN                 Director                                        March 29, 2004
-----------------------------
Leonard L. Brown

* GLENN E. CORLETT                 Director                                        March 29, 2004
-----------------------------
Glenn E. Corlett

* ROBERT D. ROCKEY                 Director                                        March 29, 2004
-----------------------------
Robert D. Rockey

* HARLEY E. ROUDA                  Director                                        March 29, 2004
-----------------------------
Harley E. Rouda

* JAMES L. STEWART                 Director                                        March 29, 2004
-----------------------------
James L. Stewart

* By: /s/ Mike Brooks
-----------------------------
Mike Brooks, Attorney-in-Fact
</TABLE>

                                       33

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                          <C>
Independent Auditors' Report                                                    F-1

Consolidated Balance Sheets as of December 31, 2003 and 2002                 F-2 - F-3

Consolidated Statements of Income for the Years Ended December 31, 2003,
  2002 and 2001                                                                 F-4

Consolidated Statements of Shareholders' Equity for the Years Ended
  December 31, 2003, 2002 and 2001                                              F-5

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2003, 2002 and 2001                                              F-6

Notes to Consolidated Financial Statements                                   F-7 - F-25
</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
  Rocky Shoes & Boots, Inc.:

We have audited the accompanying consolidated balance sheets of Rocky Shoes &
Boots, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Rocky Shoes & Boots, Inc. and
subsidiaries as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

March 26, 2004
Columbus, Ohio

                                      F-1

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                           2003             2002
<S>                                    <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents            $  2,159,050     $  4,276,722
  Accounts receivable - trade, net       19,532,287       15,282,618
  Other receivables                         830,131        1,173,714
  Inventories                            38,068,187       23,181,989
  Deferred income taxes - current           959,810          584,511
  Other current assets                    1,045,238        1,267,097
                                       ------------     ------------

           Total current assets          62,594,703       45,766,651

FIXED ASSETS, AT COST:
  Property, plant and equipment          46,790,708       45,238,866
  Less accumulated depreciation         (29,180,470)     (26,189,579)
                                       ------------     ------------

           Total fixed assets - net      17,610,238       19,049,287

DEFERRED PENSION ASSET                    1,499,524        1,651,222

DEFERRED INCOME TAXES                                        153,495

OTHER ASSETS                              4,470,371        1,796,359
                                       ------------     ------------

TOTAL ASSETS                           $ 86,174,836     $ 68,417,014
                                       ============     ============
</TABLE>

See notes to consolidated financial statements.

                                      F-2

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                     2003             2002
<S>                                                              <C>              <C>
CURRENT LIABILITIES:
  Accounts payable                                               $  2,810,161     $  1,642,306
  Current maturities - long-term debt                                 503,934          486,161
  Accrued expenses:
    Income taxes                                                    1,929,808           53,621
    Taxes - other                                                     372,432          292,547
    Salaries and wages                                              1,885,896          807,611
    Plant closing costs                                               195,500          210,000
    Co-op advertising                                                 402,000          270,390
    Interest                                                           65,796           90,408
    Other                                                             219,138          162,320
                                                                 ------------     ------------

           Total current liabilities                                8,384,665        4,015,364

LONG-TERM DEBT - Less current maturities                           17,514,994       10,488,388

DEFERRED LIABILITIES:
  Compensation                                                        166,641          160,000
  Pension                                                           1,460,952        1,360,338
  Income Taxes                                                        262,907
                                                                 ------------     ------------

            Total deferred liabilities                              1,890,500        1,520,338
                                                                 ------------     ------------

            Total liabilities                                      27,790,159       16,024,090

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, Series A, no par value, $.06 stated value;
    none outstanding 2003 and 2002
  Common stock, no par value; 10,000,000 shares authorized;
    outstanding 2003 - 4,360,400 and 2002 - 4,489,065              34,880,199       35,289,038
  Accumulated other comprehensive loss                             (1,950,400)      (2,311,749)
  Retained earnings                                                25,454,878       19,415,635
                                                                 ------------     ------------

            Total shareholders' equity                             58,384,677       52,392,924
                                                                 ------------     ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $ 86,174,836     $ 68,417,014
                                                                 ============     ============
</TABLE>

See notes to consolidated financial statements.

                                      F-3

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                      2003              2002            2001
<S>                                               <C>              <C>              <C>
NET SALES                                         $ 106,164,753    $  88,958,721    $ 103,319,806

COST OF GOODS SOLD                                   73,383,128       65,528,213       80,067,866
                                                  -------------    -------------    -------------

GROSS MARGIN                                         32,781,625       23,430,508       23,251,940

OTHER OPERATING EXPENSES:
  Selling, general and administrative expenses       23,278,449       18,661,730       18,175,943
  Plant closing costs                                                                   1,500,000
                                                  -------------    -------------    -------------

           Total other operating expenses            23,278,449       18,661,730       19,675,943
                                                  -------------    -------------    -------------

INCOME FROM OPERATIONS                                9,503,176        4,768,778        3,575,997

OTHER INCOME AND (EXPENSES):
  Interest expense                                   (1,378,131)      (1,404,496)      (2,493,533)
  Other - net                                           348,448          432,018          354,920
                                                  -------------    -------------    -------------

           Total other - net                         (1,029,683)        (972,478)      (2,138,613)
                                                  -------------    -------------    -------------

INCOME BEFORE INCOME TAXES                            8,473,493        3,796,300        1,437,384

INCOME TAX EXPENSE (BENEFIT)                          2,434,250          953,000          (93,438)
                                                  -------------    -------------    -------------

NET INCOME                                        $   6,039,243    $   2,843,300    $   1,530,822
                                                  =============    =============    =============

NET INCOME PER COMMON SHARE:
  Basic                                           $        1.44    $        0.63    $        0.34
                                                  =============    =============    =============

  Diluted                                         $        1.32    $        0.62    $        0.34
                                                  =============    =============    =============

WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING:
  Basic                                               4,189,794        4,499,741        4,489,322
                                                  =============    =============    =============

  Diluted                                             4,560,763        4,590,095        4,548,632
                                                  =============    =============    =============
</TABLE>

See notes to consolidated financial statements.

                                      F-4

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                          COMMON STOCK            ACCUMULATED OTHER                       TOTAL
                                                     SHARES                         COMPREHENSIVE        RETAINED      SHAREHOLDERS'
                                                  OUTSTANDING        AMOUNT              LOSS            EARNINGS         EQUITY
<S>                                               <C>             <C>             <C>                  <C>             <C>
BALANCE - December 31, 2000                          4,489,215    $ 35,284,159                         $ 15,041,513    $ 50,325,672

YEAR ENDED DECEMBER 31, 2001:
  Net income                                                                                              1,530,822       1,530,822
  Minimum pension liability, net of tax benefit
    of $323,229                                                                            (831,161)                       (831,161)
                                                                                                                       ------------
  Comprehensive income                                                                                                      699,661
  Stock options exercised                                3,000          18,000                                               18,000
                                                  ------------    ------------    -----------------    ------------    ------------

BALANCE - December 31, 2001                          4,492,215      35,302,159             (831,161)     16,572,335      51,043,333

YEAR ENDED DECEMBER 31, 2002:
  Net income                                                                                              2,843,300       2,843,300
  Minimum pension liability, net of tax benefit
    of $575,784                                                                          (1,480,588)                     (1,480,588)
                                                                                                                       ------------
  Comprehensive income                                                                                                    1,362,712
  Treasury stock purchased and retired                 (16,400)        (84,540)                                             (84,540)
  Stock options exercised                               13,250          71,419                                               71,419
                                                  ------------    ------------    -----------------    ------------    ------------

BALANCE - December 31, 2002                          4,489,065      35,289,038           (2,311,749)     19,415,635      52,392,924

YEAR ENDED DECEMBER 31, 2003:
  Net income                                                                                              6,039,243       6,039,243
  Minimum pension liability, net of tax effect
      of $154,864                                                                           361,349                         361,349
                                                                                                                       ------------
  Comprehensive income                                                                                                    6,400,592
  Treasury stock purchased and retired                (483,533)     (3,106,156)                                          (3,106,156)
  Stock issued and options exercised
      including related tax benefits                   354,868       2,697,317                                            2,697,317
                                                  ------------    ------------    -----------------    ------------    ------------
BALANCE - December 31, 2003                          4,360,400    $ 34,880,199    $      (1,950,400)   $ 25,454,878    $ 58,384,677
                                                  ============    ============    =================    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                      F-5

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED DECEMBER 31,
                                                                                2003             2002             2001
<S>                                                                         <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                $   6,039,243    $   2,843,300    $   1,530,822
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization                                               3,556,544        4,032,442        4,409,361
    Deferred income taxes                                                        (113,761)         749,171          (52,152)
    Deferred compensation and pension - net                                       775,166       (1,637,689)      (1,661,232)
    (Gain) loss on sale of fixed assets                                             5,943          (15,904)         353,681
    Stock issued as directors' compensation                                        60,000
    Change in assets and liabilities:
      Receivables                                                              (3,906,086)         860,266        3,696,183
      Inventories                                                             (12,846,128)       4,531,675        4,321,573
      Other current assets                                                        221,859         (213,905)         242,095
      Other assets                                                                 95,672          321,088           14,731
      Accounts payable                                                          1,216,130           85,479       (1,936,064)
      Accrued expenses                                                          3,183,675       (1,471,619)       1,134,840
                                                                            -------------    -------------    -------------
           Net cash provided by (used in) operating activities                 (1,711,743)      10,084,304       12,053,838
                                                                            -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                                                     (2,154,829)      (2,338,388)      (1,172,365)
  Acquisition of business                                                      (4,880,468)
  Proceeds from sale of fixed assets                                               53,829           59,609            7,952
                                                                            -------------    -------------    -------------
           Net cash used in investing activities                               (6,981,468)      (2,278,779)      (1,164,413)
                                                                            -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from long-term debt                                                123,166,498       87,589,294       96,926,759
  Payments on long-term debt                                                 (116,122,120)     (94,059,911)    (106,997,243)
  Purchase of treasury stock                                                   (3,106,156)         (84,540)
  Proceeds from exercise of stock options including related tax benefits        2,637,317           71,419           18,000
                                                                            -------------    -------------    -------------
           Net cash used in financing activities                                6,575,539       (6,483,738)     (10,052,484)
                                                                            -------------    -------------    -------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (2,117,672)       1,321,787          836,941

CASH AND CASH EQUIVALENTS - Beginning of year                                   4,276,722        2,954,935        2,117,994
                                                                            -------------    -------------    -------------
CASH AND CASH EQUIVALENTS - End of year                                     $   2,159,050    $   4,276,722    $   2,954,935
                                                                            =============    =============    =============
</TABLE>

                                      F-6

<PAGE>

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
         statements include the accounts of Rocky Shoes & Boots, Inc. ("Rocky
         Inc.") and its wholly-owned subsidiaries, Lifestyle Footwear, Inc.
         ("Lifestyle"), Five Star Enterprises Ltd. ("Five Star") and Rocky
         Canada, Inc. (Rocky Canada), collectively referred to as the "Company."
         All significant intercompany transactions have been eliminated.

         BUSINESS ACTIVITY - The Company designs, manufactures, and markets high
         quality men's and women's footwear, gloves and related outdoor apparel
         primarily under the registered trademarks, ROCKY(R) and GATES(R). The
         Company maintains a nationwide network of Company sales representatives
         who sell the Company's products primarily through independent shoe,
         sporting goods, specialty, uniform stores and catalogs, and through
         mass merchandisers throughout the United States. The Company did not
         have any customers that accounted for more than 10% of consolidated net
         sales in 2003, 2002 and 2001.

         ESTIMATES - The preparation of financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the financial
         statements and the reported amounts of revenues and expenses during the
         reporting period. Actual results could differ from those estimates.

         CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
         investments purchased with original maturities of three months or less
         to be cash equivalents. The Company's cash and cash equivalents are
         primarily held in four banks.

         TRADE RECEIVABLES - Trade receivables are presented net of the related
         allowance for uncollectible accounts of approximately $620,000 and
         $365,000 at December 31, 2003 and 2002, respectively.

         CONCENTRATION OF CREDIT RISK - The Company has significant transactions
         with a large number of customers. No customer represented 10% of the
         Company's total accounts receivable - trade balance as of December 31,
         2003. Accounts receivable from one customer represented 10% of the
         Company's total accounts receivable - trade balance as of December 31,
         2002. The Company's exposure to credit risk is impacted by the economic
         climate affecting its industry. The Company manages this risk by
         performing ongoing credit evaluations of its customers and maintains
         reserves for potential uncollectible accounts.

         SUPPLIER AND LABOR CONCENTRATIONS - The Company purchases raw materials
         from a number of domestic and foreign sources. The Company currently
         buys the majority of its waterproof fabric, a component used in a
         significant portion of the Company's shoes and boots, from one supplier
         (GORE-TEX(R)). The Company has had a relationship with this supplier
         for over 20 years and has no reason to believe that such relationship
         will not continue.

                                      F-7

<PAGE>

         A significant portion of the Company's shoes and boots are produced in
         the Company's Dominican Republic operations. The Company has conducted
         operations in the Dominican Republic since 1987 and is not aware of any
         governmental or economic restrictions that would alter its current
         operations.

         The Company sources a significant portion of its footwear, apparel and
         gloves from manufacturers in the Far East, primarily China. The Company
         has had sourcing operations in China since 1993 and is not aware of any
         governmental or economic restrictions that would alter its current
         sourcing operations.

         INVENTORIES - Inventories are valued at the lower of cost, determined
         on a first-in, first-out (FIFO) basis, or market. Reserves are
         established for inventories when the net realizable value (NRV) is
         deemed to be less than its cost based on management's periodic
         estimates of NRV.

         FIXED ASSETS - The Company records fixed assets at historical cost and
         generally utilizes the straight-line method of computing depreciation
         for financial reporting purposes over the estimated useful lives of the
         assets as follows:

<TABLE>
<CAPTION>
                               Years
                               -----
<S>                            <C>
Building and improvements      5-40
Machinery and equipment         3-8
Furniture and fixtures          4-8
Lasts, dies, and patterns       3-8
</TABLE>

         Management periodically evaluates the future economic benefit of its
         long-term assets when events or circumstances indicate potential
         recoverability concerns. This evaluation is based on consideration of
         expected future undiscounted cash flows and other operating factors.
         Carrying amounts are adjusted appropriately when determined to have
         been impaired.

         For income tax purposes, the Company generally computes depreciation
         utilizing accelerated methods.

         LICENSING RIGHTS - On January 4, 2002, the Company re-acquired the
         licensing rights to ROCKY(R) Kids for approximately $500,000.
         Additional payments of approximately $30,000 conditional on sales in
         excess of a predetermined amount was paid during 2003 completing the
         transaction. The rights to ROCKY(R) Kids were purchased from Philip's
         Kids, LLC ("Philip's"), an entity owned by a former member of the
         Company's Board of Directors. These licensing rights are considered
         indefinite lived intangible assets and are not subject to amortization
         and are recorded in goodwill.

         GOODWILL AND OTHER INTANGIBLES - Goodwill and trademarks are considered
         indefinite lived assets and are not amortizable. All the goodwill is
         considered deductible for tax purposes. Patents are amortized over the
         life the patents and amortization expense related to these assets was
         approximately $25,100, $19,800, and $41,200 in 2003, 2002 and 2001
         respectively. Such amortization expense will be approximately $25,000
         per year from 2004 to 2008.

         ADVERTISING - The Company expenses advertising costs as incurred.
         Advertising expense was $1,776,909, $1,921,367 and $1,962,783 for 2003,
         2002 and 2001, respectively.

                                      F-8

<PAGE>

         REVENUE RECOGNITION - Revenue and related cost of goods sold are
         recognized at the time footwear, outdoor apparel and accessories are
         shipped to the customer and title transfers. Revenue is recorded net of
         estimated sales discounts and returns based upon historical trends. All
         sales are considered final upon shipment.

         SHIPPING AND HANDLING COSTS - In accordance with the Emerging Issues
         Tax Force ("EITF") No. 00-10 "Accounting For Shipping And Handling Fees
         And Costs", all shipping and handling costs billed to customers have
         been included in net sales. Shipping and handling costs are included in
         selling, general and administrative costs and totaled $1,469,565,
         $1,491,259 and $1,351,560 in 2003, 2002 and 2001 respectively.

         PER SHARE INFORMATION - Basic net income per common share is computed
         based on the weighted average number of common shares outstanding
         during the period. Diluted net income per common share is computed
         similarly but includes the dilutive effect of stock options. A
         reconciliation of the shares used in the basic and diluted income per
         share computations is as follows:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                    2003        2002         2001
<S>                                              <C>          <C>          <C>
Basic - weighted average shares outstanding      4,189,794    4,499,741    4,489,322

Dilutive securities - stock options                370,969       90,354       59,310
                                                 ---------    ---------    ---------

Diluted - weighted average shares outstanding    4,560,763    4,590,095    4,548,632
                                                 ---------    ---------    ---------
</TABLE>

         ASSET IMPAIRMENTS - Annually, or more frequently if events or
         circumstances change, a determination is made by management, in
         accordance with Statement of Financial Accounting Standards ("SFAS")
         No. 144, to ascertain whether property and equipment and other
         long-lived assets have been impaired based on the sum of expected
         future undiscounted cash flows from operating activities. If the
         estimated net cash flows are less than the carrying amount of such
         assets, the Company will recognize an impairment loss in an amount
         necessary to write down the assets to a fair value as determined from
         expected future discounted cash flows.

         RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDS - In April 2002, the
         Financial Accounting Standards Board ("FASB") issued SFAS No. 145,
         "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB
         Statement No. 13, and Technical Corrections." This statement rescinds
         SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
         and an amendment of that statement, SFAS No. 64, "Extinguishments of
         Debt Made to Satisfy Sinking-Fund Requirements." This statement also
         rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
         Carriers." This statement amends SFAS No. 13, "Accounting for Leases,"
         to eliminate an inconsistency between the required accounting for
         sale-leaseback transactions and the required accounting for certain
         lease modifications that have economic effects that are similar to
         sale-leaseback transactions. This statement also amends other
         authoritative pronouncements to make various technical corrections,
         clarify meanings, or describe their applicability under changed
         conditions. This statement is effective for the first quarter in the
         year ended December 31, 2003. The adoption of SFAS No. 145 had no
         effect on the Company's consolidated financial statements.

                                      F-9

<PAGE>

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." SFAS No. 146 addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities included in restructurings. This statement
         eliminates the definition and requirements for recognition of exit
         costs as defined in EITF Issue 94-3, and requires that liabilities for
         exit activities be recognized when incurred instead of at the exit
         activity commitment date. This statement is effective for exit or
         disposal activities initiated after December 31, 2002. The adoption of
         SFAS No. 146 had no effect on the Company's 2003 consolidated financial
         statements.

         In November 2002, the FASB issued FASB Interpretation 45, "Guarantor's
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45
         requires a guarantor to recognize a liability, at the inception of the
         guarantee, for the fair value of obligations it has undertaken in
         issuing the guarantee and also includes more detailed disclosures with
         respect to guarantees. FIN 45 is effective for guarantees issued or
         modified starting January 1, 2003 and requires additional disclosures.
         The adoption of FIN 45 did not have a significant impact on the
         Company's consolidated financial statements.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
         provides alternative methods of transition for a voluntary change to
         the fair value-based method of accounting for stock-based employee
         compensation and amends the disclosure requirements of SFAS No. 123.
         The transition provisions and the disclosure requirements of this
         statement are effective for fiscal years ending after December 15,
         2002. We continue to apply the intrinsic value-based method to account
         for stock options and have complied with the new disclosure
         requirements.

         On April 30, 2003, The FASB issued SFAS No. 149, "Amendment of
         Statement 133 on Derivative Instruments and Hedging Activities." This
         statement amends and clarifies financial accounting and reporting for
         certain derivative instruments, and hedging activities for decisions
         made as part of the Derivatives Implementation Group. This statement is
         generally effective for contracts entered into or modified after June
         30, 2003. The adoption of SFAS No. 149 did not have an impact on the
         Company's consolidated financial statements

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of Both Liabilities and
         Equity." This statement establishes standards for how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity. It requires that an
         issuer classify a financial instrument that is within its scope as a
         liability (or an asset in some circumstances), even though it might
         previously have been classified as equity. This statement was effective
         for financial instruments entered into or modified after May 31, 2003,
         and applies to all other financial instruments in the first interim
         period beginning after June 15, 2003. The adoption of this statement
         did not have a material effect on the Company's consolidated financial
         statements.

         In December 2003, the FASB issued SFAS No. 132 (revised 2003),
         "Employers' Disclosures about Pensions and Other Postretirement
         Benefits." This statement revises employers' disclosures about pension
         plans and other postretirement benefit plans. It requires additional
         disclosures to those in the original Statement 132 about the assets,
         obligations, cash flows, and net periodic benefit cost of defined
         benefit pension plans and other defined benefit postretirement plans.
         SFAS 132 was effective for fiscal years ending after December 15, 2003.
         The Company adopted this statement as of December 31, 2003 and revised
         its disclosures accordingly.

                                      F-10

<PAGE>

         NEW ACCOUNTING STANDARDS--New accounting standards which could impact
         the Company include FASB Interpretation No. 46 (FIN 46), Consolidation
         of Variable Interest Entities, and an Interpretation No. 46 Revised
         (FIN 46R), Consolidation of Variable Interest Entities, Interpretation
         of ARB 51. In December 2003, the FASB issued a revision to
         Interpretation 46 (FIN 46R) to clarify some of the provisions of FASB
         Interpretation No. 46. Variable interests in a variable interest entity
         are contractual, ownership, or other pecuniary interests in an entity
         that change with changes in the entity's net asset value. Variable
         interests are investments or other interests that will absorb a portion
         of an entity's expected losses if they occur or receive portions of the
         entity's expected residual returns if they occur. FIN 46R defers the
         effective date of FIN 46 for certain entities and makes several other
         changes to FIN 46. The Company does not expect the recognition
         provisions of FIN 46 or FIN 46R to have a material impact on the
         Company's consolidated financial statements.

         SEGMENT INFORMATION - The Company is managed in one operating segment.
         Within their one operating segment, the Company has identified six
         product groups: Rugged Outdoor, Occupational, Military, Casual, Outdoor
         Apparel, and Gates. Gates is a new product group established in 2003
         for reporting sales of GATES(R) branded gloves and accessories. The
         following is supplemental information on net sales by product group:

<TABLE>
<CAPTION>
                                            %OF                          %OF                         %OF
                             2003          SALES          2002          SALES          2001         SALES
<S>                      <C>             <C>          <C>             <C>          <C>             <C>
Rugged Outdoor           $ 48,100,097         45.3%   $ 41,554,244         46.7%   $ 56,596,762        54.7%
Occupational               34,560,154         32.6%     29,620,876         33.3%     27,054,015        26.2%
Military                      408,204          0.4%      6,437,248          7.2%      8,948,426         8.7%
Casual                      2,498,089          2.4%      2,306,748          2.6%      4,446,109         4.3%
Outdoor Apparel             4,502,865          4.2%      2,740,441          3.1%
Gates                      10,240,548          9.6%
Factory Outlet Stores       4,582,687          4.3%      4,050,823          4.6%      4,741,326         4.6%
Other                       1,272,109          1.2%      2,248,341          2.5%      1,533,168         1.5%
                         ------------    ---------    ------------    ---------    ------------    --------
Total                    $106,164,753        100.0%   $ 88,958,721        100.0%   $103,319,806       100.0%
                         ============    =========    ============    =========    ============    ========
</TABLE>

         Net sales to foreign countries, primarily Canada, represented
         approximately 1.4% of net sales in 2003, and 1.0% of net sales in 2002
         and 2001.

         STOCK-BASED COMPENSATION - The Company applies APB Opinion No. 25 and
         related Interpretations in accounting for its stock option plans.
         Accordingly, no compensation cost has been recognized for its stock
         option plans because the exercise price under the plan is equal to the
         market value of this underlying common stock on the date of grant. Had
         compensation costs for the Company's stock-based compensation plans
         been determined based on the fair value at the grant dates for awards
         under those plans consistent with the method of SFAS No. 123, the
         Company's net income and net income per share would have resulted in
         the amounts as reported below.

                                      F-11

<PAGE>

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                               2003             2002             2001
<S>                                                        <C>              <C>              <C>
Net income, as reported                                    $   6,039,243    $   2,843,300    $   1,530,822
Deduct: Total stock-based employee compensation
   expense determined under fair value based method for
   all awards, net of related tax effects                        454,299          405,854          433,870
                                                           -------------    -------------    -------------

Pro forma net income                                       $   5,584,944    $   2,437,446    $   1,096,952
                                                           =============    =============    =============

Earnings per share:

  Basic--as reported                                       $        1.44    $        0.63    $        0.34
  Basic--pro forma                                         $        1.33    $        0.54    $        0.24

  Diluted--as reported                                     $        1.32    $        0.62    $        0.34
  Diluted--pro forma                                       $        1.24    $        0.54    $        0.24
</TABLE>

         The pro forma amounts are not representative of the effects on reported
         net income for future years.

         COMPREHENSIVE INCOME - Comprehensive income includes changes in equity
         that result from transactions and economic events from non-owner
         sources. Comprehensive income is composed of two subsets - net income
         and other comprehensive income (loss). Included in other comprehensive
         income (loss) for the Company is a minimum pension liability
         adjustment, which is recorded net of a related tax effect (See Note 9).
         This adjustment is accumulated within the Consolidated Statements of
         Shareholders' Equity under the caption Accumulated Other Comprehensive
         Loss.

2.       ACQUISITION

         On April 15, 2003, the Company completed the purchase of certain assets
         from Gates-Mills, Inc. ("Gates"). Under the terms of the purchase
         agreement, Rocky acquired all of the intellectual property of Gates,
         including ownership of the Gates(R) trademark, selected raw material
         and finished goods inventory, and certain records in connection with
         the Gates business in exchange for $3,510,070 plus a deferred purchase
         price if sales by the Company related to the Gates product line from
         the date of purchase through December 31, 2003 reach certain
         performance targets. The Company has recorded an additional purchase
         price of $1,324,400 because net sales of the product line have exceeded
         the performance targets established for 2003. The acquisition was
         accounted for under the purchase method and results of operations of
         the Gates business have been included in the Company's results of
         operations since the date of acquisition. The following unaudited
         pro-forma information presents results as if the acquisition had
         occurred on January 1, 2002: net sales ($108,847,526); net loss
         ($395,462); and net loss per diluted share ($0.09). Unaudited pro-forma
         results of operations for the year ended December 31, 2003 are not
         presented due to the unavailability of information from Gates-Mills,
         Inc. Final allocation of the purchase price is follows:

<TABLE>
<S>                       <C>
Inventory                 $ 2,040,070
Goodwill                    1,032,400
Trademarks                  1,762,000
                          -----------
Total acquisition cost    $ 4,834,470
Transaction costs              91,580
                          -----------
Total                     $ 4,926,050
                          ===========
</TABLE>

                                      F-12

<PAGE>

3.       INVENTORIES

         Inventories are comprised of the following:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                              2003            2002
<S>                                       <C>              <C>
Raw materials                             $  5,087,468     $  3,535,884
Work-in-process                                878,091          436,435
Finished goods                              31,168,371       18,301,351
Factory outlet finished goods                1,299,257        1,080,319
Less reserve for obsolescence or lower
  of cost or market                           (365,000)        (172,000)
                                          ------------     ------------

Total                                     $ 38,068,187     $ 23,181,989
                                          ============     ============
</TABLE>

4.       OTHER ASSETS

         Goodwill and other intangible assets are recorded in other assets and
         consist of the following:

<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                     2003            2002
<S>                              <C>             <C>
Goodwill                         $  1,557,861    $    495,461
Trademarks                          2,149,694         387,694
Patents - net of amortization         310,071         205,458
Other                                 452,745         707,746
                                 ------------    ------------
Total                            $  4,470,371    $  1,796,359
                                 ============    ============
</TABLE>

                                      F-13
<PAGE>

5.       FIXED ASSETS

         Fixed assets are comprised of the following:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                          2003                2002
<S>                                   <C>                 <C>
Land                                  $    572,838        $    572,838
Building and improvements               13,112,334          13,592,248
Machinery and equipment                 21,949,160          21,100,798
Furniture and fixtures                   2,110,909           2,045,655
Lasts, dies and patterns                 8,958,470           7,317,988
Construction work-in-progress               86,997             609,339
                                      ------------        ------------

           Total                        46,790,708          45,238,866

Less - accumulated depreciation        (29,180,470)        (26,189,579)
                                      ------------        ------------

Net fixed assets                      $ 17,610,238        $ 19,049,287
                                      ============        ============
</TABLE>

6.       LONG-TERM DEBT

         Long-term debt is comprised of the following:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                          2003               2002
<S>                                    <C>               <C>
Bank - revolving credit facility       $12,530,539       $ 5,000,000
Equipment and other obligations            287,700           452,100
Real estate obligations                  5,200,689         5,522,449
                                       -----------       -----------

           Total debt                   18,018,928        10,974,549

Less current maturities                    503,934           486,161
                                       -----------       -----------

Net long-term debt                     $17,514,994       $10,488,388
                                       ===========       ===========
</TABLE>

         On September 18, 2000, the Company entered into a three-year loan and
         security agreement with GMAC Business Credit, LLC (GMAC) refinancing
         its former bank revolving line of credit based on the collateral value
         of its accounts receivable and inventory. On October 21, 2002, the
         Company extended the agreement two years. This loan and security
         agreement permits a borrowing base to a maximum of $45,000,000.
         Interest on the revolving credit facility is payable monthly at GMAC's
         prime rate, and the entire principal is due September 17, 2005. Under
         terms of the agreement, the Company has the option to borrow up to
         seventy five percent (75%) of its outstanding obligation at LIBOR plus
         two and three-eights percent (2.375%) or prime. The interest rate for
         the outstanding balance at December 31, 2003 was 4.00% (3.88% at
         December 31, 2002).

         Amounts borrowed under the agreement are secured by accounts
         receivable, inventory, equipment, intangible assets of the Company and
         its wholly-owned domestic subsidiary, Lifestyle Footwear, Inc.
         Additional security includes 65% of the capital stock of the Company's
         wholly-owned foreign

                                     F - 14

<PAGE>

         subsidiary, Five Star Enterprises, Ltd., and 100% of the capital stock
         of the Company's wholly-owned domestic subsidiary.

         The loan and security agreement contains certain restrictive covenants,
         which among other things, requires the Company to maintain a certain
         level of net worth, and fixed charge coverage. As of December 31, 2003,
         the Company is in compliance with the loan covenants. Presently, the
         line of credit restricts the payment of dividends on common stock.

         Equipment and other obligations at December 31, 2003 bear interest at a
         variable rate of prime and are payable in monthly installments to 2005.
         The equipment is held as collateral against the outstanding
         obligations.

         In January 2000, the Company completed a mortgage financing facility
         with GE Capital Corp. for three of its facilities totaling $6,300,000.
         The facility bears interest at 8.275%, with total monthly principal and
         interest payments of $63,100 to 2014. The proceeds of the financing
         were used to pay down borrowings under a former revolving credit
         facility.

         At December 31, 2003 and 2002, the Company has no interest rate swap
         agreements.

         Long-term debt matures as follows for the years ended December 31:

<TABLE>
<S>                           <C>
2004                          $   503,934
2005                           13,022,560
2006                              400,416
2007                              434,837
2008                              472,216
Thereafter                      3,184,965
                              -----------

Total                         $18,018,928
                              ===========
</TABLE>

         The estimated fair value of the Company's long-term obligations
         approximated their carrying amount at December 31, 2003 and 2002, based
         on current market prices for the same or similar issues or on debt
         available to the Company with similar rates and maturities.

7.       OPERATING LEASES

         The Company leases certain machinery and manufacturing facilities under
         operating leases that generally provide for renewal options. The
         Company incurred approximately $793,000, $799,000 and $1,096,000 in
         rent expense under operating lease arrangements for 2003, 2002 and
         2001, respectively.

         Included in total rent expense above are monthly payments of $5,000 for
         2003 and 2002 and $7,000 for 2001 for the Company's former Ohio
         manufacturing and clearance center facility leased from an entity in
         which the owners are also shareholders of the Company.

                                     F - 15

<PAGE>

         Future minimum lease payments under non-cancelable operating leases are
         as follows for the years ended December 31:

<TABLE>
<S>                           <C>
2004                          $  758,000
2005                             743,000
2006                             618,000
2007                             295,000
2008                             295,000
Thereafter                       295,000
                              ----------

Total                         $3,004,000
                              ==========
</TABLE>

8.       INCOME TAXES

         Rocky Inc. and its wholly-owned subsidiary doing business in Puerto
         Rico, Lifestyle, are subject to U.S. Federal income taxes; however, the
         Company's income earned in Puerto Rico is allowed favorable tax
         treatment under Section 936 of the Internal Revenue Code if conditions
         as defined therein are met. Five Star is incorporated in the Cayman
         Islands and conducts its operations in a "free trade zone" in the
         Dominican Republic and, accordingly, is currently not subject to Cayman
         Islands or Dominican Republic income taxes. Rocky Canada began
         operations in July 2003 and is subject to Canadian income taxes.

         At December 31, 2003, a provision has not been made for U.S. taxes on
         the accumulated undistributed earnings of Five Star through December
         31, 2003 of approximately $8,180,000 that would become payable upon
         repatriation to the United States. It is the intention of the Company
         to reinvest all such earnings of Five Star in operations and facilities
         outside of the United States. In addition the Company has provided
         Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated
         undistributed earnings of Lifestyle prior to the fiscal year ended June
         30, 1994, that would be payable if such earnings were repatriated to
         the United States. If the Five Star and Lifestyle undistributed
         earnings were distributed to the Company in the form of dividends, the
         related taxes on such distributions would be approximately $2,783,000
         and $368,000, respectively. In 2001, the Company received an abatement
         for Puerto Rico tollgate taxes on all earnings subsequent to June 30,
         1994. This resulted in the Company reducing its deferred tax liability
         by $408,000.

         The Company accounts for income taxes in accordance with SFAS No. 109,
         Accounting for Income Taxes, which requires an asset and liability
         approach to financial accounting and reporting for income taxes.
         Accordingly, deferred income taxes have been provided for the temporary
         differences between the financial reporting and the income tax basis of
         the Company's assets and liabilities by applying enacted statutory tax
         rates applicable to future years to the basis differences.

                                     F - 16

<PAGE>

         Income taxes (benefits) are summarized as follows:

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                           2003               2002              2001
<S>                                    <C>                <C>               <C>
Federal:
  Current                              $ 2,319,011        $   200,134       $   112,508
  Deferred                                 (93,011)           683,867          (174,636)
                                       -----------        -----------       -----------
           Total Federal                 2,226,000            884,001           (62,128)
                                       -----------        -----------       -----------
State and local:
  Current                                  229,000              3,695          (153,794)
  Deferred                                 (20,750)            65,304           122,484
                                       -----------        -----------       -----------
           Total state and local           208,250             68,999           (31,310)
                                       -----------        -----------       -----------

Total                                  $ 2,434,250        $   953,000       $   (93,438)
                                       ===========        ===========       ===========
</TABLE>

         A reconciliation of recorded Federal income tax expense (benefit) to
         the expected expense (benefit) computed by applying the Federal
         statutory rate of 34% for all periods to income before income taxes
         follows:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                   2003               2002               2001
<S>                                            <C>                <C>                <C>
Expected expense at statutory rate             $ 2,880,988        $ 1,290,742        $   488,711
Increase (decrease) in income taxes
  resulting from:
  Exempt (income) from operations in
    Puerto Rico, net of tollgate taxes                                                   (97,344)
  Exempt (income) from Dominican
    Republic operations                           (545,792)          (430,416)           (67,967)
  State and local income taxes (benefit)           132,796             45,539            (20,628)
  Abatement of Puerto Rico taxes                                                        (408,000)
  Other--net                                       (33,742)            47,135             11,790
                                               -----------        -----------        -----------

Total                                          $ 2,434,250        $   953,000        $   (93,438)
                                               ===========        ===========        ===========
</TABLE>

                                     F - 17

<PAGE>

         Deferred income taxes recorded in the consolidated balance sheets at
         December 31, 2003 and 2002 consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                             2003               2002
<S>                                                      <C>                <C>
Deferred tax assets:
  Alternative minimum tax carryforward--Rocky Inc.       $                  $   118,829
  Asset valuation allowances and accrued expenses            809,023            451,532
  Plant closing costs                                         74,290             79,800
  Pension and deferred compensation                          759,341            854,300
  Net operating loss carryforwards                                              681,317
  Inventories                                                373,721            216,519
                                                         -----------        -----------

            Total deferred tax assets                      2,016,375          2,402,297
                                                         -----------        -----------

Deferred tax liabilities:
  Fixed assets                                              (858,175)        (1,132,516)
  State and local income taxes                               (51,372)           (69,437)
  Prepaid assets                                             (41,490)           (93,903)
  Tollgate tax on Lifestyle earnings                        (368,435)          (368,435)
                                                         -----------        -----------

            Total deferred tax liabilities                (1,319,472)        (1,664,291)
                                                         -----------        -----------

Net deferred tax asset                                   $   696,903        $   738,006
                                                         ===========        ===========
</TABLE>

         At December 31, 2003, the Company has utilized all available net
         operating loss carryforwards for Federal income tax purposes.

9.       RETIREMENT PLANS

         The Company sponsors separate noncontributory defined benefit pension
         plans covering the union and non-union workers of the Company's Ohio
         and Puerto Rico operations. Benefits under the union plan are primarily
         based upon negotiated rates and years of service. Benefits under the
         non-union plan are based upon years of service and highest compensation
         levels as defined. Annually, the Company contributes to the plans at
         least the minimum amount required by regulation.

         In September, 2001 the Company announced a restructuring plan to
         consolidate and realign the Company's footwear manufacturing
         operations. As part of the plan, 67 employees were eliminated and their
         balances paid directly from plan assets (a total of approximately
         $293,000). As a result of the curtailment of certain retiree benefits
         and future employee service periods, $690,570 is included in the
         calculation of 2001 net pension expense as a curtailment loss. Also,
         benefits under the Company's union plan were frozen at September 30,
         2001.

                                     F - 18

<PAGE>

         The funded status of the Company's plans and reconciliation of accrued
         pension cost at December 31, 2003 and 2002 is presented below
         (information with respect to benefit obligations and plan assets is as
         of September 30):

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                       2003                2002
<S>                                                                <C>                 <C>
Change in benefit obligation:
  Projected benefit obligation at beginning of the year            $  9,225,682        $  8,242,465
  Service cost                                                          387,693             269,715
  Interest cost                                                         603,481             580,032
  Actuarial loss                                                      1,230,283             799,613
  Exchange loss (gain)                                                  297,293             (68,341)
  Benefits paid                                                        (623,169)           (597,802)
                                                                   ------------        ------------

  Projected benefit obligation at end of year                      $ 11,121,263        $  9,225,682
                                                                   ============        ============

Change in plan assets:
  Fair value of plan assets at beginning of year                   $  7,150,990        $  5,066,458
  Actual gain (loss) on plan assets                                   2,264,083          (1,056,666)
  Employer contribution                                                                   3,739,000
  Benefits paid                                                        (623,169)           (597,802)
                                                                   ------------        ------------

  Fair value of plan assets at end of year                         $  8,791,904        $  7,150,990
                                                                   ============        ============

Funded Status:
  Unfunded deficit                                                 $ (2,329,359)       $ (2,074,692)
  Remaining unrecognized benefit obligation existing
    at transition                                                        73,380              89,686
  Unrecognized prior service costs due to plan amendments             1,426,144           1,561,536
  Unrecognized net loss                                               3,372,387           3,734,547
  Adjustment required to recognize minimum liability                 (4,194,074)         (4,861,985)
  Curtailment charge included in plant closing costs                    190,570             190,570
                                                                   ------------        ------------

Accrued pension liability                                          $ (1,460,952)       $ (1,360,338)
                                                                   ============        ============

Amounts recognized in the consolidated financial statements:
   Deferred pension asset                                          $ (1,499,524)       $ (1,651,222)
   Deferred pension liability and curtailment liability               2,733,122           3,501,647
   Accumulated other comprehensive loss                              (2,694,550)         (3,210,763)
                                                                   ------------        ------------
   Net amount recognized                                           $ (1,460,952)       $ (1,360,338)
                                                                   ============        ============
</TABLE>

         SFAS No. 87, "Employers' Accounting for Pensions," generally requires
         the Company to recognize a minimum liability in instances in which a
         plan's accumulated benefit obligation exceeds the fair value of plan
         assets. In accordance with the statement, the Company has recorded in
         the accompanying consolidated financial statements a non-current
         deferred pension asset of $1,499,524 and $1,651,222 as of December 31,
         2003 and 2002, respectively. In addition, under SFAS No. 87, if the
         minimum liability exceeds the unrecognized prior service cost and the
         remaining

                                     F - 19

<PAGE>

         unrecognized benefit obligation at transition, the excess is reported
         in other comprehensive income (loss) $361,349 net of a deferred tax of
         $154,864 for 2003 and ($1,480,588), net of a deferred tax benefit of
         $575,784 in 2002.

         Net pension cost of the Company's plans is as follows:

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                             2003               2002               2001
<S>                                                      <C>                <C>                <C>
Service cost                                             $   387,692        $   269,715        $   316,572
Interest                                                     603,481            580,032            571,295
Expected return on assets                                   (552,988)          (456,422)          (509,194)
Amortization of unrecognized net loss                        178,641             51,850
Amortization of unrecognized transition obligation            16,306             16,306             27,892
Amortization of unrecognized prior service cost              135,393            135,393            184,598
Curtailment charge                                                                                 690,570
                                                         -----------        -----------        -----------

Net pension cost                                         $   768,525        $   596,874        $ 1,281,733
                                                         ===========        ===========        ===========
</TABLE>

         The Company's unrecognized benefit obligations existing at the date of
         transition for the non-union plan is being amortized over 21 years.
         Actuarial assumptions used in the accounting for the plans were as
         follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                        2003         2002
<S>                                                    <C>          <C>
Discount rate                                          5.75 %       6.50 %

Average rate of increase in compensation levels
  (non-union only)                                      3.0 %        3.0 %

Expected long-term rate of return on plan assets        8.0 %        8.0 %
</TABLE>

         The Company's pension plans weighted-average asset allocations at
         December 31, 2003 and 2002 by asset category are:

<TABLE>
<CAPTION>
                             DECEMBER 31,
                           2003         2002
<S>                       <C>          <C>
Equity securities          82.7%        67.6%
Debt securities            14.7%        17.3%
Other                       2.6%        15.1%
                          -----        -----

Total                     100.0%       100.0%
                          =====        =====
</TABLE>

         The Company's investment objectives are (1) to maintain the purchasing
         power of the current assets and all future contributions; (2) to
         maximize return within reasonable and prudent levels of risk; (3) to
         maintain an appropriate asset allocation policy (60% equity securities
         and 40% debt securities)

                                     F - 20

<PAGE>

         that is compatible with the actuarial assumptions, while still having
         the potential to produce positive returns; and (4) to control costs of
         administering the plan and managing the investments.

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

         The Company also sponsors a 401(k) savings plan for substantially all
         of its employees. The Company provides contributions to the plan only
         on a discretionary basis. No Company contribution was made for 2003,
         2002 and 2001.

10.      CAPITAL STOCK

         The Company has authorized 250,000 shares of voting preferred stock
         without par value. No shares are issued or outstanding. Also, the
         Company has authorized 250,000 shares of non-voting preferred stock
         without par value. Of these, 125,000 shares have been designated Series
         A non-voting convertible preferred stock with a stated value of $.06
         per share, of which no shares are issued and none are outstanding at
         December 31, 2003 and 2002, respectively.

         In November 1997, the Company's Board of Directors adopted a Rights
         Agreement, which provides for one preferred share purchase right to be
         associated with each share of the Company's outstanding common stock.
         Shareholders exercising these rights would become entitled to purchase
         shares of Series B Junior Participating Cumulative Preferred Stock. The
         rights may be exercised after the time when a person or group of
         persons without the approval of the Board of Directors acquire
         beneficial ownership of 20 percent or more of the Company's common
         stock or announce the initiation of a tender or exchange offer which if
         successful would cause such person or group to beneficially own 20
         percent or more of the common stock. Such exercise may ultimately
         entitle the holders of the rights to purchase for $80 per right, common
         stock of the Company having a market value of $160. The person or
         groups effecting such 20 percent acquisition or undertaking such tender
         offer will not be entitled to exercise any rights. These rights expire
         November 2007 unless earlier redeemed by the Company under
         circumstances permitted by the Rights Agreement.

         In September 2002, the Company's Board of Directors authorized the
         repurchase of up to 500,000 common shares outstanding in open market or
         privately negotiated transactions through December 31, 2003. Purchases
         of stock under this program were funded with borrowings from the
         Company's credit facility. There were 16,400 shares repurchased and
         retired in 2002 for $84,540 and 483,533 shares repurchased and retired
         in 2003 for $3,106,156.

         The Company adopted a Stock Option Plan in 1992 which provides for the
         issuance of options to purchase up to 400,000 common shares of the
         Company. On October 11, 1995, the Company adopted the 1995 Stock Option
         Plan which provides for the issuance of options to purchase up to an
         additional 400,000 common shares of the Company. In May 1998, the
         Company adopted the Amended and Restated 1995 Stock Option Plan which
         provides for the issuance of options to purchase up to an additional
         500,000 common shares of the Company. In addition in May 2002, the
         Board of Directors approved the issuance of a total of 400,000
         additional common shares of the Company under the 1995 Stock Option
         Plan. All employees, officers, directors, consultants and advisors
         providing services to the Company are eligible to receive options under
         the Plans. In

                                     F - 21

<PAGE>

         addition, the Plans provide for the annual issuance of options to
         purchase 5,000 shares of common stock to each non-employee director of
         the Company. As of December 31, 2003, the Company is authorized to
         issue 88,630 options under their existing plans. In January 2004, the
         Company awarded 80,500 additional options at $22.39 per share.

         The plans generally provide for grants with the exercise price equal to
         fair value on the date of grant, graduated vesting periods of up to 5
         years, and lives not exceeding 10 years. The following summarizes all
         stock option transactions from January 1, 2001 through December 31,
         2003:

<TABLE>
<CAPTION>
                                                                  WEIGHTED
                                                                   AVERAGE
                                                                  EXERCISE
                                                SHARES              PRICE
<S>                                           <C>                 <C>
Outstanding at January 1, 2001                  682,500           $   8.64
  Issued                                        283,750               4.04
  Exercised                                      (3,000)              6.00
  Forfeited                                     (51,250)              7.60
                                              ---------           --------

Outstanding at December 31, 2001                912,000               7.27
  Issued                                        194,000               5.79
  Exercised                                     (13,250)              5.39
  Forfeited                                     (69,750)              8.63
                                              ---------           --------

Outstanding at December 31, 2002              1,023,000               6.92
  Issued                                        224,000               6.59
  Exercised                                    (334,500)              7.46
  Forfeited                                     (61,000)              6.80
                                              ---------           --------

Outstanding at December 31, 2003                851,500           $   6.63
                                              =========           ========

Options exercisable at December 31:
  2001                                          604,000           $   8.45
  2002                                          721,625           $   7.67
  2003                                          515,250           $   6.97
</TABLE>

                                     F - 22

<PAGE>

         The following table summarizes information about options outstanding at
         December 31, 2003:

<TABLE>
<CAPTION>
                 OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
--------------------------------------------------------    -----------------------
                                    AVERAGE    WEIGHTED-                  WEIGHTED-
   RANGE OF                        REMAINING    AVERAGE                    AVERAGE
   EXERCISE                       CONTRACTUAL   EXERCISE                   EXERCISE
    PRICES             NUMBER        LIFE        PRICE       NUMBER         PRICE
<S>                   <C>         <C>          <C>          <C>           <C>
$3.875 - $5.00        203,750         4.8      $    4.14    150,625       $    4.10
$5.063 - $5.625       144,500         6.9      $    5.23     12,500       $    5.11
$5.77 - $6.26         249,750         5.0      $    5.82    175,625       $    5.83
$6.40 - $8.875        142,000         4.2      $    7.50    107,000       $    7.80
$8.99 - $15.25        111,500         4.2      $   13.63     69,500       $   15.02
                      -------                               -------
                      851,500                  $    6.63    515,250       $    6.97
                      =======                               =======
</TABLE>

         In determining the estimated fair value of each option granted on the
         date of grant the Company uses the Black-Scholes option-pricing model
         with the following weighted-average assumptions used for grants in
         2003, 2002 and 2001, respectively; dividend yield of 0%; expected
         volatility of 44%; risk-free interest rates of 2.80%, 2.83% and 4.21%;
         and expected life of 6 years.

11.      COMPREHENSIVE INCOME

         Comprehensive income represents net income plus the results of certain
         non-shareholders' equity changes not reflected in the Consolidated
         Statements of Income. The components of comprehensive income, net of
         tax, are as follows:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                      2003               2002               2001
<S>                                                <C>               <C>                <C>
Net income                                         $ 6,039,243       $ 2,843,300        $ 1,530,822
Minimum pension liability, net of tax effect           361,349        (1,480,588)          (831,161)
                                                   -----------       -----------        -----------
Comprehensive income                               $ 6,400,592       $ 1,362,712        $   699,661
                                                   ===========       ===========        ===========
</TABLE>

         The 2003, 2002 and 2001 minimum pension liability is net of a deferred
         tax (expense) benefit of ($154,864), $575,784 and $323,229,
         respectively.

12.      CLOSURE OF MANUFACTURING OPERATIONS

         In September 2001, the Board of Directors approved a restructuring plan
         to consolidate and realign the Company's footwear manufacturing
         operations. Under this plan, the Company moved the footwear
         manufacturing operations at its Nelsonville, Ohio factory to the
         Company's factory in Puerto Rico. The restructuring plan was completed
         in the fourth quarter of 2001.

         The execution of this plan, which started in September 2001, resulted
         in the elimination of 67 employees at the Company's Nelsonville, Ohio
         facility, and a transfer of a significant amount of machinery and
         equipment located at the Nelsonville facility to the Moca, Puerto Rico
         facility.

                                     F - 23

<PAGE>

         A reconciliation of the plant closing costs and accrual is as follows:

<TABLE>
<CAPTION>
                                                                        2002 EXPENSE
                                             ACCRUED                     ADJUSTMENTS      ACCRUED                    ACCRUED
                            2001 TOTAL       BALANCE         2002        TO ORIGINAL      BALANCE        2003        BALANCE
                             EXPENSES     DEC. 31, 2001    PAYMENTS       ESTIMATE     DEC. 31, 2002   PAYMENTS   DEC. 31, 2003
<S>                         <C>           <C>             <C>           <C>            <C>             <C>        <C>
Severance:
  Non-union                 $   71,668     $   71,668     $   25,574     $   26,094      $  20,000     $ 14,500     $   5,500
  Union                        292,653
Curtailment of
  pension plan benefits        690,000        690,000        500,000                       190,000                    190,000
Employee benefits               34,223         33,000         31,047          1,953
Factory lease                   90,000         85,000         40,000         45,000
Equipment and
  relocation costs             260,626          5,000                         5,000
Legal and other costs           60,830         18,623         53,667        (35,044)
                            ----------     ----------     ----------     ----------      ---------     --------     ---------

Total                       $1,500,000     $  903,291     $  650,288     $   43,003      $ 210,000     $ 14,500     $ 195,500
                            ==========     ==========     ==========     ==========      =========     ========     =========
</TABLE>

         The Company expects no additional restructuring and realignment costs
         associated with this plan.

13.      SUPPLEMENTAL CASH FLOW INFORMATION

         Cash paid for interest and Federal, state and local income taxes was as
         follows:

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                          2003              2002              2001
<S>                                   <C>               <C>               <C>
Interest                              $ 1,402,743       $ 1,435,505       $ 2,644,998
                                      ===========       ===========       ===========

Federal, state and local
  income taxes - net of refunds       $   206,232       $    68,066       $   (36,309)
                                      ===========       ===========       ===========
</TABLE>

         Non-Cash Transaction - increase (decrease) in additional minimum
         pension liability as follows:

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                         2003               2002               2001
<S>                                  <C>                <C>                <C>
Deferred pension asset               $  (516,213)       $ 2,056,372        $ 1,154,390
Deferred tax expense (benefit)           154,864           (575,784)          (323,229)
                                     -----------        -----------        -----------

Total                                $  (361,349)       $ 1,480,588        $   831,161
                                     ===========        ===========        ===========
</TABLE>

         Accounts payable at December 31, 2003, 2002 and 2001 include a total of
         $45,582, $2,693 and $5,310, respectively, relating to the additional
         goodwill accrued in the acquisition of certain assets of Gates-Mills,
         Inc. in 2003 and the purchase of fixed assets.

                                     F - 24

<PAGE>

14.      QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The following is a summary of the unaudited quarterly results of
         operations for the years ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                         1ST QUARTER       2ND QUARTER      3RD QUARTER      4TH QUARTER      TOTAL YEAR
<S>                     <C>               <C>              <C>              <C>              <C>
        2003
Net sales               $ 13,754,941      $ 21,863,148     $ 41,349,824     $ 29,196,840     $106,164,753
Gross margin               3,465,528         6,734,984       13,085,792        9,495,321       32,781,625
Net income (loss)           (622,569)        1,095,819        3,467,595        2,098,398        6,039,243
Net income (loss)
  per common share:
     Basic              $      (0.14)     $       0.27     $       0.84     $       0.50     $       1.44
     Diluted            $      (0.14)     $       0.25     $       0.77     $       0.44     $       1.32

        2002
Net sales               $ 13,749,588      $ 19,194,071     $ 30,453,543     $ 25,561,519     $ 88,958,721
Gross margin               2,340,653         4,937,633        8,852,358        7,299,864       23,430,508
Net income (loss)         (1,227,188)          117,087        2,388,177        1,565,224        2,843,300
Net income (loss)
  per common share:
     Basic              $      (0.27)     $       0.03     $       0.53     $       0.35     $       0.63
     Diluted            $      (0.27)     $       0.03     $       0.52     $       0.34     $       0.62
</TABLE>

         No cash dividends were paid during 2003 and 2002.

                                     F - 25

