26820--4/20/2009--PHOENIX_FOOTWEAR_GROUP

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Defaults under our secured credit arrangement could result in a foreclosure on our assets by our bank which may result in a loss of your investment. Our financial statements for our fiscal year ended January 3, 2009 and our independent registered public accountants report thereon include an explanatory paragraph with respect to our ability to continue as a going concern. We have in the past and may in the future incur losses despite our efforts to restructure our business in an effort to return to profitability. Recent disruptions in the overall economy have led to reduced consumer demand for our products and adversely affected our operating results and this will continue for the unforeseeable future. Our exclusive Wrangler mass license for leather belts and accessories expires December 31, 2009 and we do not expect that it will be renewed which will materially adversely affect our operating results unless we are able to identify and successfully execute a strategy that effectively addresses the loss of sales associated with this license. A large portion of our sales are to a relatively small group of customers with whom we do not have long-term purchase orders, therefore the loss of any one or more of these customers could adversely affect our business. Our future success depends on our ability to respond to changing consumer preferences and fashion trends and to develop and commercialize new products successfully. We face intense competition, including competition from companies with greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business and stock price could be harmed. The financial instability of our customers could adversely affect our business and result in reduced sales, profits and cash flows. Changes in the mix of retailers to whom we distribute our products could impact our gross margin and brand image, which could have a material adverse effect on our results of operations. Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights or if we are sued for intellectual property infringement. Our inventory levels may exceed our actual needs, which could adversely affect our operating results by requiring us to make inventory write-downs. Our financial results may fluctuate from quarter to quarter as a result of seasonality in our business, and if we fail to meet expectations, the price of our common stock may fluctuate. Our international manufacturing operations are subject to the risks of doing business abroad, which could affect our ability to manufacture our products in international markets, obtain products from foreign suppliers or control the costs of our products. Our reliance on independent manufacturers for almost all of our footwear products and some of our accessories product, with whom we do not have long-term written agreements, could cause delay and damage customer relationships. Any inability to receive timely deliveries from our manufacturers could harm our business. Our results could be adversely affected by disruptions in our manufacturing systems. Fluctuations in the price, availability and quality of raw materials could adversely affect our gross profit. We are controlled by a principal stockholder who may exert significant control over us and our significant corporate decisions in a manner adverse to your personal investment objectives, which could depress the market value of our stock. The agreements we entered into in connection with the Royal Robbins, Altama and Tommy Bahama divestitures and that we may enter into in the future in connection with future divestitures expose us to potential liabilities for indemnification and other claims for a period of time. The trading price for our common stock has been and may continue to be volatile.

Full 10-K form ▸

26820--4/20/2009--PHOENIX_FOOTWEAR_GROUP_INC