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CORRESP
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corresp

October 21, 2005

Via Edgar

George F. Ohsiek, Jr.

Branch Chief

Division of Corporation Finance

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549-0306

    Re:

    Phoenix Footwear Group, Inc.

Form 10-K for Fiscal Year Ended January 1, 2005

Filed April 1, 2005

Forms 10-Q for Fiscal Quarters Ended April 2 and July 2, 2005

File No. 1-31309

Dear Mr. Ohsiek:

     In response to your comments by letter dated September 9, 2005 (received by us that same day)
(the “September 9 Letter”) in connection with your review of the Form 10-K for the year ended
January 1, 2005 and the Form 10-Q for the quarterly periods ended April 2 and July 2, 2005 filed of
Phoenix Footwear Group, Inc. (“Phoenix Footwear” or the “Company”), we provide the following
responses keyed to the numbered paragraphs in the September 9 Letter. This response is being
submitted by the extended date previously agreed to with Ms. Ta Tanisha Henderson of the
Commission.

Form 10-K for the Year Ended January 1, 2005

Item 7. Management’s Discussion and Analysis of Financial Condition...page 25

Contractual Obligations, page 35

    1.

    Please revise your tabular disclosure of contractual obligations to include estimated
interest payments on your debt. A footnote to the table should provide appropriate disclosure
regarding how you estimated the interest payments. Since the table is aimed at increasing
transparency of cash flow, we believe these payments should be included in the table. If you
choose not to include these payments, a footnote to the table should clearly identify the
excluded item and provide any additional information that is material to an understanding of
your cash requirements. See Section IV.A and footnote 46 to the Commission’s MD&A Guidance
issued December 19, 2003 available at www.sec.gov.

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Our tabular disclosure of contractual obligations includes interest bearing and non-interest
bearing instruments, notes and contracts. The only contractual obligation that results in
any material future interest related payments is the long-term debt obligations which are
disclosed in detail on page 64 of our filing. Our long term debt as of January 1, 2005
consisted of eight different debt instruments that mature between 2006 and 2009, each with
variable interest rates. Two of the instruments represent lines of credit with a requirement
to make payments of interest only through the instruments termination date of June 30, 2006.
Due to the variable interest rates of the debt instruments and the difficulty in estimating
future line of credit balances, it is difficult to estimate future interest expense and cash
payments on interest. Instead, we have preferred to disclose the terms of our existing debt
to enable the reader to formulate their own conclusions with respect to projected interest
expense and cash payments of interest. We believe our current contractual obligation
disclosure read in conjunction with Note 8 of the Notes to Consolidated Financial Statements
provides sufficient information for a reader to make reasonable conclusions on the timing
and amount of required future payment obligations. However, we also believe that if properly
footnoted with interest rate and principal payment assumptions, expanding our future
contractual obligation disclosure would provide improved disclosure in our filing.
Accordingly, we intend to adopt this expanded contractual obligation disclosure on a
prospective basis with future Form 10-Q and Form 10-K filings.

Schedule II Consolidated Valuation and Qualifying Accounts, page 44

    2.

    Please revise to include your allowance for sales returns, if material. Refer to Rules 5-04
and 12-09 of Regulation S-X.

    Though the header labeled “Allowance for Doubtful Accounts” included in Schedule II on page
44 appears to disclose an annual roll forward for only the allowance for doubtful accounts,
the amounts presented also include annual activity related to our allowance for sales
returns. An analysis of our allowance for doubtful accounts and allowance for sales returns
is presented in the following table:

For The Years Ended January 1, 2005, December 27, 2003 and December 31, 2002

    Allowance for

    Doubtful

    Allowance for

    Accounts

    Sales Returns

    Total

    Balance, December 31, 2001

    $
    707,000

    $
    761,000

    $
    1,468,000

    Provision

    1,032,000

    295,000

    1,327,000

    Write-off, disposal, costs, and other

    (1,387,000
    )

    (929,000
    )

    (2,316,000
    )

    Balance, December 31, 2002

    352,000

    127,000

    479,000

    Provision

    626,000

    112,000

    738,000

    Write-off, disposal, costs, and other

    (164,000
    )

    (27,000
    )

    (191,000
    )

    Balance, December 27, 2003

    814,000

    212,000

    1,026,000

    Provision

    347,000

    307,000

    654,000

    Write-off, disposal, costs, and other

    (105,000
    )

    (8,000
    )

    (113,000
    )

    Balance, January 1, 2005

    $
    1,056,000

    $
    511,000

    $
    1,567,000

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We concur with the Staff’s comments associated with expanded disclosure of our sales
return activity. Accordingly, we intend to adopt this expanded sales return disclosure on a
prospective basis with future Form 10-Q and Form 10-K filings.

Notes to Consolidated Financial Statements

Note 1. Description of Business and Summary of Significant Accounting Policies, page 53

General

    3.

    Please revise and disclose the types of expenses that you include in the cost of goods sold
line item and the types of expenses that you include in the selling, general and
administrative expenses line item. In doing so, please disclose specifically whether you
include inbound freight charges, purchasing and receiving costs, inspection costs, internal
transfer costs, and the other costs of your distribution network in cost of goods sold. If you
currently exclude a significant portion of these costs from the costs of goods sold, please
provide cautionary disclosure in MD&A that your gross margins may not be comparable to others,
since some entities include the cost related to their distribution network in cost of goods
sold and others like you exclude all or a portion of them from gross margin, including them
instead in a line item such as selling, general and administrative expenses. To the extent it
would be material to an investor’s ability to compare your operating results to others in your
industry, you should quantify in MD&A the amount of these costs excluded from cost of goods
sold.

    All costs incurred to bring finished products to our warehouse are included in the cost of
goods sold line item. These items include shipping and handling costs, agent and broker
fees, letter of credit fees, customs duty, inspection costs, inbound freight and internal
transfer costs. Costs associated with our own distribution and warehousing are recorded in
selling, general and administrative expenses. We believe the manner in which these expenses
are classified is consistent with others in the footwear and apparel industry and is
therefore considered comparable. As a result, we do not believe the current disclosure is
materially misleading, but concur with the Staff’s recommendation to provide cautionary
disclosure in MD&A that gross margins may not be comparable to others in the industry that
do not use this method of recording expenses and to quantify the amounts excluded from cost
of goods sold. We will expand our disclosures in future Form 10-Q and 10-K filings as
indicated above.

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    4.

    We understand, based on your disclosure on page 9 that you participate in cooperative
advertising programs with your retail customers. Please revise to disclose the nature and
extent of each arrangement under which you make payments to resellers. Please disclose your
accounting policy for each type of arrangement, including the statement of operations line
item in which each type of arrangement is included. For each expense line item that includes
these types of arrangements, please disclose the related amounts included in that line item.
For each type of arrangement treated as an expense rather than as a reduction of revenues,
please tell us how this type of arrangement meets the requirements in EITF 01-9. Please also
discuss in MD&A any significant estimates resulting from these arrangements.

    In an effort to support customers in the marketing of our products, we agree to reimburse a
portion of certain advertising and marketing costs that they may incur. Advertising and
marketing costs that qualify for reimbursement include the cost of mailing catalogues or
placing an advertisement in newspapers, magazines, television and radio programs. We agree
to reimburse our customers for a portion of the advertising and marketing costs once they
submit proper supporting documents that detail the type of advertisement being placed and
the specific cost to place the advertisement. Our portion of the costs incurred are
recognized as an expense in the period when the catalogue is mailed or when the
advertisement is first placed and is included in selling, general and administrative
expenses in our statement of operations. We believe that these costs are an expense in
accordance with Issue 1 of EITF 01-9 Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products, as we receive a separate identifiable
benefit that has an estimable fair value. During our fiscal year ended January 1, 2005, we
reimbursed a total of $417,000 to customers for co-op advertising and marketing related
costs. As of January 1, 2005 there were no significant estimates related to co-op
advertising.

    We do not believe that our current disclosure is materially misleading. However, management
intends to expand our disclosure related to co-op advertising as summarized above on a
prospective basis in future Form 10-Q and 10-K filings.

Revenue Recognition, page 55

    5.

    Please revise your disclosure to clarify the timing of revenue recognition for bill
and hold arrangements. To the extent that revenues for bill and hold arrangements are
recognized prior to delivery to the customer, please tell us in detail how these arrangements meet
the criteria set forth in paragraph 3.a. of SAB Topic 13:A for recording revenue when delivery has
not yet occurred. We may have further comment.

    We are under contract with the Defense Supply Center Philadelphia (“DSCP”) of the United
States Department of Defense (“DoD”) to manufacture military-spec boots for all four major
branches of the United States military. As required by the DoD, the contract

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calls for a bill and hold arrangement whereby we store goods sold to the DSCP. The DSCP
issues a Delivery Order (the DSCP’s form of a purchase order) which specifies type and
quantity of product to be manufactured and includes a schedule of shipments that we must
make directly to our own segregated storage facility. Based on the DSCP’s schedule of
shipments, a representative of the DSCP referred to as the Quality Assurance Representative
(“QAR”) reviews finished goods prior to their shipment to the segregated warehouse and when
approved, signs and delivers to us a DoD Form 250, Material Inspection and Receiving Report.
Upon delivery of the Material Inspection and Receiving Report, transfer of title occurs and
the finished goods are official property of the DSCP. Upon shipment of the accepted product
to the segregated warehouse, we issue an invoice for the sale of the accepted product to the
DSCP. The product located at the segregated storage facility is considered inventory of the
DSCP, is registered in their National Inventory Record and remains in the segregated
warehouse until we receive a Materiel Release Order (“MRO”) from the DSCP which details
shipment requirements to customers of the DSCP.

In assessing the ability to recognize revenue on the bill and hold arrangement with the
DSCP, we considered the recognition criteria as detailed in paragraph 3.a. of SAB Topic
13:A. Based on this assessment, we believe this arrangement meets these criteria:

    1.

    The risks of ownership must have passed to the buyer: Section 3.3.1 of the
contract states “The contractor shall store Government-owned material received from
Delivery Order shipments under the manufacturing portion of the contract in Contractor
furnished storage facilities.” Transfer of title occurs upon acceptance of the product
by the DSCP which occurs prior to movement of the product to the segregated warehouse.
The DSCP effects this transfer through the completion of DoD Form 250, Material
Inspection and Receiving Report. In accordance with the terms of the contract, we are
required to maintain an insurance policy which covers loss of personal property owned
by others. In the event a loss occurs to the bill and hold inventory, the insurance
policy calls for payment of insurance proceeds to the owner of the property. As
transfer of title has occurred prior to movement of product into the segregated
warehouse, the DSCP carries all risk of ownership in the event of a loss.

    2.

    The customer must have made a fixed commitment to purchase the goods, preferably
in written documentation: Under the bill and hold arrangement with the DSCP, we receive
a written document referred to by the DSCP as a Delivery Order, which specifies items
and quantities to be delivered and a schedule of shipments to make directly to the
segregated warehouse. Prior to shipment of finished product to the segregated warehouse
the DSCP inspects and accepts the product which completes the earnings process and
results in the generation of a sales invoice to the DSCP. Cash payment is received by
us from the DSCP within 31 days of the invoice date.

    3.

    The buyer, not the seller, must request that the transaction be on a bill and
hold basis. The buyer must have a substantial business purpose for ordering the goods
on a bill and hold basis: The contract specifically calls for a bill and hold
arrangement. The DSCP mandates bill and hold arrangements to reduce their warehousing
costs and to improve the efficiency with which product can be shipped to designated
locations.

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    4.

    There must be a fixed schedule for delivery of the goods. The date for delivery
must be reasonable and must be consistent with the buyer’s business purpose (e.g.
storage periods are customary in the industry): In accordance with the contract, for a
minimum of three months and a maximum of six months after the final shipment to our
segregated warehouse, the DSCP can continue to submit requisitions via MROs to draw
down bill and hold inventory. Within the six month period, the DSCP is required to
provide us with disposition instructions for the remaining inventory.

    5.

    The seller must not have retained any specific performance obligations such that
the earning process is not complete: Other than our requirement to ship previously
accepted product from the segregated warehouse in accordance with the DSCP’s
instructions, there are no performance obligations.

    6.

    The ordered goods must have been segregated from the seller’s inventory and not
be subject to being used to fill other orders: Upon acceptance of product by the DSCP,
product is no longer considered our inventory and is stored in a segregated warehouse.
Only Delivery Orders submitted by the DSCP can be utilized to remove inventory from the
segregated warehouse.

    7.

    The equipment (product) must be complete and ready for shipment: Our contract
with the DSCP is for finished goods only. The DSCP inspects and accepts each contract
order for finished product prior to shipment to the segregated warehouse.

Additionally, we have considered the following criteria to determine applicability of the
bill and hold arrangement wi