SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)
x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2004
		For the fiscal year ended February 2, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 000-21543

Wilsons The Leather Experts Inc.

(Exact name of registrant as specified in its charter)

Minnesota		41-1839933
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
7401 Boone Ave. N., Brooklyn Park, MN (Address of principal executive offices)		55428 (Zip Code)
7401 Boone Ave. N., Brooklyn Park, MN		55428
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (763) 391-4000

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

Securities registered pursuant to Section 12(g) of the Act:


Common stock, $.01 par value		Nasdaq Global Market
(Title of Class)		(Name of Exchange on Which Registered)

~~Common~~ Securities ~~stock,~~registered ~~$.01~~pursuant ~~par~~to Section 12(g) ~~value~~of the Act: None

~~(Title~~ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of ~~Class)~~the Securities Act. Yes o No þ

Indicate by check mark ~~whether~~if the registrant ~~(1) has~~ ~~filed~~is ~~all~~not ~~reports~~ required to befile reports ~~filed~~pursuant by to Section 13 or Section 15(d) of ~~the~~ ~~Securities Exchange Act of 1934 during~~ the ~~preceding 12 months (or for such shorter~~ ~~period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days~~ Act. Yes x o No oþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if the 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 the 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” ~~(as~~“accelerated filer” ~~defined~~and in“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one) ~~Yes x No o~~:

~~The~~Large ~~aggregate~~accelerated ~~market~~filer ~~value~~o ofAccelerated ~~the~~filer ~~voting~~o ~~common equity held by non~~Non-~~affiliates~~accelerated offiler ~~the~~o ~~registrant~~(Do was $142,007,148 based on the closing sale price for the common stock on the last business day of the registrant’s most recently completed second fiscal quarter as reported by the Nasdaq National Market. For purposes of determining such aggregate market value, all executive officers and directors of the registrant are considered to be affiliates of the registrant. This number is provided only for the purpose of this report on Form 10-K and does not ~~represent~~check anif ~~admission~~a bysmaller ~~either~~reporting ~~the~~company) ~~registrant~~Smaller ~~or any~~reporting ~~such~~company ~~person as to the status of such person.~~ þ

~~The~~ Indicate ~~number~~by ofcheck ~~shares~~mark ~~outstanding~~whether of the registrant’s ~~common~~is ~~stock,~~a ~~$.01 par~~shell ~~value, was~~company ~~20,876,672~~ (as atdefined ~~April~~in Rule 5,12b-2 of ~~2004~~the Exchange Act). Yes o No þ

The aggregate market value of the common equity held by non-affiliates of the registrant was $44,153,181 based on the closing sale price for the common stock on the last business day of the registrant’s most recently completed second fiscal quarter as reported by the Nasdaq Global Market^sm. For purposes of determining such aggregate market value, all executive officers and directors of the registrant are considered to be affiliates of the registrant. This number is provided only for the purpose of this Annual Report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person.

The number of shares outstanding of the registrant’s common stock, $.01 par value, was 39,372,209 at April 4, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of Wilsons The Leather Experts Inc. for the 2008 Annual Meeting of ~~Shareholders~~ ~~to be held on June 3, 2004~~ Shareholders (the “Proxy Statement”), which will be filed within 120 days after the registrant’s fiscal year ended ~~January~~ February 312, ~~2004~~2008, are incorporated by reference into Part III of this Annual Report on Form 10-K (“Form 10-K”). ~~The~~ ~~Compensation~~ The ~~Committee Report, the~~ Audit Committee Report, ~~and the~~is ~~stock performance graph contained in the registrant’s Proxy Statement are~~ expressly not incorporated by reference in ~~this~~ this Form 10-K.

WILSONS THE LEATHER EXPERTS INC.

FORM 10-K

For the fiscal year ended ~~January~~February 312, 2008 ~~2004~~

TABLE OF CONTENTS

		DESCRIPTION		PAGE
			description		page
PART I
	Item 1.	~~Business~~	Business		1	1
	Item 2.	Properties			17
	Item 1A.		Risk Factors			10
	Item 3.	Legal Proceedings			17
	Item 1B.		Unresolved Staff Comments			18
	Item 4.	Submission of Matters to a Vote of Security Holders			18
	Item 2.		Properties			18
	Item 4A.	Executive Officers of the Registrant			18
	Item 3.		Legal Proceedings			18
PART II
	Item 4.		Submission of Matters to a Vote of Security Holders			19
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters			20
	Item 4A.		Executive Officers of the Registrant			19
	Item 6.	Selected Financial Data			21
PART II
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
	Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
	Item 7A.	Quantitative and Qualitative Disclosure About Market Risk			35
	Item 6.		Selected Financial Data			20
	Item 8.	Consolidated Financial Statements			36
	Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			36
	Item 7A.		Quantitative and Qualitative Disclosure About Market Risk			31
	Item 9A.	Controls and Procedures			36
	Item 8.		Financial Statements and Supplementary Data			31
PART III
	Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			31
	Item 10.	Directors and Executive Officers of the Registrant			37
	Item 9A(T).		Controls and Procedures			32
	Item 11.	Executive Compensation			37
	Item 9B.		Other Information			33
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			37
PART III
	Item 13.	Certain Relationships and Related Transactions			37
	Item 10.		Directors, Executive Officers and Corporate Governance			33
	Item 14.	Principal Accountant Fees and Services			37
	Item 11.		Executive Compensation			33
PART IV
	Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			33
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K			38
	Item 13.		Certain Relationships and Related Transactions, and Director Independence			33
Restated By-Laws
	Item 14.		Principal Accountant Fees and Services			33
4th Amendment to Amended/Restated Credit Agreement
PART IV
Reaffirmation of Guaranty
	Item 15.		Exhibits and Financial Statement Schedules			34
Limited Wavier and Fifth Amendment
Signatures						35
Reaffirmation of Guaranty dated as of April 15th
Reaffirmation of Guaranty dated as of Nov. 1, 2002
6th Amendment to 4th Restated Credit Agreement
Reaffirmation of Guaranty dated as of April 27th
Code of Business Ethics and Conduct
Subsidiaries
Consent of KPMG LLP
Certification of Chairman and CEO
Certification of Chairman Pursuant to Section 302
Certification of Executive VP and CFO
Certification of Chief Financial Officer Pursuant to Section 302
Certification of Chairman and CEO
Certification of Chairman Pursuant to Section 906
Certification of Executive VP and CFO
Certification of Chief Financial Officer Pursuant to Section 906

PART I

When we refer to “we,” “our,” “us,” or “Wilsons Leather,” we mean Wilsons The Leather Experts Inc. and its subsidiaries, including its predecessor companies. Unless otherwise indicated, references to our fiscal year mean the year ended on the Saturday closest to January 31. The periods that will end or have ended on January ~~29, 2005, January~~ 31, ~~2004~~2009, ~~February 1,~~ ~~2003,~~ February 2, ~~2002~~2008, February 3, ~~2001~~ 2007, and January 2928, ~~2000,~~2006 are referred to herein as ~~2004~~2008, ~~2003,~~ ~~2002~~2007, ~~2001~~2006, ~~2000~~ and ~~1999~~2005, respectively. The results of operations for fiscal year 2006 consisted of 53 weeks. All other fiscal years referenced consist of 52 weeks.


Item 1.	Business

Disclosure Regarding Forward-Looking Statements

The information presented in this Form 10-K under the headings “Item 1. “Business” and “ Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~contain~~contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made and relate to, among other things, ~~expected~~future ~~demand~~comparable ~~for~~store ~~our~~sales ~~products~~results, ~~liquidation~~business strategies, ~~stores~~changes ~~(as defined~~to ~~herein)~~merchandise mix, ~~financing~~future ~~efforts~~sales results, expected ~~merchandising~~demand ~~strategy~~for our products, financing requirements, capital expenditures, store operations, ~~new~~ store ~~internal~~openings ~~rate~~and of closings, ~~return~~ and competition. Although we believe these statements are reasonable, readers of this Form 10-K should be aware that actual results could differ materially from those projected by such forward-looking statements as a result of a number of factors, many of which are outside of our control, including those set forth under Item 1A. “—Risk Factors,” beginning on page 10 of this Form 10-K. Readers of this Form 10-K should consider carefully the factors listed under Item 1A. “—Risk Factors,” as well as the other information and data contained in this Form 10-K. ~~All~~ All forward-looking statements attributable to us or persons ~~acting~~ acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth under Item 1A. “—Risk Factors” in this section. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “target,” “may,” “will,” “project,” “should,” “continue,” and similar expressions or the negative thereof, as they relate to us, are intended to identify such forward-looking statements. ~~The~~We ~~Company~~undertake ~~undertakes~~ no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are ~~the~~a ~~leading~~ specialty retailer of quality leather outerwear, accessories and apparel in the United States. Our multi-channel store locations are designed to target a broad customer base with a superior level of customer service. Through our international ~~worldwide~~ leather sourcing network and ~~in-house~~relationships ~~design~~with ~~capabilities~~ vendors of nationally recognized designer brands, we are able to consistently provide our customers with quality, fashionable merchandise at attractive prices. Our business structure results in shorter lead times, allowing us to react quickly to popular and emerging fashion trends and customer preferences, rapidly replenish fast-selling merchandise and minimize fashion risk.

As of ~~January~~February 312, ~~2004~~2008, we operated a total of ~~460~~391 stores (~~excluding~~including ~~the~~158 ~~111 underperforming mall and outlet~~ stores that we are liquidating — see “— “Reorganization and Partial Store Liquidation”) located in 45 42 states ~~and the District of Columbia~~, including ~~334~~259 mall stores, ~~107~~118 outlet stores and 1914 airport locations. ~~Each~~We ~~year~~have wehistorically ~~supplement~~ supplemented our permanent stores with temporary seasonal stores during our peak selling season. However, ~~which~~operation ~~totaled~~of ~~229~~our temporary seasonal stores was suspended in ~~2003~~2006. ~~Our~~We do not intend to operate any temporary seasonal stores in the foreseeable future. Our mall stores average approximately 2,~~600~~ 560 total leased square feet and ~~feature~~as of February 2, 2008, featured a large assortment of classic and contemporary ~~leather~~ leather outerwear, accessories and apparel. Our outlet stores ~~are~~ ~~operated~~ operate primarily under the Wilsons Leather ~~OutletTM~~ Outletsm name, average approximately 43,~~000~~900 total leased square feet and offer a combination of clearance merchandise from our mall stores, special outlet-only merchandise and key in-season goods. Our airport stores average approximately ~~700~~630 total leased square feet, feature travel-related products as well as leather accessories and provide us the opportunity to showcase our products and the Wilsons Leather brand to millions of potential customers each year in some of the busiest airports. ~~Our proprietary~~in ~~labels,~~ the ~~including~~United MStates. ~~Julian®, Maxima®, Pelle~~ ~~Studio® and Wilsons LeatherTM, are positioned to appeal to identified customer lifestyle segments.~~

Financial Strategy

~~Our~~ In ~~financial~~2007, ~~strategy~~our ~~for~~goal was to build on the ~~next~~“reinvented” Wilsons ~~year~~Leather iswe worked to create in 2006 to appeal to a more ~~increase~~ contemporary ~~sales~~and upscale target customer and ~~margins~~not byrevert ~~enhancing~~to the promotional ~~productivity~~“price only” environment of crowded stores and unattractive presentations that was our past. Our fiscal ~~existing~~ 2007 ~~store~~results reflect the fact that the transition of our customer base is taking more time than anticipated, as our traditional price only customer has opted out of the “reinvented” Wilsons Leather. We have yet to ~~strengthen~~reach our new ~~overall~~target ~~capital~~customer ~~position~~in satisfactory numbers. Over the past few by years, ~~reducing~~mall ~~our~~traffic ~~costs~~has ~~and~~been ~~working~~trending ~~capital~~downward, ~~needs~~off-mall retail venues have gained popularity and tocompetition ~~establish~~has continued to an increase ~~appropriate~~from ~~financial~~non-specialty ~~structure~~discounters and mass merchandisers. Compounding ~~Key~~these ~~elements~~issues offor ~~implementing~~us was an extremely challenging ~~this~~ retail ~~strategy~~environment ~~include:~~for outerwear in 2007.

~~Increase~~ During ~~Sales~~2007, ~~and Margins.~~our Weprimary ~~are~~initiatives ~~employing aggressive marketing strategies and targeted advertising~~ to build ~~customer urgency,~~on ~~drive foot traffic into our stores, generate sales and~~the ~~establish~~ “reinvented” Wilsons Leather ~~as a shopping destination. We believe~~were: that reinvigorating our mall store business remains both our biggest near-term challenge and best opportunity to return Wilsons Leather to profitability. Additionally, we are implementing targeted promotional activities to ensure our pricing is competitive, while maintaining acceptable margin levels. Finally, we will continue to upgrade the freshness and fashion-forward content of our merchandise using bold colors, rich textures and a broader range of fashions that appeal to women.

~~Improve~~ Increase ~~Balance~~Accessories ~~Sheet~~Penetration. To ~~and~~mitigate the ~~Enhance~~continuing ~~Cash~~seasonality we face in the outerwear business, we ~~Position.~~ continued Weto ~~are~~expand ~~focused~~our onaccessories ~~conserving~~categories. Outerwear ~~cash~~ comparable ~~through~~store ~~tight~~sales ~~expense~~continue ~~controls~~to ~~throughout~~decline ~~the~~year ~~organization~~over year, which ~~maintaining~~ further asupports ~~leaner~~our ~~corporate~~shift ~~headquarters~~in ~~organization,~~strategic focus toward ~~improving~~ accessories. ~~inventory~~Our ~~management~~accessories ~~and~~penetration ~~limiting~~increased ~~new~~to ~~store~~44.9% ~~growth~~of ~~until~~ net wesales ~~improve~~in ~~the~~2007 ~~profitability~~as ofcompared ~~our~~to ~~existing~~41.4% ~~store~~and ~~base~~38.3% in 2006 and ~~Capital~~ 2005, ~~expenditures~~respectively. ~~for~~We ~~2004~~will ~~are~~continue ~~capped~~to atincrease ~~$6.0 million,~~our accessories ~~with~~ profile ~~the~~in ~~majority~~2008 ofby ~~the~~offering ~~funds~~nationally ~~being~~recognized ~~allocated~~designer brands toin ~~certain~~our ~~fully~~100 remaining mall stores. We plan to make ~~obligated~~ accessories ~~store~~our ~~remodels~~primary product offering.

~~Rationalize~~ Emphasis ~~Store Count.~~on Designer Brands. We ~~had~~significantly increased athe ~~net~~number ~~reduction~~ of ~~158 stores~~nationally inrecognized ~~2003,~~designer ~~including~~brands ~~the~~in our ~~111~~accessories ~~liquidation~~and ~~stores~~outerwear ~~discussed in~~offerings ~~“—Reorganization~~during ~~and~~the ~~Partial~~2007 ~~Store~~holiday ~~Liquidation.” In 2004~~ season, weprimarily ~~plan~~in toour ~~open~~mall ~~four~~ stores ~~(primarily~~. ~~outlets)~~Designer ~~where~~brand ~~we have pre-existing commitments and~~product ~~close~~ performed ~~approximately~~better 30than toour 40private ~~additional~~label ~~locations~~offerings ~~(primarily~~for asboth a accessories ~~result~~and ofouterwear ~~natural~~and ~~lease~~we ~~terminations)~~plan ~~for~~to asignificantly ~~net~~increase our ~~reduction~~designer ~~of 26~~brand toofferings 36in ~~stores~~2008. InSell-throughs ~~2004~~of ~~and beyond~~designer brands, weat ~~will~~higher ~~continue~~average tounit ~~analyze our~~retails, ~~store~~are ~~profitability~~significantly ~~on a market-by-market basis and work to~~higher ~~close~~ than ~~underperforming~~our ~~stores~~own toprivate ~~minimize~~label ~~our financial risk~~offerings.

~~During~~ New ~~the~~Store ~~last~~Environment ~~two~~Test. We ~~years,~~tested a new store environment in ~~support~~four locations during the fourth quarter of 2007. ~~our~~These stores featured primarily designer brands for both ~~overall~~ accessories ~~financial~~and ~~strategy~~outerwear, ~~the~~with ~~following~~an ~~three~~emphasis ~~actions~~on accessories. Designer brand handbags were featured using updated display ~~taken:~~ fixtures ~~1) discontinued~~and ~~operations~~presentations. In addition, two of these stores operated under the name “Studio” as part of the test. Initial test results for the ~~Travel~~accessories business in these ~~Subsidiaries,~~ stores ~~2) a~~was ~~reorganization~~promising and ~~partial~~we ~~store~~look forward to rolling out an ~~liquidation,~~ improved ~~and~~version 3)of ~~additional~~this ~~financing~~store concept to our 100 remaining mall stores in 2008.

~~Discontinued~~ Develop a Wholesale Business. In 2006, we laid ~~Operations~~ the foundation for a wholesale business to sell proprietary licensed and branded leather products in geographic and product categories outside our current markets and product mix. During 2007, we continued to focus on building a wholesale business and we established relationships with certain major retailers. However, we have decided to focus our limited capital resources on our new go-forward accessories mall concept and revitalization/enhancement of our outlet and airport channels. As such, we will discontinue our wholesale business during the first quarter of 2008.

In Our ~~October~~financial ~~2000,~~strategy wefor ~~acquired~~2008 ~~the~~is Elto ~~Portal~~aggressively ~~Group, Inc.~~reduce ~~(“El Portal”), a specialty retailer of premium~~costs ~~travel products~~ and ~~accessories~~working ~~with~~capital ~~38 stores based in Las Vegas~~needs, ~~Nevada.~~launch ~~In April 2001, we acquired Bentley’s Luggage Corp., including its subsidiary, Florida Luggage Corp., (collectively “Bentley’s”),~~ a ~~specialty~~new ~~retailer of~~mall ~~travel~~accessory ~~products with 106 stores based in Miami, Florida. We~~store ~~operated~~ concept ~~these two chains for 24~~ and ~~19 months, respectively,~~revitalize/enhance with unsatisfactory financial results and, as a result, on November 19, 2002, we announced the liquidation of all 135 stores operated by El Portal and Bentley’s (the “Travel Subsidiaries”). The Travel Subsidiaries business is classified as discontinued operations in our ~~consolidated~~ ~~financial~~outlet ~~statements~~ and inairport ~~“Item 7~~channels. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Fiscal years 2001 and 2000 have been reclassified to present discontinued operations for the Travel Subsidiaries. As a result of the significance of these reclassifications related to our discontinued operations for the Travel Subsidiaries, our 2001 and 2000 consolidated financial statements, which were previously audited by other independent auditors who have ceased operations, have been re-audited by our current independent auditors.

Reorganization and Partial Store Liquidation. On February 15, 2008, we announced that we would liquidate up to 160 mall stores (subsequently revised to 154 mall stores and four outlet stores — the “liquidation stores”) and eliminate approximately 938 store-related positions. We retained a third party liquidator and real estate firm to assist in this process. The liquidation is part of a strategy aimed at reducing our mall store base, aggressive cost cutting measures and the launch of a new mall accessories store concept. Concurrent with these store closures and using the liquidation sale proceeds, our 100 remaining mall stores will be remodeled to a new mall accessories store concept that has been tested in four different regions of the country, as mentioned above. As part of the launch of our new mall accessories concept stores and ongoing cost reduction efforts, we have also realigned our organization to reflect the reduced store base and decreased overseas sourcing needs. As a result, we eliminated 64 positions at our corporate headquarters, overseas offices and distribution center. During the fourth quarter of 2007, we recorded a $9.3 million impairment loss related to the assets located at the liquidation stores as well as $10.4 million in other asset impairment charges that were primarily related to the mall-based stores that will be converted to the new accessories concept.

On January 22, 2004, we announced that we would liquidate up to 100 underperforming mall and outlet stores (subsequently revised to 111 stores — the “liquidation stores”) and eliminate approximately 950 store-related positions. We retained a third party liquidator and real estate firm to assist in this process. The liquidation stores were selected based on strategic criteria, including negative sales and earnings trends, projected real estate costs, location, and financial conditions within the market. In addition, we announced the elimination of approximately 70 positions at our corporate headquarters in Brooklyn Park, Minnesota and our distribution center in Las Vegas, Nevada and the closure of our distribution center in Las Vegas, Nevada. For

~~these~~ New ~~actions,~~Mall weAccessories ~~expect~~Store toConcept. During ~~take a combined~~the ~~charge~~ 2007 ofholiday ~~approximately~~season, ~~$34.0~~as tomentioned ~~$36.0 million~~above, ofwe ~~which approximately~~began ~~$18.0~~testing toa ~~$20.0 million will be non-cash.~~new ~~Approximately~~ mall ~~$8.6 million~~accessories ofstore ~~this~~concept ~~charge was recorded~~ in ~~the~~ ~~fourth~~four ~~quarter~~stores ofto ~~2003~~address ~~and the remaining $25.0 to~~our ~~$27.0 million~~ customer ~~will~~traffic beissues ~~expensed~~and ~~primarily~~elevate inour ~~the~~brand ~~first half of 2004~~positioning. ~~Anticipated proceeds of the liquidation inventory will~~With ~~range~~ that ~~from~~test, ~~$14.0~~we toidentified ~~$16.0 million.~~an ~~The~~accessories ~~total~~centered ~~cash~~offering ~~outlay is~~that ~~anticipated~~ appeals to bean atimportant orbuying ~~near zero~~demographic.

~~Additional~~ This new concept will be a designer brand driven store for ~~Financing~~ women, focusing on fashion accessories with a limited selection of outerwear. We have kept only our best mall stores in the best locations for this concept. Our plan is to remodel every remaining mall store to this new concept during 2008. With handbags generally priced from $100 — $400, this new concept will provide an upscale boutique feel for customers in the emerging or mass luxury category and will be an alternative to the department store homogenization that has occurred in this category.

On Revitalize/Enhance ~~April 25,~~Our ~~2004,~~Outlet weand ~~entered~~Airport Channels. Our ~~into~~outlet aand ~~common stock~~airport ~~and~~channels ~~warrant~~have historically ~~purchase~~been ~~agreement~~profitable ~~pursuant~~and tocash ~~which~~flow wepositive. ~~agreed~~The to reorganization ~~issue~~and ~~17,948,718~~partial ~~shares~~store ofliquidation ~~our~~included ~~common stock to three~~the ~~institutional~~ closing ~~investors~~of atonly afour ~~price~~outlet ~~of $1~~stores.95 ~~per~~These ~~share~~channels (are the ~~“Equity~~ foundation ~~Financing”). As additional consideration~~ for ~~the~~ ~~investors’~~our ~~commitment,~~new wemall ~~have~~accessories ~~issued~~store ~~two~~concept ~~million warrants exercisable for five years~~ to ~~the~~provide stability ~~investors,~~ and ~~at closing,~~cash weflow ~~will~~as ~~issue~~our annew ~~additional~~accessories ~~two~~concept ~~million warrants~~is ~~exercisable~~ developed. ~~for~~We ~~five~~plan ~~years,~~to ~~each~~introduce atnew anproduct ~~exercise~~offerings ~~price~~in ~~of $3.00~~both ~~per~~ accessories ~~share~~and ofouterwear ~~common~~in ~~stock.~~our ~~The~~outlet ~~consummation~~channel. ofIn ~~the~~addition, ~~Equity~~we ~~Financing~~ will isstrive ~~subject~~ to ~~certain~~implement ~~closing~~new ~~conditions,~~marketing ~~the principal~~packages ~~condition~~and ~~being shareholder approval. See~~improved ~~“Item 7.~~ display ~~Management’s~~presentations ~~Discussion~~in ~~and~~our ~~Analysis~~outlet ~~of Financial Condition— Subsequent Event~~channel.”

~~We intend to use the proceeds from the Equity~~ ~~Financing to repay our 11 1/4% Senior Notes due~~ Merchandising ~~August 15,~~ Strategy ~~2004, (the “11 1/4% Senior Notes”)~~ and ~~for~~Product ~~general working capital purposes. Covenants~~Design contained within our senior credit facility prohibit us from borrowing under the revolving portion of our facility and limit our letters of credit until funds for the payment of the principal of our 11 1/4% Senior Notes are deposited in an account controlled by the Agent under our senior credit facility. We expect that we will need to access the revolving portion of our credit facility by the middle of July 2004. There can be no assurance however, that we will be able to complete the Equity Financing before this time. If we are unable to close the Equity Financing for any reason, we will need to find an alternative source of permitted financing for the repayment of our 11 1/4% Senior Notes. There can be no assurances that we would be able to obtain such alternative financing before we need to access our credit facility or repay the 11 1/4% Senior Notes.

~~Merchandise~~ During ~~Strategy~~the 2007 holiday season, we shifted the emphasis of product mix in our mall stores to designer brand product in outerwear. It is clear that designer brand product outperforms our private label offerings in our stores and as a result, we will significantly increase the mix of designer brand offerings in both accessories and outerwear in our mall stores and we eventually intend to eliminate private label offerings in those stores. This represents a change in strategy from our past, when the majority of our product was designed and sourced directly by us, working with our overseas partners. As a result, we will close the majority of our overseas sourcing office locations in the first quarter of 2008 and will have a minimal direct presence in China, Hong Kong and India going forward to support a significantly reduced amount of private label offerings.

The elements of our merchandise strategy combine to create an assortment of ~~labels and~~ products that appeal to consumers from a broad range of socio-economic, demographic and cultural profiles and are designed to generate demand and increase comparable store sales. We ~~completed~~perform internal market research ~~during 2002~~at ~~and~~least ~~2003,~~annually and we will continue to survey our ~~customers~~current and potential customers each year to update our customer demographics. ~~We believe that our strategy will continue to~~ ~~position us as the leading specialty retailer of quality leather outerwear, accessories and apparel and strengthen our brand position. The principal elements of our merchandise strategy include:~~

~~Grow~~ In ~~Brand Recognition.~~2007, ~~Our~~we ~~goal~~continued is to ~~promote our~~update ~~proprietary~~the ~~labels~~merchandising ~~and~~of ~~enhance their recognition among~~accessories ~~consumers.~~ within ~~Our~~our ~~proprietary~~mall ~~labels~~stores ~~target~~to ~~specific~~increase ~~customer segments:~~the ~~(i) M.~~size ~~Julian®~~of ~~and~~our ~~Maxima® for~~accessories ~~fashion-savvy~~ business. ~~young~~The ~~men~~emphasis ~~and~~was ~~women,~~primarily ~~(ii) Pelle~~on ~~Studio® for~~handbags. ~~the~~As ~~more~~a ~~sophisticated~~result, accessories ~~confident~~penetration ~~and~~increased ~~fashion-aware~~to ~~segment and~~44.9% ~~(iii) Wilsons~~from ~~LeatherTM~~41.4% ~~for~~of ~~the classic,~~net ~~traditional,~~ sales ~~value-conscious~~in ~~segment~~2006. In ~~addition to our national network of stores~~2008, we ~~promote~~plan ~~the~~to ~~Wilsons~~continue ~~Leather~~to expand our ~~brand~~ accessories ~~through~~offerings with a ~~variety~~goal of 70% penetration in~~-store~~ ~~visual~~our ~~presentations,~~100 ~~radio,~~ remaining ~~newspaper~~mall ~~and~~stores. ~~magazine~~The ~~advertising,~~overwhelming ~~direct~~majority ~~mail~~of these ~~promotions~~ accessories ~~and~~will ~~our~~be ~~e-commerce~~designer ~~site~~brand offerings. ~~Reflecting~~Our ~~our~~accessories business ~~strength~~has asproven ~~a mass-market~~to ~~retailer,~~be weless ~~are~~seasonal ~~expanding~~and ~~the~~has ~~power~~grown ofinto the ~~Wilsons~~ largest ~~Leather~~merchandise ~~brand~~category byof ~~focusing~~ our ~~marketing~~business. ~~and merchandising~~We onbelieve ~~both classic and colorful fashion-forward~~that ~~styles~~ further ~~designed~~increasing toour ~~reach~~accessories abusiness ~~much~~will ~~broader~~offer ~~market.~~us ~~We will continue~~an to opportunity ~~market~~ to ~~our~~limit ~~customers’~~the ~~ethnic~~risks ~~backgrounds,~~inherent ~~ages, income~~in ~~levels~~ and ~~fashion~~reduce ~~requirements~~the seasonality ~~through~~of our ~~unique lifestyle sub-brands~~business.

~~Optimize~~ New ~~Merchandise Assortment.~~Mall Accessories Store Concept. We ~~reduced~~decided to close the majority of our ~~outerwear~~mall stores and remodel the 100 ~~stock~~ remaining ~~keeping~~mall ~~unit~~stores ~~(“SKU”)~~to ~~count~~a bynew ~~approximately~~accessories ~~50%~~concept. The cash ~~during~~ proceeds from the ~~fall~~liquidation of ~~2003.~~inventory Weat ~~did~~the ~~this~~closed bystores will ~~emphasizing~~be ~~key~~used ~~styles in~~to ~~each~~help fund the transformation of ~~our~~the ~~store~~100 remaining ~~formats~~mall stores. ~~After~~This ~~analyzing~~new ~~our~~concept ~~holiday~~will ~~season~~be a designer brand ~~performance~~ driven store for women, wefocusing ~~determined~~on ~~that~~fashion accessories with a limited selection of outerwear. All of the product we ~~had~~plan ~~over-reduced~~to offer in our ~~SKU count,~~mall ~~particularly~~stores ~~for~~will ~~women’s~~be ~~styles~~designer brand product. We ~~are currently~~will ~~evaluating~~ no longer offer any of our private label merchandise ~~assortment~~at tothese stores. ~~optimize~~Our ~~our~~store ~~mix~~fixtures and ~~price~~ ~~points.~~signage Wewill ~~continue~~be updated to ~~utilize~~better display ~~our~~and ~~outlet~~highlight ~~channel~~the tovarious ~~more effectively~~designer ~~clear~~brands ~~mall~~we ~~merchandise~~will insell. We ~~order~~plan to ~~keep~~complete ~~our~~the ~~mall stores~~remodel ~~fresh~~of ~~and~~all up100 tomall ~~date~~stores during 2008.

Target Core Customer Base. In 2008, we intend to continue to appeal to a more classic and contemporary target customer. In our stores, we target high potential, high-volume customers ages 25 to 55, and we work to ensure that our stores are assorted with the products they want. In our new accessories mall concept, we will focus on women by offering fashionable designer brand handbags and accessories. In our outlets, we will continue to deliver

Target Core Customer Base. Our primary focus this past year was on using our distinct proprietary labels to tailor price points and levels of sophistication to grow with customers throughout their lives. We target customers 18 to 37 years old, and we are working to ensure that our stores are assorted with the products they want. Our market research indicated that the median age of our high fashion-~~potential,~~right ~~high-volume~~leather ~~core~~merchandise ~~customer is~~for ~~28 years~~men ~~of age. We are intensifying our efforts to improve our customer focus~~ and ~~rebuild~~women ~~consumer loyalty by delivering fashion-right leather merchandise~~ that fits ~~the~~ the lifestyle needs of our target customers at prices they find attractive.

~~Increase~~ Pursue ~~the~~Multiple ~~Merchandising~~Selling ~~of Accessories~~Channels. We ~~are focused on~~operate ~~building~~ our ~~accessories~~stores ~~business~~in ~~within~~malls, ~~our~~outlet ~~retail~~centers ~~concepts with~~and ~~an added emphasis on handbags~~airports. ToWe ~~support~~also ~~our objective of~~sell ~~generating~~ through ~~demand and sales throughout the year, we have~~our ~~expanded~~ e-commerce site. ~~the~~Our new accessories ~~assortment~~concept in our mall stores. ~~Through~~focuses ~~the~~on ~~development~~ designer ofbrand ~~new~~handbags ~~product~~for ~~styles~~women and ~~other merchandising activities,~~ we plan tonew ~~utilize accessories as an additional way~~merchandise of offerings ~~attracting~~in ~~more~~our ~~female~~outlet ~~customers~~channel ~~into~~as ~~our stores~~well. ~~These products~~It ~~complement~~is our ~~outerwear~~hope ~~and apparel selection and lead~~that to these ~~higher~~new ~~“add-on”~~product ~~sales.~~offerings ~~Our~~will ~~accessories~~generate ~~business~~the ~~has~~increased traffic ~~proven~~ we need to beimprove ~~less~~our ~~seasonal~~sales and ~~has~~operating ~~been one of the highest margin and fastest growing categories in our stores~~performance.

~~Capitalize~~ The onfollowing ~~Worldwide~~table ~~Sourcing Network.~~sets Weforth ~~are able to leverage our worldwide sourcing network to benefit our stores. Our staff of in-house designers combines industry experience with~~ the ~~latest fashion~~percentages trends to produce product lines that are both classic and fashion-forward. We have established strong relationships with suppliers globally and our design team works closely with our suppliers to ensure seamless development of ~~leather~~net ~~styles, colors~~sales ~~and finishes. We have a staff of 47 professionals in Asia~~by ~~and~~ major ~~the~~merchandise ~~sub-continent,~~category ~~South~~for ~~America,~~2007 and ~~Europe to ensure that~~2006: our designs are manufactured quickly with consistent, quality standards. We believe that control of design and sourcing results in shorter lead times than our competitors’, reducing inventory requirements and fashion risk and permitting in-season reorders.

Pursue Multiple Store Formats. Our distribution network of multiple store formats allows us to specifically tailor our stores with a wide selection of merchandise at multiple price points and to optimize raw materials usage, inventory flow and sales across all channels. We operate our stores in malls, outlet centers and airports, and on an e-commerce site. We believe we are creating a new level of excitement throughout our mall stores, creatively using marketing and promotions, and making sure that we have the optimal leather merchandise assortment in our mall stores. Our outlet stores enable us to effectively manage inventories, drive year-round sales, extend our brand and build our customer base. We also operate temporary seasonal stores in malls during our peak selling season to complement our existing store base. These seasonal stores provide us with opportunities to drive incremental sales, test new markets and further strengthen the Wilsons Leather brand nationally. In the future, we plan to evaluate and test new growth vehicles, including new retail channels, compatible new store concepts and new product offerings.


Merchandise Category	2007			2006

Accessories		44.9	%		41.4	%
Women’s apparel		27.0	%		28.0	%
Men’s apparel		28.1	%		30.6	%

Total		100.0	%		100.0	%

~~Product Design~~ Sourcing and ~~Merchandising~~Quality Assurance

~~Our~~ With ~~mission~~our isshift totoward ~~tailor~~designer ~~our~~brand ~~merchandising~~merchandise ~~to a~~mentioned ~~targeted~~ above, ~~customer~~we ~~base~~will bysignificantly ~~offering~~reduce athe ~~broad~~volume ~~selection~~ of ~~quality merchandise~~private ~~at attractive prices. We offer more than 3,200~~label ~~styles~~ product ofwe ~~leather~~directly ~~outerwear,~~design ~~accessories,~~ and ~~apparel throughout our stores~~source. The ~~accessories~~majority ~~consist primarily~~ of ~~gloves,~~our ~~handbags,~~ product ~~wallets,~~will ~~briefcases,~~be ~~computer~~purchased ~~cases,~~from ~~planners~~third ~~and belts.~~party ~~Our~~domestic ~~merchandising staff~~vendors. Specifically, ~~including~~our ~~buyers~~mall ~~and~~stores ~~designers, continually~~will ~~monitors~~carry ~~emerging~~100% ~~trends~~designer ~~and changing consumer~~brand ~~preferences~~ product. ~~and~~As ~~utilizes~~a ~~information~~result, ~~provided by our customers to ensure that~~ we ~~maintain~~have adecided ~~consistent and up-~~to~~-date~~ ~~selection of~~close ~~products.~~the Tomajority ~~further minimize~~ of our ~~inventory~~overseas ~~risk~~sourcing ~~and~~office ~~maximize our~~locations ~~sales~~in ~~performance,~~the ~~our~~first ~~merchandising~~quarter ~~team utilizes an~~of ~~advanced~~ 2008 ~~management~~and ~~information~~will ~~system~~have toa ~~test~~minimal ~~new~~direct ~~merchandise~~ presence in ~~many~~China, ofHong ~~our stores before making large commitments and~~Kong ~~purchase~~ and ~~orders~~India ~~with~~going ~~our suppliers~~forward.

We During ~~believe~~2007, ~~that~~and throughout our ~~integrated~~past, ~~worldwide~~our sourcing infrastructure and ~~in-house~~strong ~~design~~relationships ~~capabilities~~with ~~enable~~our overseas suppliers allowed us to ~~gain~~effectively ~~numerous~~control merchandise ~~competitive~~ production ~~advantages~~without owning manufacturing facilities. AsOur designers ~~new~~and ~~market~~buyers ~~trends~~worked ~~are~~closely ~~identified~~with our sourcing team to identify and develop leather styles, colors and finishes. During 2007, we maintained a staff of approximately 33 professionals ~~make~~ located ~~merchandise~~in ~~design~~China, ~~decisions~~Hong toKong ~~ensure~~and ~~that~~India ~~key~~who ~~features~~were ofprimarily ~~fashion~~ responsible ~~merchandise~~for ~~are~~overseeing ~~incorporated~~the production and quality assurance process in ~~future~~overseas ~~designs~~factories and were supervised by the sourcing team at our corporate headquarters. ~~Our~~Their ~~in-house~~ responsibilities ~~design~~included ~~staff~~inspecting ~~will~~leather ~~create~~at ~~and~~the ~~develop~~tanneries, coordinating ~~designs~~the production capacity, matching product samples to ~~ensure~~our technical specifications, and providing technical a assistance ~~consistent~~and quality assurance through inspection in the factories. In 2007, ~~theme~~approximately 65% of our outerwear and accessories ~~image~~were manufactured by approximately 60 independently owned manufacturing facilities located primarily in China and India. AsGoing ~~part~~forward, ofour ~~the~~merchandising ~~design~~department will be ~~process~~ working primarily with third party domestic vendors to choose the right mix of designer brand merchandise. However, we ~~also~~will maintain ~~consider~~a ~~the~~minimal ~~anticipated~~presence ~~retail~~in ~~prices~~China, Hong Kong and India ~~profit~~ working ~~margins~~from ofa ~~the~~single ~~merchandise~~office location, with only three full-time professionals in Hong Kong, who will work closely with the merchandising team at our corporate headquarters performing primarily merchandising and quality assurance functions.

Store Formats and Locations

As of February 2, 2008, we operated 391 retail stores (including the 158 liquidation stores) located in 42 states, including 259 mall stores, 118 outlet stores and 14 airport locations. While we had historically supplemented our permanent stores with temporary seasonal stores during our peak selling season, operation of our temporary seasonal stores was suspended in 2006. We do not intend to operate any temporary seasonal stores in the foreseeable future.

In addition, our e-commerce site at www.wilsonsleather.com offers leather outerwear, accessories and apparel, as well as company background and financial information.

~~availability~~ Store ofLocations ~~leather~~as ~~and raw materials and the capabilities~~ of ~~the~~February 2, ~~factories that will manufacture the~~2008: ~~merchandise.~~

Some key elements for merchandising our stores include:


									Liquidation Stores
State	Mall		Outlet		Airport		Total		Mall		Outlet

Alabama		—		1		—		1		—		—
Arizona		2		1		—		3		1		—
California		24		14		1		39		15		—
Colorado		4		4		—		8		2		—
Connecticut		6		1		—		7		3		—
Delaware		2		1		—		3		1		—
Florida		8		8		1		17		5		—
Georgia		8		5		3		16		5		—
Iowa		4		1		—		5		3		—
Idaho		1		—		—		1		1		—
Illinois		22		4		5		31		19		—
Indiana		6		2		—		8		5		—
Kansas		2		1		—		3		1		—
Kentucky		2		—		—		2		2		—
Louisiana		—		2		—		2		—		—
Massachusetts		8		2		—		10		5		—
Maryland		8		4		—		12		3		—
Maine		1		2		—		3		1		—
Michigan		16		3		—		19		11		1
Minnesota		11		3		1		15		5		—
Missouri		3		3		—		6		2		—
Mississippi		—		2		—		2		—		—
North Carolina		7		3		—		10		3		—
North Dakota		3		—		—		3		1		—
Nebraska		1		—		—		1		—		—
New Hampshire		4		2		—		6		2		—
New Jersey		7		3		—		10		2		—
New Mexico		2		1		—		3		2		—
Nevada		1		3		—		4		—		—
New York		15		4		—		19		9		1
Ohio		14		4		—		18		11		1
Oklahoma		2		—		—		2		—		—
Oregon		5		1		—		6		2		—
Pennsylvania		14		5		1		20		8		—
South Carolina		—		5		—		5		—		1
South Dakota		2		—		—		2		2		—
Tennessee		6		4		—		10		3		—
Texas		10		8		—		18		4		—
Utah		1		1		1		3		—		—
Virginia		7		3		1		11		5		—
Washington		9		3		—		12		3		—
Wisconsin		11		4		—		15		7		—

GRAND TOTAL		259		118		14		391		154		4

• Site ~~identifying~~Selection ~~customer~~for ~~lifestyle~~Store ~~segments~~Openings ~~based on demographic factors such as age, fashion awareness, purchasing behavior, income, location~~ and Closings. We ~~ethnicity;~~use •a ~~building~~detailed ~~strong~~process ~~brand~~to ~~recognition~~identify favorable ~~and~~store ~~utilizing~~locations ~~our~~in ~~proprietary~~existing ~~labels~~or tonew ~~target~~markets. ~~customer~~Within each ~~lifestyle~~targeted ~~segments;~~market, •we ~~driving~~identify ~~accessories~~potential ~~growth~~sites ~~through~~for new ~~styles~~and replacement ~~designed to attract customers into our~~ stores; ~~and~~by •evaluating ~~actively~~market ~~managing~~dynamics. ~~pricing~~Our tosite selection ~~maintain~~criteria ~~value for the largest possible customer base.~~include:

We• ~~believe~~customer ~~that~~segment ~~the~~and ~~name~~demographic ~~and~~data ~~reputation~~derived from our point-of-sale ~~the Wilsons~~network ~~Leather~~and ~~brand~~outside ~~assures~~sources; ~~customers~~• ~~they~~information ~~are purchasing~~relating ~~quality~~to ~~and~~population ~~fashionable~~density ~~merchandise.~~in ~~Approximately 90%~~concentric ofcircles surrounding the ~~merchandise~~center; in• ~~our~~the performance of past temporary seasonal stores iswithin ~~designed~~the ~~and~~center; ~~sold~~• ~~under our~~the ~~proprietary~~proposed ~~labels:~~location ~~M. Julian®~~within the center; and • projected profitability, ~~Maxima®~~cost, ~~Pelle~~ ~~Studio®~~return on investment, and ~~Wilsons~~cash-flow ~~LeatherTM~~objectives.

~~Each~~ Our ofcross-functional ~~our~~review ~~labels~~committee isapproves ~~supplemented~~proposed ~~with in-~~store ~~promotions~~ projects, ~~and~~including ~~visual~~new ~~presentations~~sites toand ~~further~~lease ~~emphasize~~renewals. We ~~customer~~ periodically ~~lifestyle~~evaluate ~~segmentation.~~our Westores ~~additionally~~to ~~offer~~assess athe ~~limited~~needs for ~~selection~~ remodeling ofor ~~other~~the ~~designer~~timing ~~brands~~of ~~such~~possible asclosure ~~Kenneth~~based ~~Cole®~~on economic factors. Our real estate, store planning and ~~Andrew~~executive management ~~Marc®~~teams inanalyze the performance and profitability of our stores and markets to ~~highlight~~assess the ~~value~~potential offor new and ~~our~~ replacement ~~proprietary~~stores ~~labels~~and to identify underperforming stores. In 2008, we plan to open two outlet stores and close five mall stores (primarily related to natural lease terminations) in addition to the 158 liquidation stores.

The following table sets forth the percentages of net sales by major merchandise category from 2001 to 2003:

	2003			2002			2001
Merchandise Category
Accessories		33.6	%		31.6	%		28.0	%
Women’s apparel		33.1	%		35.0	%		36.3	%
Men’s apparel		33.3	%		33.4	%		35.7	%
Total		100.0	%		100.0	%		100.0	%

Sourcing and Quality Assurance

We have developed strong and long-standing relationships with our manufacturers and tanneries. In 2003, approximately 90% of our leather garments and accessories were manufactured by over 60 independently owned manufacturing facilities throughout Asia and the sub-continent. Our relationships, coupled with our significant purchasing power, enable us to achieve economies of scale and ensure that we can consistently maintain our quality and obtain sufficient manufacturing capacity when needed.

We believe that our extensive knowledge of the world’s leather markets is critical in mitigating price fluctuations in the cost of raw leather during times of high volatility. While we do not normally obtain possession of a significant level of raw material, we assist tanneries and factories in sourcing raw material from all over the world, ensuring broad access to the marketplace. However, from time to time we purchase supplies of leather to take advantage of market opportunities to ensure reserves of quality materials at acceptable prices. Raw leather is primarily sourced in Italy and South Korea, with additional product sourced from South America, Australia, China and New Zealand. Our buying strategies, coupled with our expertise in leather development, enable us to purchase entire lots of raw leather and use varying grades of raw leather in different products, providing us with significant price advantages.

Our sourcing infrastructure and strong relationships with our suppliers allow us to effectively control merchandise production without owning manufacturing facilities. Our designers and buyers work closely with our sourcing team to identify and develop leather styles, colors and finishes. We have a staff of 47 professionals located in China, India, Hong Kong, South Korea, Thailand, Italy and South America who are primarily responsible for overseeing the production and quality assurance process in overseas factories and are supervised by the sourcing team at our corporate headquarters. Their responsibilities include inspecting leather

at The ~~the~~following ~~tanneries,~~chart ~~coordinating~~highlights the ~~production capacity,~~number ~~matching~~of ~~product~~stores, ~~samples~~by ~~to our technical specifications~~format, opened ~~and~~or ~~providing~~closed ~~technical~~in ~~assistance~~each ~~and~~of ~~quality assurance~~the ~~through~~last ~~inspection~~three ~~in the factories.~~years:

Our merchandising department works closely with our overseas personnel to coordinate order fulfillment. We have consistently maintained our merchandise production cycle at approximately 90 days. We believe this production cycle is shorter than that of our competitors and allows us to better control our production needs and reorder faster-selling merchandise during our peak selling season. We believe that this strategy results in more effective and efficient inventory management and gives us the ability to manage production as the business climate changes, thus reducing our need for markdowns on merchandise at the end of our peak selling season.


	Mall			Outlet			Airport		Total

Store count as of January 28, 2006		298			110			14		422
Fiscal year ended February 3, 2007
Stores opened		3			6			—		9
Stores closed		(14	)		—			—		(14	)

End of year count		287			116			14		417
Fiscal year ended February 2, 2008
Stores opened		1			4			—		5
Stores closed		(29	)		(2	)		—		(31	)

End of year count		259			118			14		391

Liquidation stores February 15, 2008		154			4			—		158

~~Store~~ Mall ~~Formats~~Stores. As of February 2, 2008, we operated 259 mall stores in 38 states. This includes the 154 mall stores we are closing through liquidation in the first half of 2008. Our mall stores have historically showcased a full range of leather outerwear, accessories and ~~Locations~~apparel primarily under our proprietary labels. Our new accessories store concept in the 100 remaining mall stores will be a designer brand driven store for women, focusing on fashion accessories, primarily handbags, with a limited selection of outerwear. See “Financial strategy — new mall accessories store concept” above for further discussion of the new concept. These stores average approximately 2,560 total leased square feet and are located in all types of shopping malls, serving diverse demographics.

As We ofhad ~~January 31,~~historically ~~2004,~~supplemented weour ~~operated~~mall ~~460 retail~~ stores ~~(excluding~~with ~~the~~temporary seasonal ~~111 liquidation~~ stores) ~~located~~during ~~in 45 states~~our ~~and~~peak ~~the~~selling ~~District~~season. ofWe ~~Columbia,~~did ~~including~~not ~~334 mall~~ operate ~~stores,~~any ~~107 outlet~~temporary seasonal stores ~~and~~in ~~19 airport locations~~2006. We ~~regularly~~do ~~supplement~~not ~~our~~intend to ~~permanent~~operate ~~mall~~any ~~stores with~~ temporary seasonal mall stores ~~during~~in ~~our~~the ~~peak selling season.~~foreseeable ~~From October 2003 through January 2004, we operated 229 seasonal stores~~ future.

~~Our~~ Outlet ~~e-commerce~~Stores. As ~~site~~of atFebruary 2, 2008, we ~~www~~ operated 118 outlet stores in 36 states under the name Wilsons Leather Outletsm.~~wilsonsleather~~ One of these stores operates under the name The Wallet Works®.~~com~~ To ~~offers~~maintain ~~leather~~brand ~~outerwear~~image, we generally locate outlet stores in ~~accessories~~ larger outlet centers in areas away from our mall stores. Our Wilsons Leather Outletsm stores offer clearance items and ~~apparel,~~special outlet-only merchandise as well as ~~company~~certain ~~background~~key in-season products for both men and ~~financial~~ women. ~~information~~Wilsons Leather Outletsm stores average approximately 3,900 total leased square feet. We did not operate any temporary seasonal outlet stores in 2006. We do not intend to operate any temporary seasonal outlet stores in the foreseeable future.

~~Store~~ Airport ~~Locations~~Stores. As as of ~~January~~February 312, 2008, ~~2004:~~ we operated 14 airport stores in eight states. Our airport stores play a key role in growing awareness of the Wilsons Leather name and showcasing our products to millions of travelers who pass by our airport stores each year. These stores average approximately 630 total leased square feet and carry many of our best-selling accessories styles.

State	Mall		Outlets		Airport		Total
Alabama		2		2		—		4
Arkansas		1		—		—		1
Arizona		2		1		—		3
California		33		13		2		48
Colorado		6		3		—		9
Connecticut		5		1		—		6
Delaware		3		1		—		4
Florida		9		7		1		17
Georgia		11		5		3		19
Iowa		5		1		—		6
Idaho		1		—		—		1
Illinois		23		3		5		31
Indiana		8		2		—		10
Kansas		2		—		—		2
Kentucky		4		—		—		4
Louisiana		2		1		—		3
Massachusetts		11		2		—		13
Maryland		7		4		—		11
Maine		3		2		—		5
Michigan		18		3		—		21
Minnesota		14		3		1		18
Missouri		5		3		—		8
Mississippi		—		2		—		2
North Carolina		8		3		—		11
North Dakota		3		—		—		3
Nebraska		2		—		—		2
New Hampshire		4		2		—		6
New Jersey		10		3		1		14
New Mexico		2		1		—		3
Nevada		2		3		—		5
New York		21		5		—		26
Ohio		17		3		—		20
Oklahoma		3		—		—		3
Oregon		6		1		—		7
Pennsylvania		18		4		2		24
Rhode Island		1		1		—		2
South Carolina		—		4		—		4
South Dakota		2		—		—		2
Tennessee		7		4		—		11
Texas		19		5		1		25
Utah		2		1		1		4
Virginia		6		3		1		10
Washington		11		2		—		13
Wisconsin		13		3		—		16
West Virginia		1		—		—		1
District of Columbia		1		—		1		2
GRAND TOTAL		334		107		19		460

e-commerce. Our e-commerce site, www.wilsonsleather.com, offers an extension of our store experience and is intended to increase brand awareness, strengthen the relationship with our customers, make our merchandise more accessible to our customers and facilitate cross-marketing with our stores. We are also using e-mail as a means of reaching out to our customers. Our e-commerce site features key in-season merchandise as well as promotional merchandise. In 2007, our on-line net sales grew 11.1% to $7.4 million as compared to $6.7 million in 2006. We plan to continue to invest prudently in the development and maintenance of our on-line presence, with the Internet serving as an additional shopping format for our customers, as well as a vehicle for building brand awareness. The administration and marketing of our e-commerce site is outsourced to a third party vendor who performs similar services for other specialty retailers.

~~Site~~ Store ~~Selection~~Operations. Our ~~for~~store ~~Store~~operations ~~Openings and~~are ~~Closings~~ organized by region. WeDuring ~~use~~2007, aour ~~detailed~~mall ~~process~~and toairport stores ~~identify~~ were ~~favorable~~divided ~~store~~into ~~locations~~two inregions, ~~existing~~and orour ~~new~~outlet ~~markets.~~stores comprised a ~~Within~~ third region, with each ~~targeted~~region ~~market~~subdivided into districts. During 2008, weas ~~identify~~a ~~potential~~result ~~sites~~of ~~for~~the ~~new~~ closing of the liquidation stores and significantly ~~replacement~~lower store base, our mall stores bywill ~~evaluating~~comprise one ~~market~~region ~~dynamics.~~and ~~Our~~our ~~site~~outlet and airport stores will comprise a ~~selection~~ second ~~criteria~~region, ~~include:~~with each of these

• customer segment and demographic data derived from our point-of-sale network and outside sources; • information relating to population density in concentric circles surrounding the mall; • the performance of past seasonal stores within the mall; • the proposed location within the mall; and • projected profitability, cost, return on investment and cash-flow objectives.

~~Our~~ regions ~~cross-functional~~subdivided ~~review~~into ~~committee~~districts. ~~approves proposed~~Each ~~store~~district ~~projects,~~manager ~~including new sites and lease renewals.~~is We responsible ~~periodically~~for ~~evaluate~~anywhere ~~our~~from ~~stores~~nine to ~~assess~~14 ~~the~~stores. ~~needs for~~Individual ~~remodeling~~ stores orare ~~the~~staffed ~~timing~~by ofa ~~possible~~manager, ~~closure~~an ~~based~~assistant onmanager ~~economic~~and a ~~factors.~~ complement Weof ~~use~~full- ~~our~~and ~~knowledge~~part-time ofsales ~~market~~associates ~~areas~~whose ~~and~~numbers fluctuate ~~rely~~based upon ~~the familiarity~~expected ~~of our name~~ and ~~our~~actual ~~national~~sales. ~~reputation~~A ~~with~~typical store ~~landlords~~ manager tohas ~~enhance~~on ~~our~~average ~~ability~~over tofour ~~obtain~~years ~~prime~~experience ~~store~~with ~~locations~~our ~~and~~ company. ~~negotiate~~Store ~~favorable~~managers ~~lease~~are ~~terms.~~responsible Infor ~~2004,~~hiring weand ~~plan to open~~associate ~~four~~ training, ~~stores~~operations ~~(primarily~~including, ~~outlets)~~among ~~where~~other wethings, ~~have pre-existing~~visual ~~commitments~~ display and ~~close~~inventory ~~approximately~~control 30and tosales. 40All ~~store~~other ~~locations~~aspects of ~~(primarily~~ store asoperations aare ~~result~~administered ofcentrally ~~natural~~by ~~lease~~our ~~terminations)~~corporate offices.

We A ~~maintain~~core aaspect ~~dedicated~~of ~~staff~~our ~~with~~corporate ~~extensive experience~~culture inis ~~opening~~to focus on employee training and ~~closing~~customer ~~our~~service. ~~temporary~~We ~~seasonal~~emphasize ~~stores,~~sales associate ~~which~~ training weto ~~leverage~~ensure ineach associate has knowledge of our merchandise ~~other~~and ~~concepts~~our target customer. ~~Once~~Our aassociates ~~seasonal~~receive ongoing ~~store~~training in the unique properties of leather, the ~~site~~ appropriate ismethods ~~selected~~of ~~and~~care for the ~~lease~~various isleather ~~executed~~finishes and the product specifications and details of our merchandise. In addition, we ~~are~~train ~~usually~~associates ~~able~~ to ~~open~~perform aminor ~~store~~repairs ~~within~~in ~~three days~~our stores for customers free of charge.

~~Our~~ We ~~real~~regularly ~~estate,~~evaluate ~~store~~our ~~planning~~customer ~~and~~service ~~executive management teams analyze the~~ performance ~~and profitability of~~through ~~our~~ on-line ~~stores~~customer ~~and~~satisfaction ~~markets to assess the potential for new and replacement stores and to identify underperforming stores. We estimate that our average net investment in our permanent mall stores is approximately $236~~surveys,~~000~~ ~~and~~direct ~~approximately~~surveys ~~$319,000 for~~of ~~our~~ customers ~~outlet~~who ~~stores,~~return ~~including~~merchandise ~~inventory~~ and ~~capital~~mall ~~investment, net~~intercept ~~of landlord contributions~~surveys. ~~In 2004, we expect new stores to~~ ~~generate~~ Issues arelating ~~three-year internal rate of return of approximately 15% and have an average discounted payback period of two~~ to ~~three years.~~ Wepolicy, ~~cannot~~procedure ~~ensure~~or ~~that~~merchandise ~~our future store~~are ~~openings~~ frequently ~~will~~reviewed ~~have similar results~~ to ~~those~~improve ~~experienced~~service inand ~~the past~~quality.

The following chart highlights the number of stores, by format, opened or closed in each of the last three years:

		Mall			Outlet			Airport			Total
Store count as of February 3, 2001			468			74			31			573
Fiscal year ended February 2, 2002
	Stores opened		39			34			7			80
	Stores closed		(15	)		(14	)		(5	)		(34	)
	End of year count		492			94			33			619
Fiscal year ended February 1, 2003
	Stores opened		12			22			—			34
	Stores closed		(21	)		(6	)		(8	)		(35	)
	End of year count		483			110			25			618
Fiscal year ended January 31, 2004
	Stores opened		6			11			—			17
	Stores closed		(50	)		(8	)		(6	)		(64	)
	Stores in liquidation		(105	)		(6	)		—			(111	)
	End of year count		334			107			19			460

Mall Stores. We operated 334 permanent mall stores (excluding 105 stores in liquidation) as of January 31, 2004. Our mall stores showcase a full range of leather outerwear, accessories and apparel primarily under our proprietary labels. These stores average approximately 2,600 total leased square feet and are located in all types of shopping malls, serving diverse demographics. A typical mall store will carry a selection of approximately 1,300 different styles of our merchandise.

We further supplement our permanent mall stores with temporary seasonal stores to better capitalize on our peak selling season. In 2003, we operated 213 seasonal mall stores. We plan to operate approximately 100 seasonal mall stores in 2004. Our temporary seasonal stores provide us the opportunity to test prospective

mall locations and are generally located in malls where there is not a permanent store. A typical seasonal store will carry approximately 450 styles of our merchandise.

Outlet Stores. Our 107 outlet stores (excluding 6 outlet stores in liquidation) are located in 36 states and operate under the names Wilsons Leather Outlet and Wallet Works. To maintain brand image, we generally locate outlet stores in large outlet centers in areas away from our permanent mall stores. Our Wilsons Leather Outlet stores offer clearance items and special outlet-only merchandise as well as certain key in-season products. Wilsons Leather Outlet stores average approximately 4,000 total leased square feet and generally carry approximately 2,200 styles of merchandise. Our Wallet Works stores average 1,400 square feet and carry only accessories. We currently have minimal Wallet Works stores open and plan to close the remaining locations over time. In 2003 we supplemented our permanent outlet stores with temporary seasonal outlet stores to better capitalize on our peak selling season. We operated 16 seasonal outlet stores in 2003. We do not plan to open any seasonal outlet stores in 2004.

Airport Stores. We launched our airport stores in an effort to showcase our Wilsons Leather brand and accessories. Our 19 airport stores play an instrumental role in growing brand awareness and showcasing our products to millions of travelers who pass by our airport stores each year. These stores average approximately 700 total leased square feet and carry approximately 1,000 of our best-selling styles, primarily accessories.

E-Commerce. Our e-commerce site “www.wilsonsleather.com” offers an extension of our store experience and is intended to increase brand awareness, strengthen the relationship with our customers, make our merchandise more accessible to our customers and facilitate cross-marketing with our stores. We are also using e-mail as a means of reaching out to our customers. The e-commerce site features key in-season merchandise as well as promotional merchandise and has been revamped to decrease the cost structure and improve customer service. In 2003, we had 2.5 million visitors at our www.wilsonsleather.com e-commerce site, compared to 1.9 million in 2002, and achieved $4.5 million in online sales, which equates to a flat year-over-year comparison. We plan to continue to invest prudently in the development and maintenance of our online presence, with the Internet serving as an additional shopping format for our customers, as well as a vehicle for building brand awareness. We plan to outsource the e-commerce operations to a third party during the second quarter of 2004.

Store Operations. Our store operations are organized by region. The mall, outlet and airport stores are divided into four regions, with each region subdivided into districts. Each district manager is responsible for approximately 14 stores. Individual stores are staffed by a manager, an assistant manager, and a complement of full and part-time sales associates whose numbers fluctuate based upon expected and actual sales. A typical store manager has an average of four years experience with our company. Store managers are responsible for sales and other operations including hiring and associate training, visual display and inventory control. All other aspects of store operations are administered centrally by our corporate offices. Temporary seasonal stores have a dedicated staff with the same responsibilities as the staff of our permanent stores. Temporary seasonal stores also provide an opportunity to develop and assess the skills of associates being considered for future permanent store management positions.

A core aspect of our corporate culture is to focus on employee training and customer service. We emphasize sales associate training to ensure each associate has knowledge of our merchandise and the customer segments that the various labels are designed to serve. Our associates receive ongoing training in the unique properties of leather, the appropriate methods of care for the various leather finishes and the product specifications and details of our merchandise. In addition, we train associates to perform minor repairs in the store for customers free of charge.

We regularly evaluate our customer service performance through customer comment cards, direct surveys of customers who return merchandise and mall intercept and telephone interview surveys. We also periodically conduct customer focus groups. Issues relating to policy, procedure or merchandise are frequently reviewed to improve service and quality.

Distribution

Merchandise for our stores iswas shipped directly from domestic merchandise vendors or overseas manufacturers to our distribution center located in Brooklyn Park, Minnesota ~~and, until~~or itto ~~was~~a third-party ~~closed~~distribution facility in ~~January 2004~~Kent, ~~our~~Washington. We discontinued use of the distribution facility in Kent, ~~center~~ Washington late in ~~Las Vegas~~the fourth quarter of 2007. With the significantly decreased store base as a result of the liquidation, ~~Nevada~~we no longer have the merchandise volume to justify use of two distribution centers. We are party to a 15-year operating lease, with a five-year option to extend, for our 289,000 square-foot distribution center in Brooklyn Park, Minnesota that is equipped with automated garment-sorting equipment, automated accessory packing equipment, and hand-held radio frequency scanners for rapid bar code scanning and enhanced merchandise control. ~~Approximately 30~~During 2007, approximately 20% of the merchandise received inwas ~~the distribution center is~~ immediately sent to our stores through cross-docking via the Kent, ~~which~~Washington distribution ~~allows~~ center, which allowed for ~~minimal~~reduced ~~handling~~logistics expense and ~~storage~~improved speed to market. ~~Additional~~Merchandise ~~merchandise~~ is ~~stored~~shipped into ~~the~~our Brooklyn Park, Minnesota distribution center to replenish stores weekly ~~with~~ with key styles and to build inventory for the peak holiday selling season. Through the integration of merchant and distribution systems, we are able to frequently replenish goods ~~frequently~~ to ensure that our stores maintain an appropriate level of inventory. ~~As was~~ ~~mentioned in “—Reorganization and Partial Store Liquidation,” we ceased distribution activities and closed the Las Vegas, Nevada distribution center in January 2004.~~

Marketing and Advertising

Our marketing strategy isin to2008 ~~position~~will ~~Wilsons~~focus on developing our new ~~Leather~~ accessories asstore ~~the~~concept ~~preferred~~in ~~retailer~~our ofmall ~~quality~~stores ~~leather~~and ~~products~~ revitalizing/enhancing ~~for~~ our ~~target~~existing ~~customer,~~outlet ~~capitalizing~~and onairport ~~our position~~channels. as As ~~the~~mentioned ~~leading~~earlier ~~specialty~~in ~~retailer~~“Financial ofstrategy — ~~leather outerwear,~~new mall accessories ~~and~~store ~~apparel~~concept,” inwe ~~the~~will ~~United~~be ~~States.~~remodeling ~~Through compelling~~our ~~fashion~~ 100 ~~photo~~remaining ~~imagery~~mall instores ~~our~~to ~~stores~~a ~~and~~new accessories store ~~fronts, the~~concept. ~~Wilsons~~ This ~~Leather~~new concept will be a designer brand ~~identity~~driven ~~and~~store ~~current~~for women, focusing on fashion ~~trends are~~accessories ~~communicated~~with toa ~~customers~~limited selection of outerwear. Our ~~airport~~new ~~stores~~concept ~~showcase~~will ~~the~~provide great design and ~~Wilsons~~ innovative ~~Leather~~products ~~brand~~from toboth ~~millions~~known ofand ~~travelers~~emerging ~~annually~~designers. The in stores ~~some~~will ofbe ~~the~~dramatic, ~~busiest~~with ~~airports~~a sophisticated, contemporary, feminine design that highlights products in the ~~world.~~style ~~Our e-commerce~~of ~~site~~ high-end ~~makes~~boutiques. ~~our~~These ~~merchandise~~stores ~~more~~will ~~accessible~~have tonew ~~customers~~wall graphics, ~~increases~~ signage, ~~brand~~ticketing, ~~awareness~~ and ~~facilitates~~store ~~cross-marketing~~display fixtures that will ~~efforts~~ highlight ~~with~~the ~~our~~designer ~~brick-and-mortar~~brands ~~stores~~we offer.

~~Marketing~~ Our tooutlet astores ~~customer’s~~will ~~lifestyle~~also ~~supports our~~offer ~~proprietary~~new ~~label~~merchandise ~~collections.~~in ~~Each label targets specific~~both ~~lifestyles~~ accessories and ~~offers~~ apparel ~~and accessories ranging from classic to contemporary styling~~. ~~Targeting~~We ~~Americans~~will ~~between~~update ~~the ages~~our ofwall 18graphics and ~~37 is a key marketing initiative. Market research~~ we signage ~~completed during 2002 and 2003 indicates that those consumers are high-potential, high-volume customers. In addition, we believe cross-channel brand marketing will be an important driver~~ in ~~our~~the ~~future success. By leveraging our various selling formats— malls,~~ outlets, ~~airports~~as ~~and~~well ~~our e-commerce site— we intend~~ to ~~strengthen~~highlight ~~Wilsons~~the ~~Leather~~increased inmix ~~the~~of ~~marketplace~~ designer asbrand ~~the fashion leather leader~~product.

Our ~~marketing~~airport ~~efforts~~stores ~~extend~~showcase tothe ~~our~~Wilsons ~~corporate partners~~Leather asname ~~well. In a move to target more than 75 million~~and ~~NASCAR~~ some ~~fans, we launched an exclusive line~~ of ~~Dale~~our ~~Earnhardt Incorporated~~best ~~products.~~selling ~~The products, including leather jackets and~~ accessories ~~bearing~~travel ~~the~~brands ~~marks~~to millions of ~~Dale~~travelers ~~Earnhardt Jr., the~~annually ~~Dale~~in ~~Earnhardt~~some ~~LegacyTM program and NASCAR®, are sold exclusively throughout Wilsons Leather stores nationwide. The official launch~~ of the ~~program~~busiest ~~was~~airports ~~promoted and advertised~~ in ~~leading NASCAR publications in~~ the ~~spring of 2003.~~ In United ~~addition, we launched an exclusive line of Tony Stewart® products through Joe Gibbs Racing, Inc~~States. Our ~~NASCAR licensed~~ ~~products~~ e-commerce site ~~have~~makes ~~been popular with~~ our ~~customers~~merchandise ~~and~~more weaccessible ~~expect~~ to ~~continue~~ ~~to enhance this product line. In addition~~customers, ~~in spring~~ ~~2004,~~ increases webrand ~~added~~awareness aand ~~motorcycle~~facilitates ~~theme with a promotion through Kawasaki. Our~~ cross-marketing ~~emphasis for spring 2004 has been~~ ~~focused~~ efforts onwith ~~highlighting~~ our ~~merchandise~~brick ~~through~~and ~~brightly~~mortar ~~colored store signage~~stores.

We ~~circulated~~market ~~freestanding~~to ~~inserts~~specific inlifestyles ~~various~~and offer outerwear, ~~newspapers~~ accessories ~~during~~and ~~our~~apparel ~~seasonal~~in ~~promotional~~styles ~~period~~ranging ~~during~~from ~~2003~~classic, to ~~and~~ contemporary, ~~expect~~ to ~~continue~~high tofashion. ~~make~~We ~~use~~target ofhigh ~~this~~potential, high-volume ~~form~~customers between the ages of ~~promotion~~25 ~~in key~~and ~~markets~~55. ~~across~~In the ~~United~~case of ~~States~~our ~~during~~new ~~2004~~accessories mall store concept, we will be focusing entirely on fashion conscious women. We

~~Information Systems~~ 7

Since 1997, we have invested more than $29.0 million in improving our information systems, completing the replacement of major operating platforms in the functional areas of merchandising, finance, human resources, manufacturing and store point-of-sale and back-office systems. These systems provide all levels of our organization access to information, powerful analytical tools to improve our understanding of sales and operating trends and the flexibility needed to anticipate future business needs. We believe that our current

~~systems,~~ are ~~which~~in ~~are~~the ~~fully~~process ~~scalable~~of toevaluating ~~accommodate future~~several ~~growth,~~different ~~are~~forms ~~adequate~~of media promotion to ~~meet~~better reach our ~~operational~~target ~~plans~~customer ~~over the~~in ~~next several years~~2008.

~~Our point-of-sale and back-office systems have~~ ~~been designed to, among other things, free store employees’~~ Licensing time so that they can focus on serving our customers. Our point-of-sale system gives each store the ability to view inventory at other store locations, automates store operations, human resource and inventory management documentation and enables customer information collection. On a daily basis, we obtain sales and inventory data from stores, facilitating merchandising decisions regarding the allocation of inventory, pricing and inventory levels. Our connection to our overseas product sourcing offices provides both field management and home office personnel access to pertinent business information. The continuous flow of information to and from our overseas personnel permits us to control inventory better, plan manufacturing capacity, regulate merchandise flow and ensure product consistency among manufacturers.

Our sales of licensed products were an important part of our business. Licensed product net sales were $4.3 million, $10.9 million and $13.3 million in 2007, 2006 and 2005, respectively. However, with the shift in strategy to the new mall accessories store concept and our decision to exit the wholesale business, we have decided to discontinue our current licensing relationships. We may, in the future, seek new licensing strategies as our new accessories store concept evolves.

Our primary licensed merchandise had been with some of the top NASCAR^® drivers for a line of products including men’s and women’s fashion leather jackets, handbags and other accessories bearing the marks of these popular drivers. Under these licensing agreements, we were generally required to achieve a minimum level of net sales, pay specified royalties and receive prior approval from the licensor as to all elements of the licensed merchandise we offered. We were also limited as to the selling channels we could use and were precluded from competing with certain licensor channels. The licensor generally maintained the right to terminate our license agreement if we failed to satisfy the specified requirements. Certain of our license agreements have provisions requiring minimum sales and related royalty commitments be met. All required royalty commitments had either been met or were accrued for as of the end of 2007. However, subsequent to year end, we have stopped making these payments as part of our cost reduction initiatives.

Information Systems

We continually assess and upgrade our information systems in an effort to better support our stores’ operations and home office administrative functions. Over the past several years, we have made considerable investments in improving our information systems and completing the replacement of major operating platforms in the functional areas of merchandising, finance, human resources, manufacturing, and store point-of-sale and back-office systems. Most recently, in 2006 we completed a significant upgrade to our financial systems, replaced the core components of our store point-of-sale systems hardware, installed traffic counters in certain stores on a pilot basis, and implemented a data warehouse to provide more timely and detailed information. During 2007, we commenced work on a new point-of-sale system that we plan to roll out to our stores in 2008. These systems provide all levels of our organization access to information, powerful analytical tools to improve our understanding of sales and operating trends and the flexibility needed to anticipate future business needs. We believe that our current systems, along with planned upgrades, are adequate to meet our operational plans over the next several years.

Our point-of-sale and back-office systems have been designed to, among other things, free store associates’ time so that they can focus on serving our customers. Our point-of-sale system automates store operations and gives each store the ability to view inventory at other store locations, access human resource and inventory management documentation and enables customer information collection. On a daily basis, we obtain sales and inventory data from our stores, facilitating merchandising decisions regarding the allocation of inventory, pricing and inventory levels.

Competition

The retail leather outerwear, accessories, and apparel industry is both highly competitive and fragmented. We believe that the principal bases upon which we compete are selection, style, quality, price, value, store location, and service. We compete with a broad range of other retailers, including specialty retailers, department stores, mass merchandisers and discounters, and other retailers of leather outerwear, ~~apparel~~ accessories and ~~accessories~~apparel. ~~During~~Over ~~2003~~the wepast ~~faced~~few ~~increased~~years, mall traffic has been trending downward, off-mall retail venues have gained popularity and competition has continued to increase from non-specialty ~~the~~discounters and mass merchandisers, ~~and~~as ~~discounters~~they have significantly expanded into leather outerwear at promotional price points. We have found that we have different competitors during different times of the year. For example, our competition with department stores increases during the holiday gift giving season. While our prices are competitive and we believe our quality is superior, we lack the marketing leverage these parties can bring to bear during the fourth quarter when they promote leather outerwear.

Trademarks

We conduct our business under various trade names, brand names, trademarks, and service marks in the United States, including M. Julian®, Maxima®, Pelle Studio®, Wilsons The Leather ~~ExpertsTM~~ Expertstm, Tannery West®, Georgetown Leather Designtm, The ~~DesignTM~~Wallet Works®, ~~WalletWorksTM~~ Wilsons Leathertm, Wilsons ~~LeatherTM~~Leather Outletsm, Handcrafted by Wilsons The Leather ~~ExpertsTM~~ Expertstm, ~~and~~ and Vintage by Wilsons The Leather ~~ExpertsTM~~ Expertstm. However, our Wilsons Leather branded items are becoming a significantly smaller percentage of our business and eventually will be sold only in our outlet stores and through our e-commerce Website.

Employees

As of ~~January~~February 312, ~~2004~~2008, we had ~~approximately~~2,998 associates working for 4 our company. Of these,~~150~~ 232 were corporate office and distribution center associates, 949 were full-time and 1,784 were part-time associates, ~~including approximately~~in ~~950 associates~~our ~~working~~stores atand ~~the~~33 were located in ~~111 liquidation~~ our ~~stores~~far east sourcing offices. ~~During~~In 2007, during our peak selling ~~season,~~ season from October through January, we ~~typically~~employed ~~employ~~ approximately 3 49 additional seasonal associates in our distribution center and approximately 1,~~800~~ 632 additional seasonal associates in our stores. WeOn ~~consider~~February 15, 2008, we announced the liquidation of 158 stores (see “Financial Strategy — Reorganization and Partial Store Liquidation”). As a result, approximately 938 store-related positions were eliminated, as well as 64 positions at our corporate headquarters, overseas offices and distribution center. We consider our relationships with our associates to be good. None of our associates are governed by collective bargaining agreements.

Available Information

Our Internet address is www.wilsonsleather.com. We make available free of charge through our Internet Web site our annual report on Form 10-K, quarterly reports on Form 10-Q, ~~current~~ current reports on Form 8-K , and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Code of Business Ethics and Conduct and our Board of Directors Committee charters are also available via our Web site.

~~Risk Factors~~ 9


Item 1A.	Risk Factors

The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties also may impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would likely suffer.

We will ~~are~~need ~~unable~~funding toduring ~~borrow~~the ~~under~~second ~~our~~quarter ~~senior~~of ~~credit~~fiscal ~~facility~~2008, ~~until~~and there weis ~~obtain~~no ~~financing~~assurance ~~sufficient~~that tofunding ~~pay~~will ~~off the 11 1/4% Senior Notes~~be available.

~~Covenants~~ We ~~contained~~have ~~within~~had ~~our~~recurring losses from operations and negative cash flows from operating activities in 2007 and 2006. Our senior credit facility was amended on February 14, 2008. The amendment, among other things, allowed for the liquidation of 158 stores, revised our borrowing base by adding a $10.0 million reserve, prohibits borrowing under our revolving line of credit until we provide projections and a business plan that are acceptable to our lender, and requires a monthly appraisal of our inventory. In order to execute our go forward plans, we will need to amend some of the restrictions in our current credit facility, ~~prohibit~~or find alternative sources of credit, and raise additional capital during the second quarter. Without additional capital, we may run out of cash in the second quarter of 2008. These conditions led our independent registered public accounting firm to include an explanatory paragraph in its report expressing substantial doubt about our ability to continue as a going concern. We are pursuing possible sources of funding, including possible sales of existing assets. However, there can be no assurance that additional funding will be available or can be obtained on terms that are favorable to us, or at all. We have not received an indication from ~~borrowing~~the ~~under~~lender in our current credit facility that the ~~revolving~~lender ~~portion~~will agree to amend the terms of ~~that~~the facility. ~~and~~If ~~limit~~we are not able to obtain additional capital in the second quarter, we will not be able to continue our ~~letters~~operations outside of ~~credit~~bankruptcy. Under certain bankruptcy events, the Company may be required to redeem shares of its Preferred Stock at their liquidation value, which is the $~~15.0~~45 million (purchase price for those shares plus aany accrued ~~specified~~but ~~letter~~unpaid dividends. However, the redemption would not be permitted by law, unless the Company is able to pay its debts as they come due, and would be prohibited by the terms of its existing credit ~~for~~facility. anThe Company’s financial ~~aggregate~~ statements ~~amount~~do not include any adjustments that might result from the outcome of $3this uncertainty.~~0 million)~~ ~~until~~If ~~funds~~we ~~for~~raise capital through the ~~payment~~ issuance of additional equity securities, the ~~principal~~holdings of existing ~~our~~shareholders ~~11 1/4%~~will ~~Senior~~be diluted.

We may not be able to maintain our listing on the Nasdaq Global Market if we are unable to satisfy the minimum bid price requirements and, if we fail to do so, the price and liquidity of our common stock may decline.

On February 15, 2008, we received notice from The Nasdaq Stock Market stating that for 30 consecutive business days our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 4450(a)(5). The notice had no effect on the listing of our securities at that time, and our common stock continues to trade on the Nasdaq Global Market under the symbol “WLSN”.

In accordance with Nasdaq Marketplace Rule 4450(e)(2), we have 180 calendar days, or until August 13, 2008, to regain compliance. The notice states that if, at any time before August 13, 2008, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq staff will provide written notification that we have achieved compliance with the minimum bid price requirement. No assurance can be given that we will regain compliance during that period. As of April 7, 2008, our closing bid price was $0.19.

If we do not regain compliance with the minimum bid price requirement by August 13, 2008, Nasdaq staff will provide us with written notification that our securities will be delisted. At that time, we may appeal the delisting determination to a Listing Qualifications Panel. Alternatively, we may apply to transfer our securities to The Nasdaq Capital Market if we satisfy the requirements for initial inclusion set forth in Nasdaq Marketplace Rule 4310(c), other than the minimum bid price requirement of Nasdaq Marketplace Rule 4310(c)(4). In such event, we will be afforded an additional 180 calendar days to comply with the minimum bid price requirement while listed on The Nasdaq Capital Market. No assurance can be given that we will be eligible for the additional 180-day compliance period, or, if applicable, that we will regain compliance during any additional compliance period. Delisting of our common stock would have a negative effect on the market price for our shares and could limit our ability to raise additional capital.

~~Notes~~ We ~~are~~have ~~deposited~~not inyet andetermined ~~account~~what ~~controlled~~action, ~~by the~~if ~~Agent~~any, ~~under~~we ~~our~~will ~~senior~~take ~~credit facility. Additional~~in ~~provisions~~ response ~~in our senior credit facility limit our ability~~ to ~~fund~~ ~~the~~this ~~payment of our 11 1/4% Senior Notes from the issuance of indebtedness. On April 25~~notice, ~~2004,~~although we ~~entered into~~intend ~~an agreement related~~ to ~~the~~monitor ~~Equity Financing with three~~the ~~institutional~~ closing ~~investors~~bid toprice ~~sell 17,948,718 shares~~ of our common stock ~~for~~between ~~the~~now ~~aggregate consideration of~~and ~~$35.0~~ August ~~million~~13, ~~which~~2008, ~~if consummated, would provide funds sufficient to pay off the 11 1/4% Senior Notes; however, shareholder approval must be obtained~~ and ~~other conditions must be met before we will receive these funds. See “— Additional Financing.” We can make no assurances that we will be able~~ to ~~consummate~~consider ~~the~~available ~~Equity Financing.~~options Ifif ~~we are unable to close the Equity Financing for any reason, we will need to obtain an alternative source of permitted financing before we can borrow under the revolving portion of~~ our ~~senior credit facility. We can make no assurances~~ ~~that~~ common westock ~~will~~does benot ~~able~~trade ~~to obtain such alternative financing on acceptable terms or~~ at ~~all.~~a Welevel ~~anticipate~~likely ~~that we will need~~ to ~~access~~ ~~our~~result ~~senior~~in ~~credit facility by the middle of July 2004 and~~our if regaining wecompliance dowith ~~not obtain~~ the ~~necessary~~Nasdaq ~~funding~~minimum ~~from~~closing ~~some~~bid ~~source other~~price ~~than operations before such time, we could eventually deplete our cash reserves and become insolvent or have to consider other alternatives, including filing for bankruptcy~~ requirement.

We do may not ~~currently have the funds to pay the principal amount of our 11 1/4% Senior Notes when due in August 2004 and do not anticipate that we will~~ be able to ~~refinance~~exit ~~the~~store 11leases ~~1/4%~~for ~~Senior~~the ~~Notes~~158 ~~with~~liquidation ~~indebtedness~~ stores on terms that are ~~permitted~~acceptable byto ~~our~~us ~~senior~~and ~~credit~~to ~~facility~~our lender.

~~Our~~ A ~~11 1/4% Senior~~key ~~Notes~~component ~~are due on August 15, 2004. We currently do not have the funds to pay the outstanding principal amount~~ of ~~the~~our ~~11 1/4% Senior Notes,~~restructuring ~~which equals $30.6 million. Our senior credit facility prohibits us from incurring any indebtedness which refunds~~efforts, ~~renews,~~and ~~extends~~our orability ~~refinances the~~to ~~11 1/4% Senior~~ finance ~~Notes on terms more burdensome than~~ the ~~current~~ ~~terms~~conversion of ~~such~~our ~~notes,~~mall-based ~~and~~stores ~~the rate of interest with respect~~ to ~~any replacement notes cannot exceed~~ the ~~sum of the~~new ~~rate~~ accessories ofconcept, ~~interest~~relates onto ~~United~~lease ~~States~~terminations ~~treasury~~and ~~obligations of like~~store ~~tenor~~ liquidations atfor ~~the~~our ~~time~~158 ofliquidation ~~such refunding~~stores. Currently, ~~renewal, extension or refinancing, plus 7.0% per annum. We anticipate that~~ we ~~will not~~have be not ~~able~~reached toagreement ~~refund, renew, extend or refinance the 11 1/4% Senior Notes~~ with ~~indebtedness~~landlords ~~that would comply~~ with ~~such~~respect ~~limitations. The senior credit facility permits us~~ to ~~pay~~any ~~off~~of the ~~11 1/4% Senior Notes with proceeds~~ ~~from~~ leases ~~the~~for ~~sale~~our of158 ~~equity~~liquidation stores. In ~~As noted earlier~~addition, weour ~~have entered into~~lender an has ~~agreement~~limited ~~related to~~ the ~~Equity Financing to sell 17,948,718 shares of our common stock for an~~ aggregate ~~consideration~~ ofamount ~~$35.0 million,~~that ~~which,~~we ifmay ~~consummated, would~~pay ~~provide funds sufficient~~ to ~~pay~~exit ~~off the 11 1/4%~~such ~~Senior Notes~~ leases. We ~~However,~~can ~~there~~make is no ~~assurance~~assurances that we will be able to ~~consummate the Equity Financing. If we are unable to pay~~exit ~~off~~ such ~~the~~leases ~~11 1/4%~~on ~~Senior~~terms ~~Notes~~that ~~when they~~ are ~~due,~~acceptable ~~the noteholders would have the right~~ to ~~exercise~~us ~~their legal rights~~ and ~~remedies. In addition, such failure to pay would result in a default under~~ our senior credit facility permitting the senior lenders to accelerate payment of indebtedness (including letters of credit and the Term B promissory note) under the senior credit facility and allow them to pursue other remedies (including foreclosing their liens on our assets)lender. ~~In such~~ event, we would have to consider other alternatives, including filing for bankruptcy. See “We are unable to borrow under our senior credit facility until we obtain financing sufficient to pay off the 11 1/4% Senior Notes.”

~~The~~ We ~~instruments governing our outstanding debt place certain obligations on us and restrictions on our operations, which, if~~ may not ~~met,~~be ~~could~~able ~~result in our inability~~ to ~~borrow~~utilize ~~under~~ our ~~senior~~tax ~~credit~~net ~~facility~~operating ~~or other penalties~~loss carryforwards.

~~Covenants~~ Our ~~contained~~ability ~~within~~to ~~our~~utilize ~~senior~~net ~~credit~~operating loss carryforwards is ~~facility,~~ limited asunder ~~amended~~various provisions of the Internal Revenue Code, including ~~require~~Section 382. usWe tohave ~~meet~~determined ~~certain~~that ~~financial~~changes ~~tests~~in ~~and~~ ownership ~~limit~~under ~~capital~~this ~~expenditures.~~section Inhave ~~addition,~~occurred ~~certain~~on ~~covenants~~June 4, 2003 and ~~restrictions~~May 30, ~~under~~2006. ~~our~~These ~~senior~~ownership ~~credit~~changes ~~facility~~result ~~and the~~in ~~indenture~~ $37.0 million ~~governing~~of ~~our~~the 11 total $136.1~~/4%~~ ~~Senior~~million ~~Notes due~~net ~~August 2004~~ operating ~~limit~~loss ~~our~~carryforward ~~ability~~being tolimited. ~~pay~~On ~~cash~~an ~~dividends~~annual orbasis, approximately ~~make~~$4.1 million of the Section 382 limited ~~other~~ net ~~distributions,~~operating toloss ~~acquire~~will orbecome ~~merge~~available ~~with~~for ~~another~~utilization. ~~entity,~~If towe ~~make~~ raise ~~investments,~~capital ~~loans~~through orthe ~~guarantees,~~issuance toof ~~borrow~~ additional equity ~~funds~~ securities, orthe ~~dispose~~loss carryforwards as of ~~assets~~February 2, 2008 may ~~and~~be subject to ~~create~~annual ~~liens~~limitations orthat ~~other~~could ~~encumbrances,~~ significantly ~~possibly~~reduce ~~affecting~~the ~~our~~aggregate ~~flexibility~~amount inof ~~planning~~carryforwards ~~for,~~ available ~~and~~to ~~reacting~~offset ~~to,~~future ~~changes~~taxable inincome, ~~our~~if ~~business~~any.

~~The failure to comply with the covenants and~~ ~~restrictions~~ We ~~contained in either the senior credit facility or~~may ~~the indenture governing our 11 1/4% Senior Notes could, if~~ not ~~cured~~be orable ~~waived, result in a default permitting the senior lenders~~ to ~~accelerate~~expand ~~payment~~our ofaccessories ~~indebtedness (including~~business ~~letters~~or ~~of credit and the Term B promissory note)~~acquire ~~under~~ suitable ~~the~~accessories ~~senior credit facility and allow them to pursue other remedies (including foreclosing their liens on our assets)~~brands. ~~Acceleration of the indebtedness under the senior credit facility or the~~

In June 2007, we completed a $45.0 million Preferred Stock and Warrant financing. In addition to the influx of capital, this private placement brought us a large new investor, Goldner Hawn Private Equity, to assist in setting our long-term strategic direction. We expect that our future business strategy will build on our previously established initiative of expanding our accessories business. Analysis of our strategic alternatives related to our accessories business includes the potential acquisition of a small, established brand, the potential acquisition, joint venture or licensing agreement surrounding a larger, more well known brand and the offering of popular accessory designer brands. However, our ability to implement these strategies may be limited by our financial resources. As mentioned in “Financial Strategy — New Mall Accessories Store Concept,” we tested a new accessories concept in four of our stores during the 2007 holiday season. On February 15, 2008, we announced that we would liquidate up to 160 mall stores and use the proceeds of the liquidation sales to remodel our 100 remaining mall stores to this new accessories concept (see “Financial Strategy — Reorganization and Partial Store Liquidation”). This new accessories concept will be a designer brand driven store for women, focusing on fashion accessories with a limited selection of outerwear. We have kept only our best mall stores in the best locations for this new concept. Our plan is to remodel all 100 remaining mall stores this year into this new accessories concept, if we have sufficient capital. We believe that expansion of our accessories business through the new concept would attract new customers and improve comparable store sales. However, this strategy is in the early stages of development. There can be no assurance that we will be able to expand our accessories business through either greater acceptance of our new designer brand offerings or acquisition of a suitable accessories brand. If we are not able to successfully develop this new concept, we may not be able to obtain products from desirable designer brands. In addition, certain of our leases contain restrictions on the name we use and the products we sell that may be incompatible with our go forward plans. If we are not able to execute this strategy and attract additional customers, our comparable store sales, operating margins and cash flow will be adversely affected, which would materially and adversely affect our business, financial condition and results of operations.

~~occurrence of another event of default under the~~ ~~indenture governing our 11 1/4% Senior Notes would~~ Our ~~also~~ growth ~~permit~~is ~~the~~dependent ~~holders~~on ofstrengthening the ~~11 1/4% Senior~~operating ~~Notes to~~performance ~~accelerate payment~~ of ~~such~~our ~~notes~~existing stores and ~~allow~~development ~~such~~of ~~holders~~our toaccessories ~~pursue their remedies~~ concept.

Our ability to ~~meet~~grow our ~~debt~~existing ~~service~~business ~~obligations will~~depends bein ~~dependent~~part ~~upon~~on our ability ~~future~~to ~~performance~~appropriately identify, ~~which~~develop ~~will~~and beeffectively ~~subject~~ execute strategies and initiatives related to ~~general~~strengthening ~~economic~~our stores’ ~~conditions~~operations and ~~financial,~~increasing brand acceptance. Our growth over the next several years depends on our ability to successfully and effectively manage our existing business by continuing to revitalize our mall and ~~other~~outlet ~~factors~~stores, ~~affecting~~increase acceptance of our ~~operations~~brand and the designer brands we offer and open new stores on a limited basis as opportunities arise. IfOur ability to grow our business will be limited, however, if we are unable to improve the sales performance and productivity of our ~~generate~~ existing ~~sufficient~~stores. ~~cash~~Failure ~~flow~~to ~~from~~effectively ~~operations~~identify, indevelop ~~the~~and execute ~~future~~strategies and initiatives may lead to increased ~~service~~ operating costs without offsetting benefits and could have a material adverse effect on our ~~debt,~~results weof ~~may~~operations. Our new mall accessories store strategy will be ~~required~~a todesigner ~~refinance~~brand ~~all~~driven store orfor women, focusing on fashion accessories with a limited ~~portion~~ selection of ~~existing~~outerwear. ~~debt~~These orstores will feature popular designer brands and appeal to ~~obtain~~fashion ~~additional~~conscious ~~financing~~women. In our ~~There~~ outlet ~~can~~stores, bewe noare ~~assurance~~also ~~that~~going ~~any~~to ~~such~~offer ~~refinancing~~new ormerchandise in ~~additional~~ both ~~financing~~accessories ~~would~~and beapparel. ~~possible~~However, orour ~~could~~ability to implement these strategies may be ~~obtained~~limited ~~on terms~~by ~~that~~our financial resources. If we are ~~favorable~~not able to ~~us.~~develop our new strategies, attract customers through our new strategies and gain acceptance of our new accessories store concept, our comparable store sales, operating margins and cash flow will be adversely affected, which would have a material adverse effect on our business, financial condition and results of operations.

We Our comparable ~~may~~store ~~not~~sales bedeclined ~~able~~during toeach ~~exit~~of ~~store leases for~~ the ~~111~~last ~~liquidation stores on terms that are acceptable to us and to our senior lenders~~three years.

A Our ~~key~~comparable ~~component of our restructuring efforts relates to lease terminations and~~ store ~~liquidations~~sales ~~for~~decreased ~~our~~by ~~111 liquidation stores~~10. ~~Currently~~4%, we17.2% ~~have~~and ~~not reached agreement with landlords with respect to 78~~2.9% ~~of the leases for the 111~~in ~~liquidation~~ 2007, ~~stores.~~2006 Inand ~~addition~~2005, ~~our senior lenders have limited the aggregate amount that we may pay to exit such leases~~respectively. WeOur ~~can make~~comparable nostore ~~assurances that we will be able to exit such leases on~~sales ~~terms~~ are ~~acceptable~~affected toby usa ~~and~~variety ~~our~~of ~~senior~~factors, ~~lenders.~~including:

~~Changes~~• general economic conditions and, in ~~customer~~particular, the retail sales environment; • consumer shopping ~~patterns~~preferences; ~~could~~• ~~harm~~transition of our ~~sales~~target customer base; • level of acceptance of our designer brand merchandise offerings; • level of acceptance of the Wilsons Leather brand; • actions by competitors or mall anchor tenants; • weather conditions; • fashion trends; • changes in our merchandise mix; • the timing of new store openings and the relative proportion of new stores to mature stores; • maintaining appropriate inventory levels; • calendar shifts of seasonal periods; and • timing of promotional events.

~~Most~~ A ofcontinued ~~our~~inability ~~stores are located in enclosed shopping malls and regional outlet centers. Our ability~~ to ~~sustain~~ orgenerate ~~increase~~comparable ~~the~~store ~~level of~~ sales increases ~~depends~~ in ~~part on~~ the ~~continued~~ ~~popularity~~future ofwould ~~malls~~erode ~~and~~operating ~~outlet~~margins ~~centers~~if aswe ~~shopping~~were ~~destinations~~ unable ~~and~~to ~~the~~implement ~~ability~~additional ofcost ~~malls~~reductions and ~~outlet~~could ~~centers, tenants~~have ~~and other attractions to generate~~ a ~~high volume of~~ ~~customer~~ material ~~traffic.~~adverse ~~Many~~effect ~~factors~~on ~~beyond~~ our ~~control may decrease mall traffic~~business, ~~including,~~financial ~~among~~condition ~~other things, economic downturns,~~and ~~the~~ results ~~closing~~ of ~~anchor department stores, weather, concerns of terrorist attacks, construction and accessibility to strip malls or alternative shopping formats (such as catalogs, e-commerce or discount stores)~~operations. ~~Any changes in consumer preferences and~~ ~~shopping patterns could adversely affect our financial condition and operating results.~~

~~The~~ We ~~high~~are dependent ~~level~~upon ofour ~~competition~~key insuppliers ~~our~~to ~~markets~~implement ~~may~~our ~~lead~~merchandising strategy to ~~reduced~~offer ~~sales~~designer brands in our stores’ accessories and ~~profits~~outerwear product mix.

~~The~~ Our ~~retail~~new ~~leather apparel and~~ accessories ~~markets~~ ~~are~~concept ~~highly~~will ~~competitive~~be ~~and~~a ~~fragmented.~~100% Wedesigner ~~compete~~brand ~~with a~~driven ~~broad~~ store ~~range~~for ~~of other retailers~~women, ~~including~~focusing ~~other~~on ~~specialty retailers,~~fashion ~~department~~accessories ~~stores,~~with ~~mass~~a ~~merchandisers and~~limited ~~discounters,~~ selection ~~many~~ of ~~which have greater financial and other resources~~outerwear. ~~Increased~~These ~~competition~~stores ~~may~~will ~~reduce~~feature ~~sales, increase~~popular ~~operating~~ designer ~~expenses,~~brands ~~decrease profit margins~~ and ~~negatively affect~~appeal ~~our ability~~ to ~~obtain~~fashion ~~site~~conscious ~~locations~~women. ~~and~~We believe ~~sales~~that ~~associates and~~in ~~other~~offering ~~employees.~~these ~~During~~designer ~~2003~~brands, we ~~faced~~will ~~increased competition~~generate ~~from~~ additional ~~mass~~traffic ~~merchandisers~~in ~~and~~our ~~discounters~~stores. ~~There~~The ~~can~~successful ~~be no~~implementation ~~assurance~~ of ~~that~~this wedesigner ~~will~~brand bestrategy ~~able~~will todepend ~~compete~~on ~~successfully~~our ~~in the~~relationships ~~future~~ with ~~and, if we are unable to do so,~~ our ~~financial condition~~ ~~and operating results could be adversely affected.~~

The decline in general economic conditions has led to reduced consumer demand for our leather apparel and accessories, and could adversely affect our business and liquidity.

Our future capital requirements depend on the sustained demand for our leather products. Many factors affect the level of consumer spending on our products, including, among others:

• general business conditions; • interest rates; • the availability of consumer credit; • weather; • continued hostilities in the Middle East and other significant national and international events; and • taxation and consumer confidence in future economic conditions.

~~Consumer~~ key ~~purchases~~suppliers. ofOur ~~discretionary~~inability ~~items, such as our products, tend~~ to ~~decline~~successfully ~~during recessionary periods~~integrate ~~when~~ additional ~~disposable~~designer ~~income~~brands isinto ~~lower.~~our ~~The~~accessories ~~general~~and ~~slowdown in the~~outerwear ~~United~~ merchandise ~~States~~mix ~~economy~~may ~~and~~limit ~~the~~acceptance ~~uncertain~~of ~~economic~~our ~~outlook~~new ~~has~~accessories ~~adversely affected consumer spending habits and mall traffic~~ concept, ~~caused~~ uswhich tomay ~~accelerate~~have ~~store~~a ~~closings,~~material ~~and~~adverse ~~resulted~~effect inon ~~lower~~our ~~than~~ business, ~~expected~~financial ~~net~~condition ~~sales on a quarterly~~ and ~~annual~~results ~~basis~~of operations.

~~Our inability to effectively respond to changes~~ Changes in ~~fashion~~customer ~~trends~~shopping ~~and~~patterns ~~consumer demands~~ could ~~adversely~~harm ~~affect~~ our sales.

~~Our~~ Most ~~success~~of ~~depends on~~ our ~~ability~~stores toare ~~identify fashion~~located ~~and~~in ~~product~~enclosed ~~trends~~shopping asmalls ~~well~~and regional asoutlet ~~our~~centers. Our ability to ~~anticipate, gauge~~sustain ~~and~~or ~~react~~increase ~~swiftly~~the level toof ~~changes~~sales depends in ~~consumer~~part ~~demand.~~on ~~Our products~~the ~~must~~continued ~~remain~~popularity ~~appealing~~of malls ~~for~~and aoutlet ~~broad~~centers ~~range~~as ofshopping ~~consumers~~destinations and the ~~with~~ ability ~~diverse~~of malls and ~~changing~~outlet ~~preferences; however~~centers, ~~our~~tenants ~~orders~~and ~~for~~other ~~products~~ attractions ~~must~~to begenerate ~~placed~~a inhigh ~~advance~~volume of customer ~~purchases~~traffic. WeMany ~~cannot~~ factors bebeyond ~~certain that we will be able to identify new fashion trends and adjust~~ our ~~product~~control ~~mix~~may indecrease amall ~~timely~~traffic, ~~manner. If we~~including, ~~misjudge~~ among ~~market~~other ~~preferences~~things, weeconomic ~~may~~downturns, berising ~~faced~~energy ~~with significant~~prices, ~~excess~~ the ~~inventories~~closing ~~for~~of ~~some~~anchor ~~products~~department ~~and~~stores, ~~missed~~weather, ~~opportunities~~concerns of ~~for~~ terrorist ~~other products. In response~~attacks, weconstruction ~~may~~and beaccessibility ~~forced~~ to ~~rely on~~strip ~~additional~~ malls, ~~markdowns~~ or ~~promotional~~alternative ~~sales~~shopping toformats ~~dispose~~(such ofas ~~excess~~catalogs, ~~slow~~ e-~~moving~~commerce or ~~inventories,~~discount ~~which~~stores). ~~may~~Any ~~have~~changes ain ~~material~~consumer ~~adverse~~preferences and ~~effect~~ shopping onpatterns ~~our~~could ~~business,~~adversely affect our financial condition and ~~results~~operating ~~of operations~~results.

~~In addition, we cannot provide assurance that~~ ~~consumer~~ We ~~sentiment toward and demand for leather will not change~~may or need ~~that we will be able~~ to ~~react~~record toadditional ~~any~~impairment ~~such~~losses ~~changes~~in ~~effectively or at all. For example, certain countries, including~~ the ~~United States~~future and Canada, that supply the hides used to make leather products have experienced outbreaks of certain highly publicized diseases, namely Bovine Spongiform Encephalopathy (“mad-cow” disease) and hoof-and-mouth disease. There can be no assurance that demand for our leather products will not decline as a result of the publicity regarding these diseases or new scientific findings with respect to such diseases. If we are unable to anticipate, gauge and respond to changes in demand or if ~~we misjudge fashion trends,~~ our ~~financial~~ stores’ ~~condition and~~ operating ~~results~~performance ~~could~~does ~~be harmed~~not improve.

~~Our~~ We ~~comparable~~continually review our stores’ operating performance and evaluate the carrying value of their assets in relation to their expected future cash flows. In those cases where circumstances indicate that the carrying value of the applicable assets may not be recoverable, we record an impairment loss related to the long-lived assets. In the fourth quarter of 2007, we recorded an impairment loss of $19.7 million. This impairment loss was comprised of: 1) all of the assets located at the liquidation stores, 2) all of the non-inventory assets located at our 100 remaining mall stores and 3) all of the non-inventory assets at four of our outlet stores. In the fourth quarter of 2006, we recorded an impairment loss of $0.7 million related to certain of our mall store ~~sales~~assets. These impairment losses are described in greater detail in Note 1, “Summary of significant accounting policies — store closing and ~~results~~impairment of ~~operations~~long-lived assets,” ~~have~~contained ~~declined~~in ~~over~~our consolidated financial statements beginning on page F-8 of this report. If our stores’ operating performance does not improve in the ~~past~~future, ~~three~~the ~~years~~carrying value of our stores’ assets may not be recoverable in light of future expected cash flows. This may result in our need to record additional impairment losses in certain markets where our stores operate that could have a materially adverse effect on our business, financial condition and results of operation.

~~Our comparable store sales declined 6.8%, 7.0%,~~ ~~and 12.1% in 2003, 2002, and 2001, respectively. We had a net~~ The ~~loss~~ high ~~from~~level ~~continuing operations~~ of ~~$33.6 million~~competition ~~and $14.3 million~~ in ~~2003~~our ~~and~~markets ~~2002,~~may ~~respectively,~~lead ~~and~~to ~~net~~reduced ~~income~~ sales ~~from~~and ~~continuing operations of $7~~profits.~~8 million in 2001.~~ ~~Our comparable store sales are affected by a variety of factors, including:~~

• The ~~consumer~~retail ~~shopping~~leather ~~preferences;~~outerwear, •accessories ~~actions~~and byapparel ~~competitors~~markets are orhighly ~~mall~~competitive ~~anchor~~and ~~tenants;~~fragmented. •We ~~general~~compete ~~economic~~with ~~conditions~~a ~~and~~broad range of other retailers, inincluding ~~particular~~other specialty retailers, department ~~the~~stores, ~~retail~~mass merchandisers and discounters, many of which have greater financial and other resources. Increased competition may reduce sales, ~~environment;~~increase •operating ~~fashion~~expenses, decrease ~~trends;~~profit •margins, ~~changes~~and innegatively affect our ~~merchandise~~ability ~~mix;~~to obtain •site locations, sales associates and other employees. Over the ~~timing~~past offew ~~new~~years, ~~store~~mall ~~openings~~traffic has been trending downward, off-mall retail venues have gained popularity and competition has continued to increase from non-specialty discounters and mass merchandisers as they have significantly expanded into the ~~relative~~leather ~~proportion~~outerwear ofcategory ~~new~~at ~~stores~~promotional price topoints. ~~mature~~There ~~stores;~~can •be ~~maintaining~~no ~~appropriate~~assurance ~~inventory~~that ~~levels;~~we •will ~~calendar~~be ~~shifts~~able ofto compete ~~seasonal~~successfully ~~periods;~~in •the ~~weather~~future ~~conditions;~~and, if we are unable to do so, our business, financial condition and •operating ~~timing~~results could ofbe ~~promotional~~adversely ~~events~~affected.

An Uncertainty in ~~inability~~general toeconomic ~~generate~~conditions ~~comparable~~may ~~store~~lead to reduced consumer ~~increases~~ demand ~~could~~for ~~have~~our aouterwear, ~~material~~accessories ~~adverse~~and ~~effect~~apparel onand could adversely affect our business~~, financial~~ ~~condition~~ and ~~results of operations~~liquidity.

Meeting our future capital requirements depends on the sustained demand for our products. Many factors affect the level of consumer spending on our products, including, among others:


	•	general economic conditions, including recessionary periods;

	•	rising energy prices;

	•	interest rates;

We• ~~may~~the ~~not~~availability beof ~~able~~consumer tocredit; ~~grow~~• ~~our~~continued ~~business~~hostilities asin ~~planned~~the Middle East and other significant national and international events; and • taxation and consumer confidence in future economic conditions.

~~Our~~ Consumer ~~long-term~~purchases ~~operating~~of ~~results~~discretionary ~~will depend~~items, ~~in part,~~such onas our ~~ability~~products, tend to ~~successfully~~decline ~~open~~during ~~new~~recessionary ~~stores~~periods ~~and~~when todisposable ~~effectively~~ income ~~manage~~is ~~our~~lower. ~~existing~~Any ~~business.~~uncertainties ~~Our~~in ~~ability~~the toUnited ~~grow~~States’ ~~our~~ economic ~~business~~outlook ~~will~~can beadversely ~~limited,~~affect ~~however,~~consumer ifspending ~~we are unable to~~habits ~~improve~~ and ~~the~~mall ~~sales~~traffic ~~performance~~ and ~~productivity~~result ofin ~~our~~lower ~~existing stores.~~than ~~Our~~expected ~~future~~net ~~growth~~sales ~~will also depend~~ on a ~~our~~quarterly ~~ability~~and ~~to:~~annual basis.

• Increased ~~anticipate~~energy ~~fashion~~prices ~~trends~~put ~~and~~additional ~~design~~pressure ~~products,~~on ~~merchandise~~consumer purchases ~~stores,~~of ~~manage~~discretionary ~~inventory~~items, ~~levels~~which ~~and~~could ~~take~~adversely ~~timely~~affect our ~~and~~net ~~necessary~~sales. ~~markdowns~~In ~~in response to such trends; • introduce and expand new selling concepts; • identify~~addition, ~~negotiate,~~these ~~lease~~higher ~~and~~energy ~~open~~costs ~~stores~~may ~~in suitable locations on a profitable and timely basis; • ensure~~ have the ~~availability~~potential ~~of and obtain the necessary capital~~ to ~~operate~~increase our ~~business;~~shipping ~~• consolidate~~ and ~~upgrade~~delivery ~~our~~costs ~~distribution center~~ and could ~~information~~adversely ~~systems~~affect inour anmerchandise ~~efficient~~margins ~~and~~if ~~timely~~we ~~manner;~~are ~~and~~unable to •pass ~~hire,~~these ~~train~~costs ~~and~~on ~~retain~~to ~~qualified~~our ~~personnel, including management executives and hourly sales associates~~customers.

We Unseasonably warm ~~cannot~~weather, ~~assure~~particularly ~~you~~during ~~that~~the wefall ~~will~~and bewinter, ~~able~~has toin ~~achieve~~ the ~~all~~past orand ~~any~~may ofin ~~these~~the ~~objectives~~future negatively effect our sales performance.

Unseasonably warm weather during the fall and winter season has negatively impacted our comparable store sales and total net sales performance in the past. While we are striving to mitigate our dependence on outerwear, as evidenced by our new mall accessories store concept, we will continue to sell a limited selection of outerwear in our mall stores and a larger selection in our outlet stores. Continued warm weather trends in the future may have a material adverse effect on our business, financial condition and results of operations.

Our inability to effectively respond to changes in fashion trends and consumer demands could adversely affect our sales.

Our success, including acceptance of our new mall accessories store strategy, depends on our ability to identify fashion and product trends as well as our ability to anticipate, gauge and react swiftly to changes in consumer demand. Our products must remain appealing for a broad range of consumers with diverse and changing preferences; however, our orders for products must be placed in advance of customer purchases. We cannot be certain that we will be able to identify new fashion trends and adjust our product mix in a timely manner. If we misjudge market preferences, we may be faced with significant excess inventories for some products and missed opportunities for other products. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventories. In addition, consumer sentiment toward and demand for leather and designer brand offerings may change and we may not be able to react to any such changes effectively, or at all. There can be no assurance that demand for our products and designer brand offerings will not decline as a result of negative publicity regarding certain diseases that may affect the supply of hides used to make leather products such as mad cow and hoof-and-mouth disease. If we are unable to anticipate, gauge and respond to changes in demand or if we misjudge fashion trends, it could have a material adverse effect on our business, financial condition and results of operations.

A decrease in the availability of leather or an increase in its price could harm our business.

The ~~purchase~~cost of leather ~~comprised~~comprises ~~approximately 59.5%~~a ~~and~~significant ~~62.8%~~portion of our ~~costs of goods sold for leather apparel~~ ~~and~~ overall ~~47.5%~~merchandise ~~and 49~~cost.7% ~~of the costs of goods sold for accessories in 2003 and 2002, respectively.~~ A number of factors affect the ~~price~~ price of leather, including the demand for leather in the shoe, furniture and automobile upholstery industries. In addition, leather supply is influenced by worldwide meat consumption and the availability of hides. Fluctuations in leather supply and pricing, which can be significant, may have a material adverse effect on our business, financial condition and ~~profitability~~results of operations. Our transition to our new accessories concept will reduce our reliance on leather.

We could have difficulty obtaining merchandise from our foreign suppliers.

We import our ~~leather~~outerwear ~~garments~~ and accessories from independent foreign contract manufacturers located primarily in China and India. We do not have long-term contracts or formal supply arrangements with our contract manufacturers. In ~~2003~~2007, ~~90.0~~approximately 65% of our ~~leather~~outerwear ~~garments~~ and accessories contracted for manufacture were ~~purchased from foreign~~ suppliers, with approximately 82.0% purchased from China and 8.0% purchased from India. Trade relations with China and India have traditionally been unstable. If trade relations with these countries or any other country from which we source goods deteriorate, or if any new or additional duties, quotas or taxes are imposed on imports from these countries, leather purchase and production costs could increase significantly, negatively impacting our sales prices, profitability or the demand for leather merchandise. Further, we cannot predict whether any of the countries in which our products currently are manufactured or may be manufactured in the future will be subject to trade restrictions imposed by the United States government, including the likelihood, type, or effect of any such restrictions, or whether any other conditions having an adverse effect on our ability to source products will occur. In addition, it will take time for us to transition our sourcing to other countries. Certain other risks related to foreign sourcing include:

• economic and political instability; • transportation delays and interruptions, including delays relating to labor disputes; • restrictive actions by foreign governments; • trade and foreign tax laws; • fluctuations in currency exchange rates and restrictions on the transfer of funds; and • the possibility of boycotts or other actions prompted by domestic concerns regarding foreign labor practices or other conditions beyond our control.

~~Any~~ purchased ~~event~~from ~~causing~~foreign asuppliers, ~~sudden~~with ~~disruption~~approximately ~~of imports~~56% purchased from China, and 7% purchased from India. orWith ~~other~~our ~~foreign~~shift toward ~~countries~~designer brand merchandise going forward, ~~including~~we awill ~~disruption~~ significantly ~~due~~reduce tothe ~~financial~~volume ~~difficulties~~ of aprivate ~~supplier,~~label ~~could~~merchandise we ~~have~~ source afrom ~~material~~overseas ~~adverse~~vendors. ~~effect~~The onmajority of our ~~business,~~product ~~financial~~will ~~condition~~ be ~~and~~purchased ~~results~~from third party, domestic vendors. However, the majority of ~~operations~~this product will still be manufactured overseas in places like China and India. InTrade relations with China and India have, in the ~~event~~past, ~~that~~been contentious. If trade relations ~~commercial~~ with ~~transportation~~these iscountries ~~curtailed~~or any other country from which we purchase goods, either directly or ~~substantially~~indirectly, ~~delayed~~deteriorate, or if any new ~~due~~ or toadditional aduties, ~~dockworker’s~~quotas ~~strike~~or taxes are imposed on imports from these countries, leather purchase and production costs could increase significantly, negatively impacting our sales prices, profitability or ~~other~~the ~~similar~~demand ~~work~~for ~~action~~leather merchandise and designer brand offerings. Further, we cannot predict whether any of the countries in which our ~~business~~products are currently manufactured or may be ~~adversely~~manufactured ~~impacted~~in the future will be subject to trade restrictions imposed by the United States government, asincluding wethe ~~may~~likelihood, ~~have~~type or effect of any such ~~difficulty~~ restrictions, ~~shipping~~or ~~merchandise~~whether toany ~~our~~other ~~distribution~~conditions ~~centers~~having ~~and~~an adverse ~~stores~~ effect on our ability to purchase products will occur. Certain other risks related to foreign sourcing and purchasing include:

~~Our~~• ~~accounting~~transportation ~~policies~~delays and ~~methods~~interruptions, ~~are~~including ~~key~~delays relating to ~~how~~labor wedisputes; ~~report~~• ~~our~~economic ~~financial~~and ~~condition~~political instability; • restrictive actions by foreign governments; • trade and ~~results~~foreign tax laws; • fluctuations in currency exchange rates and restrictions on the transfer of ~~operations,~~funds; and ~~they~~• ~~may~~the ~~require~~possibility ~~management~~of toboycotts ~~make~~or ~~estimates~~other ~~about~~actions ~~matters~~prompted ~~that~~by ~~are~~domestic ~~inherently~~concerns ~~uncertain~~regarding foreign labor practices or other conditions beyond our control.

~~Our~~ Any ~~accounting~~event ~~policies~~causing ~~and~~a ~~methods~~sudden ~~are fundamental~~disruption ~~to how we record and report our financial condition and results~~ of ~~operations.~~imports ~~Our~~from ~~management must exercise judgment~~China, in India ~~selecting~~or ~~and~~other ~~applying~~foreign ~~many~~countries, ofincluding ~~these~~a ~~accounting~~disruption ~~policies~~due ~~and~~to ~~methods~~ financial sodifficulties ~~that~~of ~~not~~a ~~only~~supplier door ~~they~~a ~~comply~~catastrophic ~~with generally accepted~~event ~~accounting~~ (such ~~principles~~as, but ~~also~~not ~~that~~limited ~~they~~to, ~~reflect management’s~~a ~~judgment~~fire, astornado, toflood, ~~the~~or ~~most~~act ~~appropriate~~of terrorism) ~~manner~~could ~~in which~~have toa ~~record~~material ~~and~~adverse ~~report~~effect on our business, financial condition and results of operations. In ~~some~~the ~~cases,~~event ~~management~~that commercial ~~must~~transportation ~~select~~is ~~the accounting~~curtailed ~~policy~~ or ~~method~~substantially delayed due to ~~apply~~a ~~from~~dockworkers’ ~~two~~strike or ~~more alternatives,~~other ~~any~~similar ofwork ~~which might be reasonable under the circumstances~~action, ~~yet might result in~~ our ~~reporting~~business ~~materially different~~may ~~amounts~~be ~~than~~adversely ~~would~~impacted, ~~have~~as ~~been~~we ~~reported~~may ~~under a~~have ~~different~~ difficulty ~~alternative.~~shipping ~~Note 2,~~merchandise ~~“Summary of Significant Accounting Policies”~~ to our ~~consolidated~~distribution ~~financial statements~~center ~~describes our significant accounting policies~~and stores.

We have identified two accounting policies as being “critical” to the presentation of our financial condition and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These critical accounting policies relate to the valuation of inventory, and the valuation of property and equipment for impairment. Because of the uncertainty of estimates about these matters, we cannot provide any assurance that we will not:

• significantly increase our allowance for obsolete inventory that is significantly higher than the amount reserved; or • recognize a significant provision for impairment of our fixed assets at our stores.

For more information, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in this report.

The seasonality of our business could affect our profitability.

Since our leather outerwear and apparel products are most often purchased during the holiday season, we experience substantial fluctuations in our sales and profitability. We generate a significant portion of our net sales from October through January, which includes the holiday selling season. We generated 59 50.4% of our annual net sales induring that time period in ~~2003~~2007, and 3123.65% in December alone. ~~Because~~While we are striving to mitigate our dependence on outerwear, as evidenced by our new mall accessories store concept, we will continue to sell a limited selection of outerwear in our mall stores and a larger selection in our outlet stores. Because our profitability, if any, is historically derived in the fourth quarter, our annual results of operations have been, and will continue to be, heavily dependent on the results of operations from October through January.

Given the seasonality of our business, misjudgments in fashion trends, the effects of war and other significant national and international events, or unseasonably warm or severe weather during our peak selling season could have a material adverse effect on our financial condition and results of operations. Our results of operations may also fluctuate significantly as a result of a variety of other factors, including:

• merchandise mix offered during the peak selling season; • the timing and level of markdowns and promotions by us during the peak selling season; • the timing and level of markdowns and promotions by our competitors during the peak selling season; • consumer shopping patterns and preferences; • the ~~net~~timing ~~sales~~of ~~contributed~~certain ~~by seasonal stores~~holidays; and

• the ~~timing of certain holidays; and • the~~ number of shopping days and weekends between Thanksgiving and Christmas.

The public ~~consummation~~sale of our common stock issued pursuant to our employee benefit plans or the ~~Equity~~sale ~~Financing~~into ~~and~~the ~~exercise~~market of the ~~warrants~~shares ~~would~~issued in ~~result~~our equity financing in aApril ~~substantial~~2004 ~~number~~or issuable upon exercise of ~~additional~~the warrants delivered in connection with our April 2004 equity financing, as well as shares issuable upon conversion of the ~~common~~Preferred Stock and exercise of the Warrants issued in connection with the June 2007 preferred stock ~~outstanding,~~financing described ~~which~~in this report, could decrease the price of our common stock or make it more difficult to obtain additional financing in the future.

If As weof ~~are~~February 2, ~~able~~2008, 1,471,660 shares were subject to ~~consummate~~issuance upon the ~~Equity~~exercise ~~Financing~~of vested stock options previously ~~referred~~ granted by us, all of which would be freely tradable if issued, subject to ~~above~~compliance ~~under~~with ~~“—Additional~~Rule 144 ~~Financing”~~in the case of our affiliates. In addition, 1,054,516 shares of our common we stock ~~will~~have ~~issue~~been reserved for issuance pursuant to our employee benefit plans. In connection with the April 2004 equity financing which was completed on July 2, 2004, we issued 17,948,718 shares of our common stock and warrants to purchase four million shares of our common stock, ~~and~~subject to ~~warrants~~ certain adjustments, to ~~purchase~~three aninstitutional ~~additional~~investors. 4With the June 15,~~000~~ 2007 Preferred Stock and Warrant financing described in this report,~~000~~ we issued shares of ~~our~~Preferred Stock that are initially convertible into 30 million shares of common stock, ~~subject~~and warrants to ~~certain~~purchase ~~limitations~~15 million shares of common stock, which Preferred Stock and Warrants are subject to certain anti-dilution adjustments. The Preferred Stock is ~~Increasing~~ entitled ~~the~~to payment-in-kind cumulative ~~number~~dividends of ~~additional~~8.0% per year, issuable semi-annually, payable in shares of ~~common~~preferred stock, that will increase the ~~may~~ number beof ~~eventually~~common ~~sold~~shares upon conversion. As of February 2, 2008, there were 46,667 shares of preferred stock outstanding that were convertible into ~~the~~31.1 million ~~market~~shares of bycommon ~~this~~stock. ~~amount~~Our ~~could~~Preferred ~~have~~Stock is convertible into shares of common stock at a ~~negative~~conversion ~~impact~~price onof $1.50 per share and the warrants ~~value~~have an exercise price of ~~the~~$2.00 ~~shares~~per ~~that~~share; however, these conversion and exercise prices are ~~currently~~subject to ~~outstanding~~ anti-dilution adjustments in the event of stock issuances below either the market price or the conversion or exercise price. In addition, ifin weconnection ~~need~~with tosuch ~~obtain~~financing, ~~additional~~the number of shares of common stock issuable upon exercise of the warrants issued in the April 2004 equity financing, increased by approximately one million shares to approximately five million. If we raise capital through the ~~terms~~sale onof equity, which wedue to the current market price of our common stock would likely occur at a price below the conversion price and exercise price of our Preferred Stock and warrants, our current shareholders will face further dilution, and this dilution may ~~obtain~~make it difficult for us to raise additional ~~financing~~capital by selling equity. The market price ~~may~~ of beour ~~adversely~~common ~~affected~~stock could decline as a result of market sales of such shares of common stock or the perception that such sales will occur. Such sales or the perception that such sales might occur also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

~~The~~ Our accounting ~~loss~~policies ofand methods are key ~~members~~to ofhow we report our financial ~~senior~~condition and results of operations and they may require management ~~team~~to ~~could~~make ~~adversely~~estimates ~~affect~~about ~~our~~matters ~~business~~that are inherently uncertain.

Our ~~success~~management ~~depends~~must ~~largely~~select onand ~~the~~apply ~~efforts~~many ~~and~~of these accounting ~~abilities~~ policies ofand ~~our~~methods ~~current~~so ~~senior~~that ~~management~~they ~~team~~not only comply with U.S. generally ~~Their~~accepted accounting principles, but they ~~experience~~ also ~~and~~reflect ~~worldwide~~management’s ~~contacts~~judgment inas to the ~~leather~~most appropriate ~~products~~manner in which to record and report our financial ~~industry~~ condition ~~significantly~~and ~~benefit~~results usof operations. IfIn wesome ~~were~~cases, tomanagement must ~~lose~~select the accounting policy or method to apply from two or ~~benefit~~ more alternatives, any of ~~their~~which ~~experience~~might ~~and~~be ~~contacts~~reasonable under the circumstances, yet might result in our ~~business~~reporting ~~could~~materially different beamounts than would have been reported under a ~~adversely~~ different ~~affected~~alternative. WeNote 1, do“Summary ~~not~~of ~~maintain~~significant accounting ~~key-man~~policies,” ~~life~~to ~~insurance~~our onconsolidated financial ~~any~~ statements ~~members~~describes of our ~~senior~~significant ~~management~~accounting ~~team~~policies.

We ~~rely~~have onidentified ~~third~~two ~~parties~~accounting ~~for~~policies ~~upgrading~~as ~~and~~being “critical” ~~maintaining~~to the presentation of our ~~information~~financial condition ~~systems~~and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These critical accounting policies relate to the valuation of inventory and the valuation of property and equipment for impairment. Because of the uncertainty of estimates about these matters, we cannot provide any assurance that we will not:

~~The~~• ~~efficient~~significantly ~~operation~~increase of our ~~business~~lower ~~is heavily~~of ~~dependent~~cost onor ~~our~~market ~~information~~allowance systems. In particular, we rely heavily on the automated sortation system used in our distribution center and the merchandise management system used to track sales and inventory. We also rely on a third-party package for ~~our~~slow ~~accounting,~~moving ~~financial~~or ~~reporting~~obsolete and human resource functions. We depend on our vendors to maintain and periodically upgrade these systems so that these systems continue to support our business. The software programs supporting our automated sorting equipment and processing our inventory; management information were licensed to us by independent software developers. The inability of these developers to continue to maintain and upgrade these software programs would disrupt our operations if we were unable to convert to alternate systems in an efficient and timely manner. or


	•	recognize a significant fixed asset impairment charge.

For more information, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.”

Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.

We prepare our financial statements to conform with U.S. generally accepted accounting principles. These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles. A change in those principles could have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

Loss of key members of our senior management team could adversely affect our business.

Our success depends largely on the efforts and abilities of our current senior management team. The loss of service of any of these persons could adversely affect our business. Our Chief Executive Officer resigned effective April 3, 2008, and we do not currently have a President or Chief Executive Officer. We do not maintain key-man life insurance on any members of our senior management team.

Ownership of our common stock is concentrated.

~~Our~~ Four ~~directors~~of ~~and~~our ~~executive~~investors ~~officers~~ beneficially ~~own~~ owned, in the aggregate, 17 81.~~3 percent~~0% of our common stock as of April 51, ~~2004~~2008. ~~In addition, one of the~~ These investors ininclude: ~~the Equity~~Marathon ~~Financing~~Fund Limited ~~currently~~Partnership ~~beneficially owns 18.4 percent of our~~V ~~common~~ (“Marathon,” ~~stock.~~owned ~~If the Equity Financing is consummated (~~and ~~assuming~~ nomanaged ~~additional~~by ~~common~~Goldner ~~stock~~Hawn ~~issuance other than the~~Private Equity ~~Financing~~), ~~this~~Peninsula ~~investor~~Investment ~~will~~Partners, ~~beneficially own 44~~L.0P. ~~percent~~ (“Peninsula”), ofQuaker ~~our~~Capital ~~common~~Partners I, ~~stock~~L. IfP., and ~~these~~Quaker ~~shareholders~~Capital ~~vote~~Partners ~~together as a group~~II, ~~they~~L. ~~will~~P. ~~be able to exert significant influence~~(collectively ~~over~~ “Quaker”). ~~our~~All ~~business~~of ~~and~~these ~~affairs,~~investors ~~including~~are ~~the~~represented ~~election of~~on ~~individuals to~~ our board ofand ~~directors.~~a ~~They~~support ~~will~~agreement ~~also~~exists beamong ~~able to significantly affect~~ the ~~outcome of certain actions~~ investors that ~~require shareholder~~requires ~~approval,~~Peninsula ~~including~~and ~~the~~Quaker ~~adoption of amendments~~ to ~~our~~ ~~Amended~~vote ~~and~~with ~~Restated~~Marathon ~~Articles~~on various ofmatters ~~Incorporation~~including ~~and~~election ~~the approval~~ of ~~certain~~two ~~mergers,~~members ~~additional~~to ~~financing,~~our ~~sales of~~board ~~assets~~ and ~~other~~certain ~~business~~defined ~~acquisitions~~transactions orincluding ~~dispositions. In addition,~~ the ~~ownership~~sale ~~concentration~~ of ~~our~~the Company. ~~stock~~These ~~may~~investors ~~limit liquidity~~voting ~~and~~together ~~cause~~would ~~shareholders~~be able to ~~experience price~~exert ~~fluctuations~~ significant ~~when~~influence ~~selling~~over ~~large~~our ~~blocks~~business ofand ~~our~~affairs, ~~stock.~~including:


	•	the election of individuals to our board of directors;

	•	the adoption of amendments to our Amended and Restated Articles of Incorporation; and

	•	the approval of certain mergers, additional financing, sales of assets, and other business acquisitions or dispositions.

In addition, the ownership concentration of our stock may limit liquidity and cause shareholders to experience fluctuations when selling large blocks of our stock.

The market price for our common stock may be volatile.

Our stock price has been, and is expected to continue to be, highly volatile. There could be an immediate adverse impact on our stock price as a result of:

• ~~inability~~any tofuture ~~refinance~~sales ~~debt~~of our common stock or other securities; • a decline in any ~~future~~quarter of our net sales or earnings; • a decline in any quarter of comparable store sales; • a deviation in our ~~common~~net ~~stock~~sales, earnings or ~~other~~comparable store sales from levels expected by securities analysts; • changes in financial estimates by securities analysts; • changes in market valuations of other companies in the same or similar markets;

16 17

• aour ~~decline~~inability into ~~any~~develop ~~month or quarter of~~ our ~~revenues~~new ormall ~~earnings;~~accessories •store aconcept ~~decline~~and inthe ~~any~~market ~~month~~perception ~~or quarter~~ of ~~comparable~~this ~~store~~new ~~sales~~concept; ~~• a deviation in our revenues, earnings~~ or ~~comparable store sales from levels expected by securities analysts;~~ • ~~changes~~difficulty inobtaining ~~financial~~alternative ~~estimates~~funding bysources ~~securities~~or ~~analysts; and • changes in market valuations of~~ other ~~companies~~limitations inon ~~the~~our ~~same or similar markets~~liquidity.

In addition, the Nasdaq ~~National Market has~~Global Marketsm has experienced extreme volatility that has often been unrelated to to the performance of particular companies. Future market fluctuations may cause our stock price to fall regardless of our performance. Such volatility may limit our future ability ~~in the future~~ to raise additional capital.

~~War,~~ We rely ~~acts~~on ofthird ~~terrorism,~~parties orfor ~~the~~upgrading ~~threat of either may negatively impact the availability of merchandise~~ and ~~otherwise~~maintaining ~~adversely impact~~ our information ~~business~~systems.

The efficient operation of our business is heavily dependent on our information systems. In particular, we rely heavily on the automated sortation system used in our Brooklyn Park, Minnesota distribution center and the merchandise management system used to track sales and inventory. We also rely on a third-party package for our accounting, financial reporting and human resource functions. We depend on our vendors to maintain and periodically upgrade these systems so that these systems continue to support our business. The software programs supporting our automated sorting equipment and processing our inventory management information are licensed to us by independent software developers. The inability of these developers to continue to maintain and upgrade these software programs would disrupt our operations if we were unable to convert to alternate systems in an efficient and timely manner.

War, acts of terrorism or the threat of either may negatively impact the availability of merchandise and otherwise adversely impact our business.

In the event of war or acts of terrorism, or if either is threatened, our ability to obtain merchandise available for sale in our stores may be negatively affected. We import a substantial portion of our merchandise from other countries. If imported goods become difficult or impossible to bring into the United States, and if we cannot obtain such merchandise from other sources at similar costs, our sales and profit margins may be adversely affected.

The majority of our stores are located in enclosed shopping malls and regional outlet centers. In response to the terrorist attacks of September 11, 2001, security has been heightened in public areas. Any further threat of terrorist attacks or actual terrorist events, particularly in public areas, could lead to lower customer traffic in shopping malls and outlet centers. In addition, local authorities or mall management could close shopping malls and outlet centers in response to any immediate security concern. Mall closures, as well as lower customer traffic due to security concerns, could result in decreased sales that would have a material adverse effect on our business, financial condition and results of operations.

Any significant interruption in the operation of our corporate offices and distribution center could have a material adverse effect on our business.

Our corporate offices and our Brooklyn Park, Minnesota distribution center are in one location. Our operations could be materially and adversely affected if a catastrophic event (such as, but not limited to, a fire, ~~tornadoes~~tornado, ~~floods~~flood, or ~~acts~~act of terrorism) impacts the use of these facilities. There can be no ~~assurances~~ assurance that we would be successful in obtaining alternative ~~facilities~~ facilities in a timely manner if such a catastrophic event were to occur.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

As of ~~January~~February 312, ~~2004~~2008, we operated ~~460~~ 391 leased store locations ~~(excluding the 111 liquidation stores)~~. ~~Substantially~~ ~~all~~All of our stores were located in shopping malls, outlet ~~malls~~centers or airport retail locations. ~~Store~~New ~~leases~~store ~~with~~leases with third parties are typically ~~five to~~ 10 years in duration. ~~Most~~ Most leases require us to pay annual minimum rent plus a ~~contingent~~ contingent rent dependent on the store’s annual sales in excess of a specified threshold. AsIn ~~of January 31~~addition, ~~2004, of~~ the ~~460~~leases ~~open~~generally ~~leased~~require us ~~Wilsons~~to ~~Leather~~pay ~~stores,~~costs ansuch ~~affiliate~~as ofreal ~~CVS New~~estate ~~York,~~taxes ~~Inc.~~and ~~(“CVS”)~~common ~~(formerly Melville Corporation,~~area ~~the~~ maintenance ~~parent~~costs. ~~company~~On toFebruary 15, ~~the~~2008, ~~predecessor~~we ~~companies)~~announced ~~guaranteed~~that ~~approximately~~ we 56would ~~leases,~~liquidate ~~all~~and ofclose ~~which~~154 ~~were entered into before~~mall ~~the management buyout.~~

~~We are party to a 15-year operating lease, with a~~ ~~five-year option to extend, for a 289,000 square-foot~~ 18 distribution center and 69,000 square-foot corporate office space located in Brooklyn Park, Minnesota. We are also party to a five-year operating lease for an 86,000 square-foot distribution center in Las Vegas, Nevada that we are currently marketing for sub-lease. In addition, we are party to a three-year operating lease for a 45,600 square-foot distribution center in Maple Grove, Minnesota that we are currently marketing for sub-lease.

stores and four outlet stores. As a result of our cost reduction strategies implemented since year end, we have stopped making payments under certain of our leases.

We are also party to a 15-year operating lease, with a five-year option to extend, for a 289,000 square-foot distribution center and 69,000 square-foot corporate office space located in Brooklyn Park, Minnesota.


Item 3.	Legal Proceedings

We are involved in various legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position and results of operations. ~~Pursuant to the sale~~ agreement entered into in connection with the management buyout in 1996 of the predecessor companies, CVS agreed to indemnify us for certain claims. For certain other claims, CVS’s indemnification liability is limited to claims in the aggregate which exceed $1.2 million, but not to exceed $12.0 million.


Item 4.	Submission of Matters to a Vote of Security Holders

None.

Item 4A. Executive Officers of the Registrant

The following table sets forth certain information concerning our executive officers as of April 17, ~~2004~~2008:

Name	Age		Position
Joel N. Waller		64	Chairman and Chief Executive Officer
Stacy A. Kruse		48	Chief Financial Officer and Treasurer
David L. Rogers		61	President and Chief Operating Officer
M. Adam Boucher		47	Chief Operating Officer
Peter G. Michielutti		47	Executive Vice President and Chief Financial Officer
William S. Hutchison		34	Chief Merchandising and Sourcing Officer
Linda F. Angelacci		49	Vice President
Michael J. Tripp		39	Vice President, Global Logistics and e-Commerce
Brian R. Bootay		50	Vice President
Betty A. Goff		47	Vice President
Jenele C. Grassle		44	Vice President
Jeffrey W. Orton		48	Vice President
Arthur J. Padovese		53	Vice President
Steven R. Waller		40	Vice President

~~Joel~~ Stacy NA. ~~Waller~~Kruse has served as ~~Chairman~~our ~~and~~ Chief ~~Executive~~Financial Officer ~~of Wilsons~~ ~~Leather~~ and Treasurer since ~~April~~January ~~1992.~~2006, Inprior ~~1983,~~to ~~CVS~~which ~~hired~~she ~~Mr. Waller~~served as our Vice President ofFinance ~~Wilsons~~and ~~Leather~~Treasurer from August 2004 to January 2006, our Director of Finance and heTreasurer ~~served~~from inApril 2003 ~~such~~to ~~capacity~~August 2004, and Director of Business ~~until~~ Planning & ~~April~~Analysis ~~1992~~and Treasurer from June 2001 to March 2003. Prior to joining Wilsons Leather, Mr Ms. ~~Waller~~Kruse ~~served~~was Director inof ~~several~~Finance ~~capacities~~(Information atServices ~~Bermans~~and ~~The~~Business ~~Leather~~ Operations) ~~Experts,~~at ~~Inc.~~US Bancorp, a ~~specialty~~financial ~~leather~~services ~~retailer~~company, ~~including~~ ~~Senior~~ from ~~Vice~~1999 ~~President,~~to ~~General~~2001 ~~Merchandise~~and ~~Manager~~held ~~from~~various ~~1980~~positions toat Carlson ~~1983~~ Marketing Group, ~~Division~~a ~~Merchandise~~marketing ~~Manager~~services company, from ~~1978~~1995 to 1999, ~~1980~~most ~~and~~recently ~~Buyer~~as Director of Operations (Loyalty Division) from ~~1976~~1996 to ~~1978~~1999.

~~David L~~ M. Adam ~~Rogers~~Boucher has served as ~~President~~our ~~and~~ Chief Operating Officer ofsince ~~Wilsons Leather~~February ~~since~~2008, ~~April~~prior ~~1992.~~to Inwhich ~~1988,~~he ~~Mr. Rogers~~was ~~joined~~our Vice ~~Wilsons~~ President, ~~Leather~~Store asSales ~~Executive~~and ~~Vice~~Real ~~President~~Estate ~~and~~from ~~Chief~~January ~~Operating~~2006 to ~~Officer~~ February ~~when~~2008 ~~Bermans~~and ~~The~~our ~~Leather~~Vice ~~Experts~~President, ~~Inc.,~~Store aSales ~~specialty~~from August ~~leather~~ 2005 ~~retailer,~~to ~~was~~January ~~acquired~~2006. byPrior to joining Wilsons Leather, Mr. Boucher ~~and~~held hevarious ~~served in~~retail ~~such~~stores ~~capacity~~and ~~until~~corporate development ~~April~~positions ~~1992.~~at ~~Mr. Rogers~~Payless ~~served~~ShoeSource, ~~as Chief~~a ~~Operating~~specialty ~~Officer~~family footwear ofretailer, ~~Bermans~~from ~~The~~1988 ~~Leather~~to ~~Experts~~2005, ~~Inc., from~~most ~~1983~~recently toas ~~1988~~Vice President, ~~and~~Retail ~~Chief~~Operations ~~Financial~~Eastern ~~Officer~~Zone from ~~1980~~2004 to ~~1984~~2005.

~~Peter~~ William GS. ~~Michielutti~~ Hutchison has served as our ~~Executive Vice~~Chief ~~President~~ Merchandising and ~~Chief~~Sourcing ~~Financial~~ Officer since ~~March~~February ~~2003~~2007, ~~responsible~~ ~~for~~prior ~~Finance, Information Systems, and Real Estate~~to ~~and~~ which ~~also~~he served as our ~~Senior~~ Vice President, Sourcing and ~~Chief Financial~~Wholesale ~~Officer~~ from ~~March~~January ~~2001~~2006 to February ~~2003.~~2007, ~~Prior~~our toVice ~~joining Wilsons Leather~~President, ~~Mr. Michielutti~~Sourcing from ~~held~~September ~~various~~2005 ~~positions with~~to USJanuary ~~Bancorp,~~2006 aand ~~financial~~our ~~services~~Divisional Merchandise ~~holding~~Manager — ~~company,~~Men’s from ~~1998 to~~February 2001, ~~most~~to September ~~recently~~2005. asPrior ~~Executive~~to ~~Vice~~joining ~~President~~Wilsons ~~from 1999 to~~Leather, ~~2001.~~ Mr. ~~Michielutti~~Hutchison held various merchandising positions with ~~Fingerhut~~ ~~Companies~~ Dillard’s Department Stores, Inc., afrom ~~direct~~1995 ~~marketing~~to ~~retail business~~2001, most recently as ~~Vice~~Product ~~President and Chief Operating Officer from 1996 to 1998. He served at Household International~~Development, ~~Inc.,~~Brand aManager ~~financial service organization,~~ from ~~1979~~1999 to ~~1995 in various finance positions~~2001.

~~Linda~~ Michael FJ. ~~Angelacci~~ Tripp has served as our Vice President Global ~~responsible~~ Logistics ~~for marketing~~ and e-Commerce since ~~October~~February ~~2002.~~2008, ~~Prior~~prior to ~~joining Wilsons~~which ~~Leather~~he served as our Vice President, ~~Ms. Angelacci~~Global ~~was~~Logistics ~~Senior~~and Customs Compliance from February 2007 to February 2008, our Vice President, ofLogistics from June ~~Marketing~~ 2006 ~~and~~to ~~Merchandise~~February at2007, ~~The~~our ~~San Francisco~~Director ~~Music~~of ~~Box~~Distribution and ~~Company,~~ Transportation afrom ~~specialty~~April ~~retailer~~2004 ofto ~~musical~~June ~~giftware~~2006, and our General Manager Distribution from ~~1999~~February 2000 to ~~2002~~ April 2004. MsPrior to joining Wilsons Leather, Mr. ~~Angelacci~~Tripp ~~served~~held in various distribution ~~marketing~~center ~~and merchandising~~leadership positions with WHKmart, ~~Smith~~a mass merchandise retailer, anfrom ~~airport~~1997 to February 2000, most recently as Assistant General Manager from 1999 to 2000 and ~~hotel~~as ~~gift~~an ~~store~~ Operations Supervisor with Target, an upscale discounter, from 1995 to 1997.

retailer, from 1995 to 1999, most recently as Vice President of Marketing and Merchandising and as Vice President, Account Supervisor for W. B. Doner Advertising Inc., an advertising agency, from 1991 to 1995.

Brian R. Bootay has served as our Vice President responsible for real estate and construction since October 2000. Prior to joining Wilsons Leather, Mr. Bootay was Vice President, Leasing at Venator Group Realty Corporation, a subsidiary of Venator Group, Inc. a specialty retailer of athletic footwear and apparel, from 1996 to 2000, Senior Vice President, Real Estate at CVS (formerly Melville Corporation), a diversified specialty retailer, from 1994 to 1996. Mr. Bootay also served as Vice President, Real Estate at Filene’s Basement, Inc., an off-price specialty retailer, from 1989 to 1994.

Betty A. Goff has served as our Vice President responsible for human resources since February 1992 and served as our Director of Executive Recruitment and Placement from October 1987 to February 1992. Prior to joining Wilsons Leather, Ms. Goff served in various human resource management positions with Fingerhut Corporation, a subsidiary of Fingerhut Companies, Inc., a general merchandise catalog retailer, from 1983 to 1987, and most recently as Manager, Staffing and Employment from 1984 to 1987.

Jenele C. Grassle has served as our Vice President responsible for merchandising for our mall, airport and seasonal stores since July 2000. Prior to joining Wilsons Leather, Ms. Grassle held various positions at Target Corporation, a general merchandise retailer (formerly Dayton Hudson Corporation), from 1988 to 2000 and most recently as Divisional Merchandise Manager from 1994 to 2000.

Jeffrey W. Orton has served as our Chief Information Officer and Vice President responsible for information systems and logistics since October 1997 and served as our Director of Strategic Analysis from March 1997 to October 1997, and Director of Business Process Reengineering from September 1993 to March 1997. Prior to joining Wilsons Leather, Mr. Orton held various positions at United States Shoe Corporation, a manufacturing and retail apparel and footwear company, from 1986 to 1993, and most recently as Director of Footwear Retail Systems from 1992 to 1993.

Arthur J. Padovese has served as our Vice President responsible for store sales since February 2003 and Vice President responsible for outlets from October 2000 to January 2003. Prior to joining Wilsons Leather, Mr. Padovese was an independent management consultant serving as Chief Operating Officer and Chief Financial Officer at Appraisal Enhancement Services, a property appraisal company, from 1999 to 2000, an investment banker for Green Tree Capital, a financial services company, from 1998 to 2000, and was co-founder of Jungle Adventures International Inc., a developer of entertainment centers, in 1998. He also served as President of Prints Plus, Inc., a specialty retailer, from 1986 to 1997.

Steven R. Waller has served as our Vice President responsible for sourcing since January 1999, and served as our Director, Product Development from September 1998 to January 1999. Prior to joining Wilsons Leather, Mr. Waller served in various operations and import positions with G-III Apparel Group, Ltd., a leather and non-leather apparel manufacturer and distributor, most recently as Director of Imports from 1987 to 1998. Mr. Waller is the son of Joel N. Waller, our Chairman and Chief Executive Officer.

PART II

Item 5. Market for Registrant’s Common Equity, ~~and~~ Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock, $.01 par value, trades on the Nasdaq ~~National Market~~ Global Marketsm under the symbol WLSN. The closing price of our common stock on April 57, ~~2004,~~2008 was $20.8519. The following table presents the high and low market prices from ~~February~~ January 230, ~~2002~~2005 through ~~January~~ February 312, ~~2004~~2008.

Quarterly Common Stock Price Ranges
Fiscal Quarter Ended	High		Low
Fiscal quarter ended	High		Low
May 4, 2002	$	14.26	$	10.11
April 29, 2006	$	3.98	$	3.14
August 3, 2002	$	15.40	$	8.25
July 29, 2006	$	4.12	$	3.25
November 2, 2002	$	9.75	$	3.99
October 28, 2006	$	3.70	$	2.46
February 1, 2003	$	7.25	$	3.97
February 3, 2007	$	2.84	$	1.68
May 3, 2003	$	5.17	$	3.74
May 5, 2007	$	2.10	$	1.30
August 2, 2003	$	8.75	$	5.55
August 4, 2007	$	2.36	$	1.01
November 1, 2003	$	10.00	$	7.13
November 3, 2007	$	1.97	$	1.16
January 31, 2004	$	9.10	$	3.08
February 2, 2008	$	1.39	$	0.65

There were 8570 record holders of our common stock as of April 57, ~~2004~~2008.

~~Dividends~~ Cash Dividends

We have not declared any cash dividends since our inception in May 1996. ~~We are currently in a retained deficit position and unable to pay dividends.~~ In addition, our loan agreements ~~and the indenture relating to the 11 1/4% Senior Notes~~ contain certain ~~covenants~~ restrictions limiting, among other things, our ability to pay cash dividends or make other distributions. See “Item 7. “Management’s Discussion and Analysis of Financial ~~Condition~~ Condition and Results of Operations — Liquidity and ~~Capital~~ Capital Resources.”

Purchases of Equity Securities

We did not purchase any shares of our common stock during the fourth quarter of 2007.


Item 6.	Selected Financial Data

Not applicable.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our selected historical consolidated financial data and consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.

Executive Overview

We measure performance using such key operating statistics as comparable store sales, sales per square foot, gross margin percentage, and store operating expenses, with a focus on labor, as a percentage of sales. These results translate into store operating contribution and store cash flow, which we use to evaluate overall performance on an individual store basis. Store operating contribution is calculated by deducting a store’s operating expenses from its gross margin and is measured as a percentage of sales. Store operating contribution gives us an overall measure as to whether or not individual locations and markets are meeting our financial objectives.

In addition, general and administrative expenses are monitored in absolute amount, as well as on a percentage of net sales basis. We continue to monitor product costing and promotional activity and their impact on margin

~~Item~~ levels. 6In 2007 and 2006, our inventory markdowns were higher than in the past as we aggressively liquidated certain merchandise and repositioned our inventory mix pursuant to our strategic initiatives of offering designer brand merchandise and a greater mix of accessories. ~~Selected~~Our ~~Financial~~gross ~~Data~~margins are influenced by the mix of merchandise between accessories and outerwear in our total sales.

~~The~~ We ~~selected~~also ~~historical~~measure ~~consolidated~~and ~~financial data~~evaluate ~~set~~investments ~~forth~~in ~~below~~our ~~should~~retail locations, beincluding ~~read~~inventory inand ~~conjunction~~property ~~with~~and equipment. ~~Item 7,~~ Inventory ~~“Management’s~~performance ~~Discussion~~is ~~and~~primarily ~~Analysis~~measured ~~of Financial~~by ~~Condition~~inventory ~~and~~turns, or ~~Results~~the number of ~~Operations”~~times ~~and~~store ~~the~~inventory turns over in a given ~~“Consolidated~~ period, ~~Financial~~and ~~Statements~~amounts of ~~the~~owned ~~Company,” beginning~~inventory at various times based on payment ~~page F-1~~terms offrom ~~this~~our ~~report~~vendors. The ~~selected~~most significant investments ~~historical~~ in ~~consolidated~~property ~~financial~~and ~~data~~equipment ~~has~~are ~~been~~made ~~derived~~at ~~from~~the ~~our audited~~time ~~consolidated~~we ~~financial~~open ~~statements~~a store.

~~SELECTED~~ As ~~HISTORICAL~~of ~~CONSOLIDATED~~February 2, ~~FINANCIAL~~2008, ~~AND~~we operated a total of 391 stores ~~OPERATING~~ located ~~DATA~~in 42 states, including 259 mall stores, 118 outlet stores and 14 airport locations, including 158 stores that we are liquidating (described in greater detail below). We had historically supplemented our permanent stores with temporary seasonal stores during our peak selling season. However, operation of our temporary seasonal stores was suspended in 2006. We do not intend to operate any temporary seasonal stores in the foreseeable future.

~~(In~~ We ~~thousands~~generate ~~except~~a ~~per~~significant ~~share~~portion ~~amounts~~of our net sales from October through January, which includes the holiday selling season. We generated 50.4% of our annual net sales in that time period in 2007, and 23.5% in December alone. As part of our strategy to improve operating ~~data)~~margins, maximize revenue and minimize losses during non-peak selling seasons, we have increased the number of outlet locations since 2000, which are less seasonal, and modified our product mix to emphasize accessories. In addition, our continued focus on accessory penetration has resulted in accessory sales growth as a percentage of our total net sales to 44.9% in 2007 from 41.4% in 2006 and 38.3% in 2005.

		For the years ended
		January 31,			February 1,			February 2,			February 3,			January 29,
		2004			2003(1)			2002(1)(2)			2001(2)(3)			2000
Statement of Operations Data:
Net sales		$	521,025		$	571,547		$	598,299		$	619,932		$	543,608
Gross margin			143,965			167,243			194,964			232,531			202,868
Operating income (loss)			(25,920	)		(13,603	)		22,511			66,523			59,725
Income (loss) from continuing operations before income taxes, extraordinary item and cumulative effect of a change in accounting principle			(36,788	)		(23,856	)		12,927			62,318			54,732
Provision (benefit) for income taxes			(3,205	)		(9,543	)		5,171			21,289			21,674
Income (loss) from continuing operations before extraordinary item and cumulative effect of a change in accounting principle			(33,583	)		(14,313	)		7,756			41,029			33,058
Income (loss) from discontinued operations, net of tax			—			(42,014	)		(22,093	)		29			—
Extraordinary loss on early extinguishment of debt, net of tax			—			—			—			(623	)		(958	)
Cumulative effect of a change in accounting principle, net of tax(4)			—			(24,567	)		—			—			(1,449	)
Net income (loss)		$	(33,583	)	$	(80,894	)	$	(14,337	)	$	40,435		$	30,651
Basic earnings (loss) per share:
	Income (loss) from continuing operations before extraordinary item and cumulative effect of a change in accounting principle	$	(1.64	)	$	(0.71	)	$	0.45		$	2.45		$	2.02
	Loss from discontinued operations		—			(2.10	)		(1.28	)		—			—
	Extraordinary loss on early extinguishment of debt		—			—			—			(0.04	)		(0.06	)
	Cumulative effect of a change in accounting principle		—			(1.22	)		—			—			(0.09	)
Basic earnings (loss) per share		$	(1.64	)	$	(4.03	)	$	(0.83	)	$	2.41		$	1.87
Diluted earnings (loss) per share:
	Income (loss) from continuing operations before extraordinary item and cumulative effect of a change in accounting principle	$	(1.64	)	$	(0.71	)	$	0.45		$	2.36		$	1.94
	Loss from discontinued operations		—			(2.10	)		(1.28	)		—			—
	Extraordinary loss on early extinguishment of debt		—			—			—			(0.03	)		(0.05	)
	Cumulative effect of a change in accounting principle		—			(1.22	)		—			—			(0.09	)
Diluted earnings (loss) per share		$	(1.64	)	$	(4.03	)	$	(0.83	)	$	2.33		$	1.80
Weighted average common shares outstanding:
Basic			20,528			20,053			17,172			16,732			16,408
Diluted			20,528			20,053			17,172			17,342			17,064

Comparable store sales decreased 10.4% and 17.2% in 2007 and 2006, respectively. A store is included in the comparable store sales calculation after it has been open and operated by us for more than 52 weeks. The percentage change is computed by comparing total net sales for comparable stores as thus defined at the end of the applicable reporting period with total net sales from comparable stores for the comparable period in the prior year.

The following table contains selected information for each of our store formats for 2007.


			Comparable					Sales per Selling
	Sales		Store Sales			Average Size		Square Foot⁽¹⁾
	(in millions)					(in selling
						square feet)

Mall stores	$	145.2		(10.5	)%		2,000	$	248
Outlet stores		115.6		(11.0	)%		3,250		297
Airport stores		10.4		(4.0	)%		600		1,197
e-commerce		7.4		—			—		—
Wholesale		1.8		—			—		—

Total	$	280.4

The following table contains selected information for each of our store formats for 2006.


			Comparable					Sales per Selling
	Sales		Store Sales			Average Size		Square Foot⁽¹⁾
	(in millions)					(in selling
						square feet)

Mall stores	$	173.1		(22.7	)%		2,000	$	296
Outlet stores		128.7		(8.9	)%		3,250		347
Airport stores		10.7		(12.7	)%		600		1,289
e-commerce		6.7		—			—		—
Wholesale		1.5		—			—		—
Seasonal		0.6		—			—		—

Total	$	321.3


(1)		Sales per square foot is defined as net sales for stores open a full 12 months divided by total selling square feet for stores open a full 12 months.

~~SELECTED~~ During ~~HISTORICAL~~2007, ~~CONSOLIDATED~~our ~~FINANCIAL~~primary ~~AND~~initiatives to build on the ~~OPERATING~~ “reinvented” ~~DATA —~~Wilsons ~~(Continued)~~Leather were:

~~(In~~ Increase ~~thousands~~Accessories ~~except~~Penetration. To ~~per~~mitigate the ~~share~~continuing ~~amounts~~seasonality we face in the outerwear business, we continued to expand our accessories categories. Our accessories penetration increased to 44.9% of net sales in 2007 as compared to 41.4% and 38.3% in 2006 and 2005, respectively. We will ~~operating~~ continue ~~data)~~to increase our accessories profile in 2008 by offering nationally recognized designer brands in our 100 remaining mall stores.

	For the years ended
	January 31,			February 1,			February 2,			February 3,			January 29,
	2004			2003(1)			2002(1)(2)			2001(2)(3)			2000
Selected Operating Data:
Number of permanent stores open at end of period (5)		460			618			619			573			529
Change in comparable store sales(5)(6)		(6.8	)%		(7.0	)%		(12.1	)%		4.1	%		11.5	%
Net sales per square foot for stores open entire period(5)	$	377		$	380		$	415		$	503		$	478
Total selling square footage at end of period(5) (in thousands)		1,052			1,377			1,359			1,203			1,046
Peak number of seasonal stores during period		229			284			281			239			274

Emphasis on Designer Brands. We significantly increased the number of nationally recognized designer brands in our accessories and outerwear offerings during the 2007 holiday season in our mall stores. Designer brand product performed better than our private label offerings for both accessories and outerwear and we plan to significantly increase our designer brand offerings in 2008. Sell-throughs of designer brands, at higher average unit retails, are significantly higher than our own private label offerings.

	At year ended
	January 31,		February 1,		February 2,		February 3,		January 29,
	2004		2003(1)		2002(1)(2)		2001(2)(3)		2000
Balance Sheet Data:
Working capital	$	63,452	$	108,551	$	102,262	$	99,191	$	126,855
Inventories		89,298		118,701		92,940		106,164		79,221
Total assets		204,127		246,491		332,946		305,992		272,554
Total debt (short and long-term)		56,189		55,740		55,590		30,590		43,890
Shareholders’ equity		85,354		117,228		184,495		174,710		131,207

New Store Environment Test. We tested a new store environment in four locations during the fourth quarter of 2007. These stores featured primarily designer brands for both accessories and outerwear, with an emphasis on accessories. Designer brand handbags were featured using updated display fixtures and presentations. Initial test results for the accessories business in these stores were promising and we look forward to rolling out an improved version of this new accessories concept to our 100 remaining mall stores in 2008.

(1)	Includes a charge to operations, before tax, of $1.0 and $5.4 million in 2002 and 2001, respectively, resulting from the impairment of property and equipment.
(2)	Reclassified for the presentation of discontinued operations for the Travel Subsidiaries.
(3)	Our results of operations for the year ended February 3, 2001, consisted of 53 weeks as compared to 52 weeks for all other years presented in this Form 10-K.
(4)	Includes a charge to operations, net of tax, of $24.6 million for the year ended February 1, 2003, resulting from the cumulative effect of adopting SFAS No. 142, Goodwill and Other Intangible Assets, and of $1.4 million, net of tax, for the year ended January 29, 2000, resulting from the cumulative effect of the adoption of a new method of accounting for revenue recognition of layaway sales.
(5)	The figures for January 31, 2004, exclude the 111 liquidation stores.
(6)	A store is included in the comparable store sales calculation after it has been opened and operated by us for more than 52 weeks. The percentage change is computed by comparing total net sales for comparable stores as thus defined at the end of the applicable reporting period with total net sales from comparable stores for the comparable period in the prior year.

Develop a Wholesale Business. In 2006, we laid the foundation for a wholesale business to sell proprietary licensed and branded leather products in geographic and product categories outside our current markets and product mix. During 2007, we continued to focus on building a wholesale business and we established relationships with certain major retailers. However, we have decided to focus our limited capital resources on our new go-forward accessories mall concept and revitalization/enhancement of our outlet and airport channels. As such, we will discontinue our wholesale business during the first quarter of 2008.

The results of these initiatives were disappointing from a financial perspective. While we did make improvements and discoveries that we believe will have a long-term positive impact on our operating results, the bottom line is that we did not turn the business around and we disappointed our shareholders. The challenges we faced in 2007 were not new. Over the past few years, mall traffic has been trending downward, off-mall retail venues have gained popularity and competition has continued to increase from non-specialty discounters and mass merchandisers. Compounding these issues for us was an extremely challenging retail environment for outerwear in 2007. We anticipated that designer brand outerwear would drive more traffic in our stores than our own private label offerings and it did. Sell-throughs of designer brands, at higher average unit retails, were significantly higher than our own private label offerings. However, this was not enough to offset the erosion in traffic we have continued to experience.

Our financial strategy for 2008 is to aggressively reduce costs and working capital needs, launch a new mall accessories store concept and revitalize/enhance our outlet and airport channels.

Reorganization and Partial Store Liquidation. On February 15, 2008, we announced that we would liquidate up to 160 mall stores (subsequently revised to 154 mall stores and four outlet stores — the “liquidation stores”) and eliminate approximately 938 store-related positions. We retained a third party liquidator and real estate firm to assist in this process. The liquidation is part of a strategy aimed at reducing our mall store base, aggressive cost cutting measures and the launch of a new mall accessories store concept. Concurrent with these store closures and using the liquidation sale proceeds, our 100 remaining mall stores will be remodeled to a new mall accessories store concept that has been tested in four different regions of the country. As part of the launch of the mall accessories store concept and ongoing cost reduction efforts, we have also realigned our organization to reflect the reduced store base and decreased overseas sourcing needs. As a result, we eliminated 64 positions at our corporate headquarters, overseas offices and distribution center. The liquidation will be presented as discontinued operations commencing in the first quarter of 2008. Our net sales and expenses will be significantly reduced going forward as a result of the liquidation. During the fourth quarter of 2007, we recorded a $9.3 million impairment loss related to the non-inventory assets located at the liquidation stores, as well as $10.4 million in other asset impairment charges that were primarily related to the mall-based stores that will be converted to the new accessories concept.

New Mall Accessories Store Concept. During the 2007 holiday season, we began testing a new mall accessories store concept in four stores to address our customer traffic issues and elevate our designer brand

~~Item 7~~ positioning. ~~Management’s~~With ~~Discussion~~that ~~and~~test, ~~Analysis~~we ofidentified ~~Financial~~an ~~Condition~~accessories centered ~~and~~offering ~~Results~~that ofappeals ~~Operations~~to an important buying demographic.

~~The~~ This ~~following~~new ~~discussion~~accessories ofconcept ~~our~~will ~~financial condition~~be ~~and~~a ~~results~~designer ofbrand ~~operations~~driven store ~~should~~for bewomen, ~~read~~focusing ~~in conjunction~~on fashion accessories with ~~our~~a ~~selected~~limited selection ~~historical~~of ~~consolidated~~outerwear. ~~financial data~~We ~~and~~have ~~consolidated~~kept ~~financial~~only ~~statements~~our ~~and~~best ~~notes~~mall ~~thereto~~stores ~~appearing~~ in ~~elsewhere~~the inbest locations for this ~~Form 10-K~~concept. ~~The~~Our ~~consolidated financial~~plan ~~statements~~is ~~for~~to ~~all~~remodel every ~~periods~~remaining ~~present~~mall ~~the~~store ~~Travel Subsidiaries~~to ~~segment~~this asnew ~~discontinued~~concept ~~operations~~during 2008. ~~See~~With “ handbags generally priced from $100 —~~Discontinued~~ ~~Operations.”~~$400, ~~Unless~~this ~~otherwise~~new ~~indicated,~~ concept will provide an upscale boutique feel for customers in the ~~following~~emerging ~~discussion~~or ~~relates~~mass ~~only~~luxury tocategory ~~Wilsons~~and will be an alternative ~~Leather’s~~ to ~~continuing~~the ~~operations~~department store homogenization that has occurred in this category.

~~Overview~~ Revitalize/Enhance Our Outlet and Airport Channels. Our outlet and airport channels have historically been profitable and cash flow positive. The reorganization and partial store liquidation included the closing of only four outlet stores. These channels are the foundation for our new mall accessories store concept to provide stability and cash flow as our new accessories concept is developed. We plan to introduce new product offerings in both accessories and outerwear in our outlet channel. In addition, we will strive to implement new marketing packages and improved display presentations in our outlet channel.

We In ~~measure~~June ~~performance~~2007, ~~using~~we ~~such~~completed ~~key~~a ~~operating~~$45.0 million private ~~statistics~~ placement asof ~~comparable~~a ~~store~~newly ~~sales,~~created ~~sales~~series ~~per~~of ~~square~~convertible ~~foot,~~preferred ~~gross~~ stock ~~margin~~and ~~percentage~~warrants ~~and~~to ~~store~~purchase ~~operating~~our ~~expenses,~~common ~~with~~stock a(the ~~focus~~ “Preferred onStock ~~labor,~~and asWarrant afinancing”). ~~percentage~~The proceeds of ~~sales.~~the ~~These~~Preferred ~~results translate~~Stock ~~into~~and ~~store~~Warrant ~~operating~~financing ~~contribution~~were ~~and~~used ~~store~~to ~~cash flow,~~repay ~~which~~ our weoutstanding ~~use~~$20.0 million Term B promissory note and to fund ~~evaluate~~general ~~overall~~working ~~performance~~capital onrequirements angoing ~~individual~~forward, ~~store~~ including ~~basis.~~the ~~Store~~rollout ~~operating~~of ~~contribution~~our isdesigner ~~calculated~~brand bymerchandise ~~deducting~~ initiative. aThis ~~store’s~~transaction ~~operating~~is ~~expenses~~described ~~from~~in ~~its~~greater ~~gross~~detail ~~margin~~ below in “Liquidity and iscapital ~~measured~~resources.” asIn addition ato ~~percentage~~the influx of ~~sales.~~capital, ~~Store~~the ~~operating contribution~~private ~~gives~~placement brought us ana ~~overall~~large ~~measure~~new asinvestor, toGoldner ~~whether~~Hawn orPrivate ~~not individual~~Equity, ~~locations~~to ~~and~~assist in ~~markets~~setting ~~are~~our ~~meeting~~long-term ~~our~~strategic ~~financial objectives~~direction.

In We ~~addition,~~intend ~~general~~the ~~and~~discussion ~~administrative~~of ~~expenses~~our financial condition and results ~~are~~ of ~~monitored~~operations inthat ~~absolute~~follows ~~amount,~~to asprovide ~~well~~information asthat onwill assist ain ~~percentage~~understanding ofour current liquidity, consolidated ~~sales~~ financial ~~basis.~~statements, Wethe ~~continue~~changes toin ~~monitor~~certain ~~product~~key ~~costing~~items ~~and~~in those ~~promotional~~ consolidated ~~activity,~~financial ~~which~~statements ~~allows~~from usyear to ~~generally~~year ~~maintain~~and the ~~acceptable~~ primary ~~margin~~factors ~~levels.~~that ~~Our~~accounted ~~gross~~for ~~margins~~those ~~are~~changes, ~~influenced~~as ~~by the~~well ~~mix~~as ofhow certain ~~merchandise~~accounting ~~between~~principles, ~~outerwear~~policies and ~~accessories~~estimates inaffect our ~~total~~ consolidated ~~sales~~financial statements.

We also measure and evaluate investments in our retail locations, including inventory and property and equipment. Inventory performance is primarily measured by inventory turns, or the number of times store inventory turns over in a given period, and amounts of owned inventory at various times based on payment terms from our vendors. The most significant investments in property and equipment are made at the time we open a store.

At January 31, 2004, we operated 460 stores (excluding the 111 liquidation stores) using various formats including mall stores, outlet stores and airport locations. We also operated 229 temporary seasonal stores to better capitalize on our peak selling season from October through December.

During the last two years, in support of our overall financial strategy, the following three actions were taken: 1) discontinued operations for the Travel Subsidiaries, 2) a reorganization and partial store liquidation, and 3) additional financing. These actions are described in greater detail below.

We generate a significant portion of our sales from October through January, which includes the holiday selling season. We generated 59.4% of our annual sales in that time period in 2003, and 31.6% in December alone. As part of our strategy to improve operating margins and maximize revenue and profitability during non-peak selling seasons, we have increased the number of outlet locations since 2000, which are less seasonal, and modified our product mix to emphasize accessories. Accessory sales grew as a percentage of sales to 33.6% in 2003 from 28.0% in 2001, largely as a result of fresh, new styles designed to match our customers’ lifestyle needs.

Comparable store sales decreased 6.8%, 7.0%, and 12.1% in 2003, 2002 and 2001, respectively. Income (loss) from continuing operations as a percentage of sales for the three years was (6.4%), (2.5%), and 1.3%, respectively. A store is included in the comparable store sales calculation after it has been opened and operated by us for more than 52 weeks. The percentage change is computed by comparing total net sales for comparable stores as thus defined at the end of the applicable reporting period with total net sales from comparable stores for the comparable period in the prior year. The 111 liquidation stores are not included in comparable store sales for the month of January 2004.

The following table contains selected information for each of our store formats for 2003.

								Sales per
	Sales		Comparable Sales			Average Size		Square Foot(1)
	(in millions)					(in selling
						square feet)
Mall stores	$	330.1		(10.1	)%		2,100	$	364.7
Outlet stores		137.2		3.7	%		3,300		372.6
Airport stores		16.1		(7.1	)%		700		1,114.8
E-commerce		4.5		—			—		—
Seasonal		33.1		—			—		—
Total	$	521.0

The following table contains selected information for each of our store formats for 2002.

								Sales per
	Sales		Comparable Sales			Average Size		Square Foot(1)
	(in millions)					(in selling
						square feet)
Mall stores	$	376.7		(9.2	)%		2,100	$	369.3
Outlet stores		123.1		0.1	%		3,200		370.8
Airport stores		20.3		3.1	%		600		1,193.5
E-commerce		4.5		—			—		—
Seasonal		46.9		—			—		—
Total	$	571.5

(1) Sales per square foot is defined as net sales for stores open a full 12 months divided by total selling square feet for stores open a full 12 months.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

Critical Accounting Policies

Our significant accounting policies are described in in Note 21, to“Summary of significant accounting policies,” contained in our consolidated financial ~~statements~~ statements beginning on page F-7 of this report. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Inventories

We value our inventories, which consist primarily of finished goods held for sale purchased from domestic and foreign vendors, at the lower of cost or market value, determined by the retail inventory method onusing the last-in, first-out (“LIFO”) basis. As of ~~January~~February 312, ~~2004,~~2008 and February 13, ~~2003~~2007, the LIFO cost of inventories approximated the first-in, first-out ~~(“FIFO”)~~ cost of inventories. The inventory cost includes the cost of ~~both~~ merchandise, freight, duty, sourcing overhead, and ~~freight~~other merchandise-specific charges. A periodic review of inventory quantities on hand is performed to determine if inventory is properly stated at the lower of cost or market. ~~Factors~~Management evaluates several factors related to ~~current~~valuing inventories at the lower of cost or market such as ~~future~~anticipated consumer demand, ~~fashion~~ fashion trends, ~~current~~expected ~~and~~permanent ~~anticipated~~ retail markdowns, ~~and~~the ~~class or~~aging ~~type~~ of ~~inventory~~inventories, ~~are~~and ~~analyzed~~class toor ~~determine~~type ~~estimated~~of ~~net realizable values~~inventories. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. ~~Any significant unanticipated changes in~~

24 Permanent markdowns designated for clearance activity are recorded at the point of decision, when utility of inventory has diminished, versus the point of sale. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, and style trends. The corresponding reduction to gross margin is also recorded in the period that the decision is made.

~~the~~ Shrinkage ~~factors~~is ~~noted~~estimated ~~above~~as ~~could~~a ~~have~~percentage aof ~~significant~~sales for the period ~~impact~~ from onthe last inventory date to the ~~value~~end of ~~our~~the fiscal year. Physical inventories are taken at least biannually for all stores and our ~~reported~~distribution center and inventory records are ~~operating~~ adjusted ~~results~~accordingly. The shrink rate for the most recent physical inventory, in combination with current events and historical experience, is used as the accrual rate to record shrink for the next inventory cycle.

Any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventories and our reported operating results.

Property and Equipment Impairment

Our property and equipment consists principally of store leasehold improvements and store fixtures and are included in ~~the~~ the “Property and equipment” line item in our ~~consolidated~~ consolidated balance sheets in our consolidated financial statements. These long-lived assets are recorded at cost and are amortized using the straight-line method over the lesser of the applicable store lease term or the estimated useful life of the ~~leasehold~~ leasehold improvements. The typical initial lease term for our stores is 10 years. Computer hardware and software and ~~ten~~ distribution center equipment are amortized over three to five years and 10 years, respectively. We review long-lived assets for impairment whenever events, such as decisions to close a store or changes in circumstances, indicate that the carrying value of an asset may not be recoverable. IfIn the ~~undiscounted~~fourth quarter ~~future~~of ~~cash~~2007, ~~flows~~we ~~from the~~recorded ~~long-lived~~an ~~assets~~impairment ~~are~~loss ~~less~~of $19.7 million. ~~than~~This ~~the~~impairment ~~carrying~~loss ~~value,~~was wecomprised of: ~~recognize~~ 1) all aof ~~loss~~the ~~for~~assets alocated ~~particular~~at ~~market~~the ofliquidation stores ~~impaired~~, ~~equal~~ 2) all toof the ~~difference~~non-inventory ~~between~~assets ~~the~~located ~~carrying~~at ~~value~~our ~~and the~~100 ~~asset’s~~ remaining ~~fair~~mall ~~value,~~stores ~~which~~and is3) all ~~indicated~~of by the ~~discounted~~non-inventory ~~future~~ assets ~~cash~~at ~~flows~~four ~~using~~of aour ~~risk-adjusted~~outlet ~~rate~~stores. ofIn ~~return.~~the Wefourth quarter of 2006, we recorded aan ~~charge~~impairment loss of $1.0.7 million related ~~for~~to ~~impaired~~certain of our mall store assets. We had determined, ~~during~~ based on the ~~fourth~~sales ~~quarter~~projections ofat ~~2002.~~the ~~During~~time ~~2003,~~for we2007 ~~did~~and ~~not~~2008, ~~record~~ that anthe ~~impairment~~estimated ~~charge~~future ~~based~~undiscounted oncash ~~our~~flows ~~impairment~~for ~~testing.~~these ~~However,~~ stores wewould ~~have~~not ~~accelerated~~be ~~depreciation~~sufficient onto recover the ~~remaining~~carrying ~~net~~value of ~~book~~ the ~~value~~underlying ~~related~~store toassets. ~~the~~These ~~111~~impairment ~~liquidation~~losses ~~stores~~are recorded ~~through~~on ~~the~~a ~~end of~~separate ~~the~~line ~~liquidation~~item ~~sale~~entitled ~~term~~“Asset impairments” ~~(through~~in ~~April~~the ~~2004).~~accompanying Inconsolidated ~~addition,~~statements of ~~decisions~~ operations. toSuch ~~close~~assets ~~stores~~were ~~during~~written ~~the~~down ~~year~~to ~~have~~fair ~~and~~value ~~will~~less ~~result~~the in expected ~~accelerated~~disposal ~~depreciation~~value, ~~over~~if ~~the~~any, ~~revised~~of ~~useful~~such ~~life~~furniture, offixtures and ~~those~~ equipment. ~~store~~We determined that these assets. ~~Most~~had ~~store~~no ~~closures~~fair ~~(excluding~~value, as the ~~111 liquidation~~majority ~~stores)~~of ~~occur~~such ~~upon~~assets ~~the~~relate ~~lease~~to ~~expiration~~leasehold improvements and other store-specific fixtures and equipment.

Results of Operations

Overview

The following table contains selected information from our historical consolidated statements of operations, expressed as a percentage of net sales:

			Years ended
		For the years ended
			January 31,				February 1,			February 2,
		February 2,				February 3,
			2004				2003			2002
		2008				2007
Net sales				100.0	%			100.0	%		100.0	%
NET SALES			100.0	%			100.0	%
Cost of goods sold, buying and occupancy costs				72.4				70.7			67.4
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS			80.4				72.9
Gross margin	~~Gross margin~~		19.6	~~27.6~~			27.1	~~29.3~~			~~32.6~~
Selling, general and administrative expenses				28.9				28.8			26.5
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			35.6				34.1
Depreciation and amortization				3.7				2.9			2.3
DEPRECIATION AND AMORTIZATION			4.0				3.9
	Operating income (loss)			(5.0	)			(2.4	)		3.8
ASSET IMPAIRMENTS			7.0				0.2
Interest expense, net				2.1				1.8			1.6
Operating loss			(27.0	)			(11.1	)
Income tax provision (benefit)				(0.7	)			(1.7	)		0.9
INTEREST EXPENSE, NET			0.5				0.6
	Income (loss) from continuing operations before cumulative effect of a change in accounting principle			(6.4	)			(2.5	)		1.3
Loss before income taxes			(27.5	)			(11.7	)
Loss from discontinued operations, net of tax				—				(7.4	)		(3.7	)
INCOME TAX PROVISION (BENEFIT)			0.2				(1.4	)
Cumulative effect of a change in accounting principle, net of tax				—				(4.3	)		—
Net loss			(27.7	)			(10.3	)
	Net loss			(6.4	)%			(14.2	)%		(2.4	)%

~~2003 Compared to 2002~~ 24

NetTable Sales. Net sales decreased 8.8% to $521.0 million in 2003 from $571.5 million in 2002. The $50.5 million sales decrease was due to: (1) a $32.9 million decrease related to a 6.8% comparable store sales decrease, (2) a $13.0 million decrease from the full-year impact of 2002 and 2003 store closures, (3) a $14.0 million decrease from lower seasonal store sales, and (4) a $0.1 million decrease in e-commerce sales volume. These decreases were partially offset by a $9.5 million increase due to the full-year impact of 2002 and 2003 store openings that were not accounted for as part of comparable store sales. Contents

2007 Compared to 2006

Net Sales. 2007 net sales decreased 12.7% to $280.4 million from $321.3 million in 2006. This decrease in net sales was primarily the result of a decrease in 2007 comparable store sales of 10.4% compared to a decrease of 17.2% in 2006. The decrease in comparable store sales was experienced in all our merchandise lines, with men’s down 17.0%, women’s down 13.2% and accessories down 3.9%. Mall and outlet channels were down 10.5% and 11.0%, respectively.

We also had a 2.6% reduction in the average store count year-over-year. We opened five stores and closed 31 during 2007 compared to opening nine stores and closing 14 during 2006. As of February 2, 2008, we operated 391 stores (including the 158 liquidation stores) compared to 417 as of February 3, 2007.

The significant transition we have undertaken in our mall stores during 2007 and 2006 continued to have a negative impact on our comparable store sales in both 2007 and 2006. Our goal of transitioning our customer base has taken more time than anticipated, while our traditional price only customer has opted out of the “reinvented” Wilsons Leather. Designer brand product introduced in our mall stores during the 2007 holiday season outperformed our own private label offerings. However, this was not effective in offsetting the erosion in traffic we have continued to experience.

Net sales for the liquidation stores were $73.4 million and $85.8 million in 2007 and 2006, respectively.

Cost of Goods Sold, Buying and Occupancy Costs. Cost of goods sold, buying and occupancy costs decreased $8.7 million, or 3.7%, to $225.5 million in 2007, compared to $234.3 million in 2006. This decrease was driven by: (1) a $7.7 million decrease in product costs due to the significantly lower sales volume in 2007, (2) a $3.3 million decrease in buying and occupancy costs as a result of our decreased receipt volume and reduction in average store count in 2007 and (3) a $1.3 million reduction in delivery and other costs of sales, again, due to the lower receipt volume. These decreases were somewhat offset by a $3.6 million increase in temporary and permanent markdowns. The increase in markdowns was primarily due to markdowns taken in the third quarter of 2007 as we aggressively moved our non-go-forward merchandise to make room for our designer brand offerings in our mall stores.

The $7.7 million decrease in product costs includes $1.6 million related to a lawsuit settlement in the fourth quarter of 2007. We brought a civil lawsuit in U.S. District Court against the former General Manager — Asia and our theft coverage insurance carrier in May 2007 related to a kickback scheme discovered in September 2005 involving the former General Manager — Asia. In December 2007, the lawsuit was settled for payments to us in the aggregate amount of $1.6 million. This was recorded as a reduction of cost of sales in the fourth quarter of 2007.

Gross margin dollars decreased $32.1 million, or 36.9%, to $54.9 million in 2007 compared to $87.0 million in 2006 primarily related to the lower sales volume in 2006. Gross margin as a percentage of net sales decreased by 750 basis points to 19.6% in 2007 compared to 27.1% in 2006 primarily due to: (1) a 560 basis point decrease in merchandise margins resulting from a 180 basis point decrease in initial markup and a 380 basis point increase in markdowns as a percentage of net sales (resulting from the aggressive third quarter markdown activity mentioned above) and (2) the de-leveraging resulting from our comparable store sales, which resulted in a 210 basis point increase in buying and occupancy costs as a percentage of sales.

Cost of goods sold, buying and occupancy costs for the liquidation stores were $66.2 million and $69.6 million in 2007 and 2006, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses decreased $9.8 million, or 8.9%, to $99.7 million in 2007 as compared to $109.4 million in 2006. As a percentage of net sales, 2007 SG&A expenses increased to 35.6% as compared to 34.1% in 2006. The increase in percentage rate is the result of our lower sales volume, which more than offset the $9.8 million decrease in total spending.

The $9.8 million decrease in 2007 SG&A spending was primarily due to: (1) a $3.6 million decrease in store-related expenses in line with our lower sales volume and reduced store count relating to reduced payroll hours, benefits spending, supply usage, communication charges, as well as lower shrink expense, (2) a $3.4 million decrease in promotional spending primarily related to reduced media spending and (3) a $2.8 million decrease in

~~The~~ administrative ~~primary~~costs ~~causes~~due ~~for~~primarily ~~the~~to ~~net~~reduced ~~sales~~spending ~~decrease~~on ~~were~~ payroll ~~threefold:~~and ~~(1) lack~~benefits ofas ~~promotional~~a ~~programs~~result inof ~~the mall~~lower ~~stores that could have brought more mall customers into the stores during the holiday season~~headcount, ~~(2) the continuation of~~ a ~~sluggish economy, and (3)~~ $0.7 ~~changes~~million decrease in ~~consumer~~stock-based ~~shopping~~compensation charges ~~preferences~~ and ~~trending~~decreased ~~away~~spending ~~from~~on ~~traditional~~travel ~~mall stores in favor of mass merchandisers~~ and ~~discounters~~relocation.

We Depreciation ~~opened 17 stores~~ and ~~closed~~Amortization. For ~~175 stores~~the ~~(including~~ year ~~the~~ended ~~111~~February 2, ~~liquidation~~2008, ~~stores)~~depreciation inand ~~2003,~~amortization decreased ~~compared~~$1.1 million to ~~opening~~ 34$11.3 million ~~stores~~from $12.5 million ~~and~~in ~~closing~~2006. 35Depreciation ~~stores~~and inamortization ~~2002.~~as Asa percentage of ~~January 31,~~ ~~2004,~~net wesales ~~operated~~increased ~~460~~slightly ~~stores~~to ~~(excluding~~4.0% ~~the~~in ~~111 liquidation~~2007 ~~stores)~~ as compared to ~~618~~3.9% ~~stores~~in at2006. ~~February~~ The $1~~, 2003~~.1 million ~~Our~~decrease ~~selling~~was primarily ~~square~~the ~~footage~~result inof ~~2003~~prior ~~decreased~~year ~~23.6%~~depreciation toon assets that ~~1,052,400~~ are ~~from~~now ~~1,376,600~~fully indepreciated ~~2002.~~and Weour ~~operated~~lower ~~229~~store ~~seasonal~~count, as we had ~~stores~~ on ~~during~~average ~~the~~11 ~~2003~~fewer ~~holiday~~stores ~~season~~open in 2007 as compared to ~~284 seasonal stores during 2002~~2006.

~~Cost~~ Asset ofImpairments. During ~~Goods Sold~~2007, ~~Buying~~we recorded ~~and~~an ~~Occupancy Costs.~~impairment ~~Cost~~charge of ~~goods~~$19.7 million ~~sold, buying~~comprised ~~and~~ of: ~~occupancy~~(1) all ~~costs~~of ~~decreased~~the ~~$27.2 million,~~assets orlocated ~~6.7%, compared~~at tothe ~~2002.~~liquidation stores, ~~The $27.~~(2) ~~million~~all ~~decrease~~of ~~from~~the ~~2002~~assets ~~was~~located at our 100 remaining ~~due~~ mall ~~to:~~stores and (13) ~~$21.9 million~~all inof ~~lower~~the ~~cost~~assets at four of ~~goods~~our ~~sold~~outlet ~~costs~~ stores. ~~due~~This compares to ~~lower~~a ~~sales~~$0.7 million ~~volume~~impairment inloss recorded ~~2003~~during ~~compared~~2006 related to ~~2002, (2) $3.0 million~~certain inof ~~lower~~our ~~buying~~mall ~~and~~stores. ~~occupancy~~We had ~~costs~~determined, ~~largely~~ ~~due~~based toon ~~cost~~the ~~saving~~sales ~~initiatives,~~projections ~~including~~at ~~rent~~the time for ~~reductions~~ 2007 ofand ~~approximately~~2008, ~~$0.8 million~~that ~~and~~the aestimated 4%future ~~lower average~~undiscounted ~~number~~cash offlows for ~~permanent~~these stores ~~operated~~would ~~(598~~not inbe ~~2003 compared~~sufficient to ~~623~~recover inthe ~~2002),~~carrying value ~~and~~of ~~(3) $2~~the underlying store assets.~~3 million~~ inSuch assets were written ~~reduced~~ down ~~markdown~~to ~~expense.~~fair ~~Despite~~value ~~these~~less ~~savings,~~the ~~cost~~expected ofdisposal ~~goods sold~~value, ~~buying~~if ~~and~~any, ~~occupancy~~of such ~~costs~~furniture, ~~increased~~fixtures toand 72equipment.4% asWe ~~a percentage~~determined ofthat ~~sales~~these assets inhad ~~2003~~no ~~from~~fair ~~70.7%~~value, as athe ~~percentage~~majority of ~~net sales~~such inassets ~~2002 due~~ related to ~~the~~leasehold ~~deleveraging~~improvements ~~effect~~and ofother ~~lower~~store-specific ~~sales volume~~furniture ~~of $50~~and equipment.~~5 million.~~

~~Selling,~~ Operating ~~General and Administrative Expenses~~Loss. The ~~Selling,~~operating ~~general~~loss ~~and~~of ~~administrative~~ 2007 ~~expenses~~was ~~decreased to~~ $~~150~~75.78 million inas ~~2003 from~~compared to $~~164~~35.56 million in ~~2002~~ 2006, ~~and~~or ~~increased~~27.0% ~~as a percentage~~ of net sales toin ~~28.9%~~2007 ~~from~~as ~~28.8%.~~compared ~~The $13.8 million decrease was primarily due~~ to: (11.1~~) a~~% ~~$10.2 million decrease in store selling expenses due to tighter cost control and a new method~~ of ~~hours allocation in the stores resulting in~~net ~~lower staffing levels during periods of slower~~ sales, ~~(these initiatives,~~in ~~when~~2006. ~~combined~~The ~~with a lower average store count, accounted for a~~ $740.82 million ~~reduction~~decline in ~~payroll expense,~~operating ~~which~~ performance ~~represented~~was ~~76%~~due ofto: ~~the $10.2 million in store selling expense savings),~~ (21) a $432.51 million decrease in ~~other administrative~~gross ~~costs~~margin ~~related~~performance ~~to the reduced store count~~ and ~~corporate~~ ~~restructuring and cost-saving initiatives,~~ (32) a $219.0 million ~~decrease~~of additional inasset ~~other~~impairments ~~store~~recorded ~~expenses~~in ~~also~~2007, ~~due~~somewhat ~~to a~~offset ~~lower~~ by: ~~average store count,~~ (41) a $1.9.8 million decrease in ~~asset impairments and write-offs, offset by $0.6 million~~ in ~~increased~~SG&A ~~costs for lease terminations to net a~~spending ~~$1.3 million decrease over 2002,~~ and (52) a $1.01 million decrease in ~~recruiting,~~depreciation ~~relocation~~ and ~~severance costs~~ amortization.

~~These~~ Interest Expense, Net. Interest expense, ~~reductions~~net, ~~were~~for ~~primarily~~2007 ~~offset~~decreased by ~~(1) a~~ $20.25 million ~~increase in general administrative costs for higher employee benefit costs primarily due~~ to ~~increased~~ $1.3 million ~~insurance~~as ~~costs~~compared ~~and higher costs for consulting fees related~~ to ~~corporate~~$1.9 million ~~restructuring~~in ~~and~~2006. ~~financing activities,~~This ~~offset~~ decrease bywas ~~lower~~primarily ~~payroll~~attributable ~~expense~~to inthe ~~2003~~repayment ~~compared~~of ~~to 2002,~~our ~~(2) a~~ $120.0 million ~~increase~~Term inB ~~legal~~promissory ~~costs,~~note ~~and (3) a $2.0 million increase~~ in ~~various~~the ~~other miscellaneous~~second ~~costs and reduced transaction fees that offset~~quarter ~~selling~~ of ~~expenses~~2007.

~~Depreciation~~ Income ~~and Amortization.~~Tax ~~Depreciation~~Provision ~~and~~(Benefit). The ~~amortization~~ income ~~increased~~tax toprovision of $190.24 million in ~~2003~~2007 ~~from~~relates ~~$16.3 million~~ primarily into ~~2002,~~estimated ~~and~~federal ~~increased~~alternative minimum tax as a result ~~percentage~~ of ~~net sales~~an toincrease ~~3.7%~~in ~~from~~our ~~2.9%.~~LIFO ~~The~~inventory ~~increase~~deferred ~~of $2~~tax liability.~~9 million~~ ~~was primarily~~This ~~the~~compares ~~result~~to ofan ~~(1) a~~income tax benefit of $14.74 million ~~increase in accelerated depreciation~~ recorded in ~~2003~~2006 ~~for~~related ~~increased~~to ~~planned store~~the ~~closures~~reduction ~~during 2003 and scheduled 2004 closures as~~of ~~compared~~ the toincome ~~the~~tax ~~accelerated~~provision ~~depreciation~~we recorded in ~~2002~~the ~~for 2002~~fourth ~~and~~quarter ~~planned~~of 2005 ~~2003~~due ~~store~~to ~~closures,~~our ~~(2) an $0.8 million~~July ~~charge~~tax ~~taken~~year ~~for~~end at the ~~re-evaluation~~time. ofSubsequent ~~asset~~to our ~~lives~~ July ~~for~~2006 ~~point~~tax ofyear ~~sale systems~~end, ~~(3) $0.3 million~~we ~~in increased~~elected ~~amortization~~to ~~and~~conform ~~depreciation~~our oftax ~~administrative~~year ~~assets~~end ~~due~~ to ~~higher~~our ~~asset~~fiscal ~~levels~~year inend ~~2003~~as ~~compared~~of ~~to 2002~~February 3, ~~and (4) $0~~2007.~~1 million~~ inTherefore, fluctuations ~~higher~~created ~~general~~by ~~store~~different ~~depreciation~~book and tax year ends were ~~expense~~ eliminated going forward.

~~Operating Loss.~~ Due Asto acumulative ~~result~~losses ofsustained over the ~~above,~~past five fiscal ~~the~~ years, ~~operating~~we ~~loss~~believe ~~equaled~~that ait ~~net~~is ~~loss~~more oflikely ~~$25.9 million~~than innot that our ~~2003~~ deferred ~~compared~~tax toassets awill ~~$13~~not be realized.~~6 million~~ ~~net~~Accordingly, ~~loss~~a infull valuation ~~2002~~allowance has been recorded against the net deferred tax assets, orincluding ~~5.0%~~potentially unrealizable net operating of losses. The ability to utilize net ~~sales~~operating inloss ~~2003~~carryforwards is aslimited ~~compared~~under tovarious ~~2.4%~~provisions of ~~net~~the ~~sales~~Internal Revenue Code (see Note 8, “Income taxes,” in ~~2002~~our consolidated financial statements).

~~Interest Expense~~ Net Loss. The ~~Net~~net ~~interest~~loss ~~expense increased~~for to2007 was $1077.95 million inas ~~2003~~compared ~~from~~to $1033.31 million in ~~2002~~2006, ~~primarily~~or a ~~due~~loss toof $02.~~5 million~~46 ofper ~~waiver~~basic ~~fees~~and ~~paid to~~diluted ~~our~~share ~~senior~~available ~~lenders related~~ to ~~our~~common shareholders ~~EBITDA covenants~~ in ~~our senior~~2007 ~~credit~~as ~~facility~~compared ~~during~~to ~~the~~a ~~fourth~~loss ~~quarter~~ of ~~2003~~$0.85 ~~In addition,~~per ~~the decreased borrowings under the revolver during~~basic ~~2003 were offset by higher interest rates~~ and ~~increased~~diluted ~~debt issuance~~share ~~cost~~in ~~amortization~~2006.

Net Loss Available to Common Shareholders. The 2007 net loss per common share available to common shareholders of $2.46 reflects adjustments required to be made to our net loss in order to measure net loss available to common shareholders. These adjustments related to our June 2007 Preferred Stock and Warrant financing. For 2007, these adjustments include: (1) a $3.4 million accrued paid-in-kind dividend payable related to the Preferred Stock, (2) a $14.9 million beneficial conversion feature associated with the Preferred Stock, and (3) a $1.0 million deemed dividend to certain warrant holders related to anti-dilution provisions of the applicable warrants. See Note 9, “Preferred stock and warrant financing,” to our consolidated financial statements. There are no comparable adjustments reflected in the 2006 per common share figures.

~~Income Tax~~ ~~Benefit. The income tax benefit~~ Liquidity ~~was~~ and ~~$3.2 million~~Capital ~~in 2003 compared to $9.5 million in~~Resources 2002 due to sustained losses, which required the recording of a valuation allowance against potentially unrealizable net operating losses in future periods. This resulted in the effective rate being reduced from 40% in 2002 to 8.7% in 2003.

~~Net~~ Liquidity. We ~~Loss~~have ~~from~~incurred ~~Continuing~~net losses ~~Operations~~ of $77.5 million Asand a$33.1 million ~~result~~and used $28.2 million and $14.6 million in cash for operating activities during 2007 and 2006, respectively. In addition, our $45.6 million cash balance at the beginning of 2006 has decreased to $7.4 million at the end of 2007. Subsequent to ~~above~~ year end, ~~the~~as ~~net~~part ~~loss~~of ~~from~~our ~~continuing~~cost ~~operations~~reduction ~~for~~initiatives, ~~2003~~we stopped making payments under certain of our licensing and lease agreements. Our senior credit facility was amended on February 14, 2008. The amendment, among other things, allowed for the liquidation of 158 stores, revised our borrowing base by adding a $3310.60 million ~~compared~~reserve, prohibits borrowing under our revolving line of credit until we provide projections and a business plan that are acceptable to our lender, and requires a ~~net~~monthly ~~loss~~appraisal of our inventory. Our financial statements do not include any adjustments that might result from the ~~continuing~~outcome of this uncertainty. In order to execute our go forward plans, we will need to amend some of the restrictions in our current credit facility, or find alternative sources of credit, and raise additional capital during the second quarter of 2008. We are pursuing possible sources of funding, including possible sales of existing assets. However, there can be no assurance that additional funding will be available or can be obtained on terms that are favorable to us, or at all. We have not received an indication from the lender in our current credit facility that the lender will agree to amend the terms of the facility. If we are not able to obtain additional capital in the second quarter of 2008, we will not be able to continue our operations outside of ~~$14~~bankruptcy.3 Under certain bankruptcy events, we may be required to redeem shares of our Preferred Stock at their liquidation value, which is the $45 million purchase inprice ~~2002~~for those shares plus any accrued but unpaid dividends. However, the redemption would not be permitted by law, unless we are able to pay our debts as they come due, and would be prohibited by the terms of our existing credit facility. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Loss~~ Capital ~~from~~resources. Our ~~Discontinued Operations and~~capital ~~Cumulative~~ requirements ~~Effect~~are ofprimarily adriven ~~Change~~by inour ~~Accounting Principle.~~seasonal ~~There was no loss from~~working ~~discontinued~~ capital ~~operations~~needs, investments in ~~2003~~new asstores, ~~compared~~remodeling ~~to the loss from~~existing ~~discontinued~~ stores, ~~operations~~enhancing ofinformation ~~$42.0 million~~systems, inand ~~2002.~~increasing ~~Included~~efficiency in for ~~the~~our ~~2002~~distribution ~~figure is $27~~centers.~~2 million~~ inIn ~~charges~~addition, ~~net~~implementation of ~~tax,~~our ~~for~~ key ~~the~~initiatives ~~disposal~~relating ofto ~~substantially~~our ~~all~~new ~~fixed~~mall ~~assets,~~accessories ~~the markdown~~store of concept ~~inventory,~~will ~~and~~require ~~severance~~significant ~~and~~resources, ~~lease~~including ~~termination~~capital dollars. ~~costs~~We ~~for~~plan ~~the Travel~~to ~~Subsidiaries~~largely infund ~~2002,~~the asremodel ~~well~~of asour ~~$14.8 million in~~100 ~~losses~~ remaining ~~from~~mall ~~operations~~stores ~~prior~~ to the ~~announced~~new ~~liquidation.~~accessories ~~In addition,~~store inconcept ~~2002~~with proceeds ~~there~~from ~~was~~the aliquidation ~~cumulative~~sale; ~~effect~~however, ofwe awill ~~change~~need additional capital in ~~accounting~~ ~~principle~~order ~~charge~~to ofcomplete ~~$24~~this project.~~6 million,~~ ~~net~~Our ~~of tax,~~peak ~~for~~ working ~~the~~capital ~~Travel~~needs ~~Subsidiaries~~typically ~~related~~occur toduring the ~~implementation~~period offrom ~~Statement~~ August ofthrough ~~Financial~~early ~~Accounting~~December ~~Standards~~as ~~(“SFAS”) SFAS No. 142,~~inventory ~~Goodwill~~levels ~~and~~are ~~Other Intangible~~increased ~~Assets.~~ in ~~See~~advance ~~“Consolidated Financial Statements~~ of ~~the Company,~~our ~~Note 3.~~peak ~~Discontinued~~selling ~~Operations,”~~season ~~beginning on~~from ~~page F-12~~October ~~of this report, for further details~~through January.

~~2002~~ Our ~~Compared~~future capital requirements depend on the sustained demand for our leather and accessories products. Many factors affect the level of consumer spending on our products, including, among others, general economic conditions, including rising energy prices, customer shopping patterns, interest rates, the availability of consumer credit, weather, the outbreak of war, acts of terrorism or the threat of either, other significant national and international events, taxation, and consumer confidence in future economic conditions. Consumer purchases of discretionary items such as our products tend to ~~2001~~decline during periods when disposable income is lower. Consumer spending habits have shifted toward large discount retailers, which has decreased mall traffic, resulting in lower net sales on a quarterly and annual basis.

~~Net~~ General ~~Sales. Net~~Electric ~~sales~~Capital ~~decreased~~Corporation ~~4.5%~~(“GECC”) ~~to $571.5 million in 2002 from~~has ~~$598.3 million~~ provided inus ~~2001.~~with ~~The~~a ~~$26.8 million~~senior ~~sales decrease~~credit ~~was~~facility, ~~due~~as ~~to:~~amended, ~~(1) a $35.6 million decrease from~~that a provides ~~7.0%~~for ~~comparable~~borrowings ~~store~~of ~~sales~~up ~~decrease,~~to ~~(2) an~~ $18115.40 million ~~decrease~~in aggregate ~~from~~principal ~~2002 and 2001 store closings~~amount, ~~and~~ ~~(3)~~ including a $575.80 million ~~decrease from lower seasonal~~ ~~store~~ letter ~~sales.~~of ~~These~~credit ~~decreases were offset by (1) a $32~~subfacility.~~4 million~~ ~~increase~~The ~~due~~maximum toamount ~~new~~available ~~store openings in 2002~~under ~~that~~ the ~~were~~revolving ~~not~~credit ~~accounted~~portion ~~for~~of asour ~~part~~senior ofcredit ~~comparable~~facility ~~store sales,~~as ~~and~~ amended ~~(2) a~~is ~~$0.6 million~~limited ~~increase in e-commerce sales~~to: ~~volume.~~

~~Causes~~• ~~for~~100% of the ~~net~~book ~~sales~~value ~~decrease~~of ~~were~~credit ~~threefold: (1)~~ card receivables; • plus the ~~sluggish~~lesser ~~economy~~of ~~and~~$10 million or 100% of the ~~threat~~book value of ~~war, (2)~~ eligible wholesale accounts receivable; • plus 102.5% of the ~~dockworkers~~then ~~strike~~applicable ondiscount rate applied in appraising eligible retail inventories times the ~~West~~appraised ~~Coast~~eligible ~~that~~retail ~~delayed product~~inventories, ~~shipments~~plus 102.5% of such discount rate times our future retail inventories subject to ~~stores~~trade atletters of credit; • plus the ~~beginning~~lesser of $10 million, or 60% of the ~~peak~~book ~~retail season~~value ~~(October)~~of our wholesale inventory, ~~and~~including ~~(3) over~~in-~~assortment,~~transit ~~more~~inventory ~~promotional goods~~but atminus ~~lower~~the ~~price~~book ~~points~~value ~~and~~of ain-transit ~~higher~~inventory ~~than~~in ~~average~~excess ~~proportion~~ of ~~suede~~$5 ~~products.~~ million;

We opened 34 stores and closed 35 stores in 2002, compared to opening 80 stores and closing 34 stores in 2001. As of February 1, 2003, we operated 618 stores compared to 619 stores at February 2, 2002. Our selling square footage increased 1.28% to 1,376,600 from 1,359,200 in 2001. We operated 284 seasonal stores during the 2002 holiday season as compared to 281 seasonal stores during 2001.

Cost of Goods Sold, Buying and Occupancy Costs. Cost of goods sold, buying and occupancy costs increased to 70.7% as a percentage of net sales in 2002 from 67.4% of net sales in 2001 due to lower sales volume of $26.8 million. The 3.3% increase translates into a $1.0 million increase over 2001. The percentage variance is greater due to the deleveraging effect of occupancy costs on a reduced sales base. This $1.0 million increase from 2001 was due to: (1) $9.5 million in higher buying and occupancy costs, resulting from an increase in the average number of permanent stores operated of 3.2% from 604 in 2001 to 623 in 2002, and (2) a $1.9 million increase in freight costs, due primarily to the West Coast port shutdown, partially offset by $10.4 million in lower cost of goods sold costs due to lower sales volume in 2002 compared to 2001.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $164.5 million in 2002 from $158.5 million in 2001, and increased as a percentage of net sales to 28.8% from 26.5%. The increase was primarily due to: (1) a $3.1 million increase in store selling expenses, including, but not limited to payroll expense, which fluctuates with the store count, (2) a $5.9 million increase in general administrative costs for higher employee benefit costs due to increased insurance costs, costs for corporate restructuring activities and higher legal fees, and (3) $2.4 million in lower credit memo service charge income compared to 2001 since 2001 included the initial impact of recording the fee and 2002 represented only current year activity, partially offset by approximately $3.7 million in lower amounts of fixed asset

impairments and write-offs in 2002, and a $1.7 million reduction in 2002 expenses due primarily to lower sales volume.


	•	plus 60% of the book value of our future wholesale inventories related to trade letters of credit;

	•	minus a reserve equal to 10% of the lesser of $115.0 million and the maximum amount calculated under the formula described above, plus $10.0 million, plus other reserves as set forth by GECC.

~~Depreciation~~ At ~~and Amortization.~~February 2, ~~Depreciation~~2008, ~~and~~we had no borrowings under the ~~amortization~~ revolving ~~increased~~portion toof ~~$16.3 million~~the insenior ~~2002~~credit ~~from~~facility and $1312.92 million in ~~2001,~~outstanding ~~and~~letters ~~increased as a percentage~~ of ~~net sales to 2~~credit.9% ~~from~~ At February 2~~.3%.~~, ~~The~~2008, ~~increase~~based ~~resulted from depreciation~~ on athe ~~higher~~formula ~~base~~described ofabove, ~~assets resulting from~~ the ~~$33.0 million~~ ~~prior~~ Company ~~year~~had ~~increase in fixed assets, coupled with~~ $821.80 million inavailable ~~new~~under ~~capital~~the ~~expenditures in 2002~~revolving ~~($5.4 million~~ portion ~~for construction~~ of ~~new stores and~~ the ~~renovation~~ ofsenior ~~existing~~credit ~~stores and $3~~facility.~~4 million for~~ ~~administrative projects).~~

~~Operating~~ Interest ~~Income~~is currently payable on revolving credit borrowings at variable rates determined by the applicable LIBOR plus 1.25% to 1.75%, or the prime rate plus 0.0% to 0.5% (~~Loss)~~commercial paper rate plus 1.25% Asto a1.75% ~~result~~if the loan is made under the “swing line” portion of the ~~above,~~revolver). The applicable ~~operating~~ margins ~~income~~will ~~(loss)~~be ~~decreased~~adjusted toquarterly on a ~~net~~prospective ~~loss~~basis as determined by the previous quarters’ ratio of borrowings to ~~$13~~ borrowing availability.~~6 million~~ In addition, orGECC ~~2.4%~~has ofthe ~~net~~right ~~sales~~to appraise inour ~~2002~~inventory ~~from~~monthly ~~income~~to determine the value of our ~~$22.5 million~~ eligible inventory as if sold in an orderly liquidation, orwhich is 3then used to establish borrowing limits under our senior credit facility.8% Reductions in the appraised value of ~~net~~our inventory, ~~sales~~which have transpired in ~~2001~~the past, would reduce our borrowing capacity.

~~Interest Expense~~ We pay monthly fees of 0.25% ~~Net~~per ~~interest~~annum ~~expense~~on the unused portion of ~~increased~~ the senior credit facility, as defined, and per annum fees on the average daily amount of letters of credit outstanding during each month ranging from .625% to ~~$10~~.~~3 million~~875% in ~~2002~~the case of trade letters of credit and from $91.~~6 million~~ 25% to 1.75% in ~~2001~~the ~~due~~case of standby letters of credit. Such fees are subject to $0quarterly adjustment in the same manner as our interest rate margins.7 The senior credit facility expiration is June ~~million~~30, 2010, at which time all borrowings become due and payable. Any reduction of ~~lower~~the revolving ~~interest~~credit ~~income~~portion inof the senior credit facility is ~~2002~~ subject ~~from~~to ~~fewer~~prepayment ~~short-term~~fees ~~investments~~under ~~that~~most ~~were~~circumstances. ~~held,~~Any onsuch ~~average,~~ reduction ~~for~~would be subject to a ~~shorter~~0.37% ~~period~~prepayment fee if the reduction is made on or prior to June 30, 2008, and an0.185% prepayment ~~increase~~fee inif ~~interest~~prepayment ~~rates~~is made after June 30, 2008 but on ~~short-term~~or ~~debt~~prior ~~outstanding~~to December 31, ~~partially~~2008. ~~offset~~After December 31, by2008, ~~lower average~~the ~~borrowings~~revolving credit portion of ~~long-term~~the senior ~~debt~~credit facility is prepayable without penalty.

~~Income~~ Prior ~~Tax~~to ~~Provision (Benefit).~~an ~~The~~amendment ~~income~~dated ~~tax~~June 15, ~~benefit~~2007, the senior ~~was~~ credit facility provided for borrowings of up to $9135.50 million in ~~2002~~aggregate ~~compared~~principal toamount that included a $520.20 million ~~tax~~ ~~provision~~Term inB ~~2001~~promissory note. The ~~effective~~Term ~~rate~~B promissory note was collateralized by our equipment and was due and payable upon the expiration of ~~40%~~the ~~remained~~senior credit facility on ~~constant~~ June 30, ~~from~~2010. ~~2001~~Interest was payable on the Term B promissory note at a variable rate equal to ~~2002~~the LIBOR plus 4.0%. We repaid the $20.0 million balance on June 15, 2007, without a prepayment fee per the consent of the senior lenders, with proceeds from our Preferred Stock equity financing discussed below.

~~Net~~ The ~~Income~~senior ~~(Loss)~~credit ~~from~~facility ~~Continuing~~contains certain restrictions and ~~Operations.~~ covenants, ~~Net~~which, ~~loss~~among ~~from~~other things, restrict our ability to ~~continuing~~ acquire ~~operations~~or merge with another entity; make investments, loans or guarantees; incur additional indebtedness; create liens or other encumbrances; or pay cash dividends or make other distributions. The June 15, 2007 amendment specifically allowed for ~~2002~~the Preferred Stock equity financing discussed below. At February 2, 2008, we were in compliance with all covenants related to the senior credit facility. The senior credit facility was $amended on February 14, 2008.~~3 million~~ ~~compared~~The Amendment added further borrowing restrictions and requires more frequent appraisals of our inventory. Specifically, the borrowing base definition has been amended to ~~net~~exclude ~~income~~the value of the liquidation inventory after a guaranteed amount of liquidation proceeds is received from ~~continuing~~the ~~operations~~third party liquidator, and to exclude the value of all store display fixtures. Also, a minimum $710.80 million reserve has been added to the borrowing base. However, the amendment permits us to include the amount of cash deposited in certain banks in determining how much we can ~~2001~~ borrow. The amendment also requires us to provide a daily borrowing base certificate and a monthly appraisal of the inventory value.

~~Loss~~ We ~~from~~are ~~Discontinued~~dependent ~~Operations~~on ~~and Cumulative~~the ~~Effect~~senior ofcredit afacility ~~Change~~to infund ~~Accounting~~working ~~Principle.~~ capital ~~Loss~~and ~~from~~letter ~~discontinued operations~~of ~~was~~credit ~~$42~~needs.~~0 million~~ inAs ~~2002~~described ~~compared~~above, towe will ~~$22.1 million~~ need into ~~2001.~~amend ~~Included~~some inof the ~~2002~~restrictions ~~figure is $27.2 million~~ in ~~charges,~~our ~~net~~current ~~of tax~~credit facility, ~~for~~or ~~the~~find ~~disposal~~alternative sources of ~~substantially~~ ~~all fixed assets~~credit, ~~the~~and ~~markdown~~raise additional ofcapital ~~inventory~~during ~~and severance~~the ~~and~~second ~~lease~~quarter ~~termination~~in ~~costs~~order ~~for~~to ~~the Travel~~fund ~~Subsidiaries~~ our inworking ~~2002~~capital needs and ~~$14.8 million~~continue inour ~~losses~~operations ~~from~~outside of ~~operations~~ bankruptcy. ~~prior~~Under tocertain ~~the~~bankruptcy ~~announced~~events, ~~liquidation.~~we Inmay ~~addition,~~be inrequired ~~2002~~ to ~~there~~redeem ~~was~~shares aof ~~cumulative~~our ~~effect~~Preferred ofStock ~~change~~at intheir ~~accounting~~liquidation ~~principle~~ value, ~~charge~~which ofis the $~~24.6~~45 million, ~~net~~purchase ofprice ~~tax,~~ for ~~the~~those ~~Travel~~ shares ~~Subsidiaries~~plus ~~related~~any toaccrued ~~the~~but ~~implementation~~unpaid ~~of SFAS No~~dividends. ~~142~~ However, ~~Goodwill~~the redemption ~~and~~would ~~Other~~not ~~Intangible Assets.~~be ~~See~~permitted ~~“Consolidated~~by ~~Financial~~law, ~~Statements~~unless ofwe ~~the~~are able to ~~Company,~~ pay ~~Note 3.~~our ~~Discontinued~~debts ~~Operations~~as they come due,” ~~beginning~~and would be prohibited by the on terms ~~page F-12,~~of ~~for~~our ~~further~~existing ~~details~~credit facility.

~~Liquidity~~ On ~~and~~June 1, ~~Capital~~2007, ~~Resources~~we entered into a Securities Purchase Agreement (the “Purchase Agreement”) that provided for the sale of shares of Series A Convertible Preferred Stock (the “Preferred Stock”) and warrants to purchase

Our capital requirements are primarily driven by our seasonal working capital needs, investments in new stores, remodeling existing stores, enhancing information systems and increasing capacity and efficiency for our distribution center. Our peak working capital needs typically occur during the period from August through early December as inventory levels are increased in advance of our peak selling season from October through January.

General Electric Capital Corporation and a syndicate of banks have provided us with a senior credit facility, which was amended on November 1, 2002, January 31, 2003, April 11, 2003, January 21, 2004, April 15, 2004, and April 27, 2004, that provides for borrowings of up to $150 million in aggregate principal amount, including a $25 million Term B promissory note and a $75 million letter of credit subfacility. The maximum amount available under the revolving credit portion of the senior credit facility is limited to:

	•	85% of net inventories, provided that such percentage at no time may exceed 85% of the then applicable discount rate applied in appraising such inventories to reflect their value as if sold in an orderly liquidation, except that the discount rate is gradually increased from August 17 to October 1 of each year and gradually decreased from December 17 to February 1 of each year, and except that such amount is reduced by the amount of certain in-transit inventory to the extent such in-transit inventory reflects a disproportionate amount of our total inventory;
	•	plus 85% of outstanding and undrawn trade letters of credit, provided that such percentage at no time may exceed 85% of the discount rate applied in appraising the future inventories related to such letters of credit to reflect their value as if sold in an orderly liquidation;

• common ~~plus~~stock ~~85%~~(the of“Warrants”) ~~credit~~for ~~card~~a ~~receivables;~~total •purchase price ~~minus~~of a $1045.0 million ~~reserve;~~to ~~and~~four •institutional ~~minus~~investors. anThe Purchase ~~additional~~Agreement ~~reserve,~~required ~~upon~~that ~~deposit~~we shall have filed the Certificate of Designations for the ~~proceeds~~Series A ~~from~~Convertible Preferred Shares (the ~~Equity~~“Certificate ~~Financing~~of inDesignations”) to anestablish ~~account~~this ~~controlled~~new byclass ~~the~~of ~~Agent~~shares. ~~under~~This ~~our~~new ~~senior~~class ~~credit~~of securities ~~facility,~~was inestablished anand ~~amount~~the ~~not~~Preferred toStock ~~exceed~~and ~~$3.5~~Warrant financing ~~million,~~closed ~~which~~on ~~will~~June 15, be2007. ~~reduced~~We toused the ~~extent~~proceeds from ~~payments~~this ~~are~~transaction ~~made~~to ~~under~~repay the ~~registration~~$20.0 million ~~rights~~Term ~~agreement~~B promissory ~~related~~note, tofor ~~the~~general ~~Equity~~working ~~Financing~~capital ~~and~~purposes, ~~will~~as bewell as ~~reduced~~ to ~~zero~~pay ~~upon~~fees ~~effectiveness~~related ofto the ~~resale registration statement~~transaction.

In The ~~addition~~Preferred Stock is initially convertible into shares of common stock at a conversion price of $1.50 per share, ~~borrowings~~or 30 million ~~under~~total shares of common stock. Going forward, the number ~~senior~~of ~~credit~~shares of common stock issuable upon conversion of the ~~facility~~ Preferred ~~are~~Stock ~~subject~~at any time is equal to the ~~further~~stated ~~limitations~~value of each share of Preferred Stock ($1,000) divided by the conversion price then in effect. The Preferred Stock is entitled to payment-in-kind cumulative dividends of 8.0% per year, issuable semi-annually, payable in shares of Preferred Stock. As of February 2, 2008, there were 46,667 shares of Preferred Stock outstanding that were convertible into 31.1 million shares of common stock. The Preferred Stock also requires us to redeem shares of the Preferred Stock upon certain defined triggering events, including: conversion defaults, indebtedness defaults, events of bankruptcy, certain judgments against us, and uncured breaches of any representations, covenants or other conditions of the documents related to the Preferred Stock and Warrant financing. In addition, we have the option to redeem the Preferred Stock beginning on June 1, 2010 if our common stock is trading above a specified price and we have an effective registration statement for the resale of the common stock issuable upon conversion of the Preferred Stock.

• The ~~the~~Warrants ~~revolving credit portion of such borrowings cannot exceed the sum of 85% of credit card receivables, plus 85% of the appraised value of inventory (including inventory subject~~ to ~~trade~~purchase ~~letters~~an ofaggregate ~~credit) as if sold on a going-out-~~of ~~business~~15 million ~~basis; • the total borrowings (i.e. the revolving credit portion~~ shares of ~~the~~our ~~facility~~common ~~and~~stock ~~the~~are ~~Term~~exercisable Bat promissory note) cannot exceed the sum of 85% of the book value of credit card receivables, plus 95% (100% during August, September and October) of the appraised value of inventory (including inventory subject to trade letters of credit) as if sold on a ~~going-out-of~~price ~~business basis; • from December 31~~ of ~~each year, through March 31 of the following year, we must have no borrowings under the revolving credit portion of the facility and outstanding letters of credit must be no greater than~~ $202.000 ~~million;~~per share and •are ~~until~~exercisable ~~funds~~ for ~~the~~five ~~payment~~years offrom the ~~principal~~date of ~~our 11 1/4% Senior Notes are deposited in an account controlled by the Agent under our senior credit facility~~ issuance, ~~we must have no borrowings under the revolving portion of the senior credit facility and outstanding letters of credit must be no greater than $~~June 15.0, ~~million (plus a specified letter of credit for an aggregate amount of $3~~2007.~~0 million).~~

As The Preferred Stock and the Warrants are subject to certain anti-dilution adjustments as defined in the Certificate of Designations ~~January 31~~and the form of Warrant. These anti-dilution adjustments relate to certain events including consolidations, mergers, ~~2004~~stock dividends, westock ~~had~~splits, noreclassifications ~~borrowings~~or ~~under~~ other changes in the ~~senior~~corporate ~~credit~~structure ~~facility,~~of ~~except~~our Company. The Preferred Stock and the Warrants also provide for anti-dilution adjustments if we issue stock below either the ~~Term~~market Bprice or ~~promissory~~ the ~~note,~~applicable ~~and~~conversion weprice ~~had~~or $6exercise price.~~7 million~~ inThe ~~outstanding~~holders ~~letters~~ of ~~credit.~~the Preferred Stock and the Warrants have certain demand and incidental registration rights with respect to the shares of common stock issuable upon conversion of the Preferred Stock and exercise of the Warrants.

~~Except~~ In asconnection ~~noted~~with in the ~~next~~issuance ~~sentence,~~of ~~interest is payable on revolving credit borrowings at variable rates determined by LIBOR plus 3.25%, or~~ the ~~“prime”~~Preferred ~~rate plus~~Stock ~~2.0%~~and ~~(commercial paper rate plus 3.25% if~~ the ~~loan is made~~ ~~under~~ Warrants, the ~~“swing~~number ~~line”~~of ~~portion~~shares of ~~the~~common ~~revolver).~~stock Ifand weexercise ~~meet~~ price ~~certain financial tests for our fiscal year ending January 29 2005, these rates will be reduced by 0.50%~~ per ~~annum thereafter.~~share ~~Interest~~of iscommon ~~payable~~stock onof the ~~$25 million~~warrants ~~Term~~issued ~~B promissory~~by ~~note~~us ~~at a variable rate equal to the~~in ~~“prime”~~ April ~~rate~~and ~~plus~~July ~~4%,~~of ~~plus~~2004 anhave ~~additional~~been 5%adjusted ~~payable~~ pursuant to ~~a separate letter agreement with General Electric Capital Corporation. We pay monthly fees on~~ the ~~unused portion~~ of anti-dilution ~~the~~provisions ~~senior credit facility and on the average daily amount~~ of ~~letters~~ ofthose ~~credit outstanding during each month~~warrants. ~~Currently,~~The ~~the senior~~exercise ~~credit facility expires in June 2005, at which time all~~price ~~borrowings,~~ per ~~including~~share ~~the~~was ~~Term~~reduced Bfrom ~~promissory note, become due and payable~~$3.00 ~~If we complete a sale of our capital stock on terms that are acceptable~~ to ~~the~~$2.39 ~~lenders under our senior credit facility~~ and ~~funds for~~ the ~~payment~~aggregate number of ~~the~~shares ~~principal~~ of ~~the 11 1/4~~common ~~Senior~~stock ~~Notes~~issuable ~~are~~upon ~~deposited~~exercise ~~in an account controlled by the Agent under our senior credit facility, the expiration~~ of ~~the~~ ~~senior credit facility (including the Term B promissory~~such ~~note)~~ warrants ~~will~~increased beby ~~extended~~approximately ~~to June 28, 2008~~1. ~~The lenders have agreed that the terms of the Equity Financing described above under “~~0 —million ~~Additional~~shares ~~Financing,” if consummated, would be acceptable for this purpose. Prepayment of the Term B promissory note is subject~~ to ~~a 1% prepayment~~ ~~fee.~~ approximately ~~The revolving credit portion of the facility is subject to a 1% prepayment fee under most circumstances~~5. ~~The Term~~0 ~~B promissory~~million ~~note is prepayable on or after July 1, 2002, only with the consent of the senior lenders under the senior credit facility~~shares.

~~The~~ Pursuant ~~senior~~to ~~credit~~the ~~facility~~terms ~~contains~~of ~~certain restrictions~~the ~~and~~Purchase ~~covenants which~~Agreement, ~~among~~we ~~other~~paid ~~things, restrict~~a ~~our~~ transaction ~~ability~~fee to ~~make~~the ~~capital~~lead ~~expenditures;~~investor ~~acquire~~equal orto ~~merge~~1.0% ~~with~~of its ~~another~~ purchase ~~entity;~~price ~~make~~and ~~investments,~~reimbursed ~~loans~~the orinvestors ~~guarantees; incur~~$0.5 million ~~additional~~ for ~~indebtedness;~~their ~~prepay,~~expenses ~~repurchase~~incurred orin ~~pay~~connection ~~any~~with ~~principal~~the transaction. on With ~~our~~the ~~11 1/4% Senior~~issuance ~~Notes,~~of ~~except~~the ~~pursuant~~Preferred toStock aand the Warrants ~~permitted~~ through ~~refinancing;~~the ~~create~~Purchase ~~liens~~Agreement, orthe ~~other~~holdings ~~encumbrances;~~of orexisting ~~pay~~ shareholders ~~cash~~were ~~dividends or make other distributions~~diluted.

~~We plan to use the senior credit facility for our~~ ~~immediate~~ Cash ~~and future working capital needs. Peak borrowings~~Flow ~~typically occur from October through December and outstanding~~ Analysis letters of credit typically peak from August through September. We are dependent on the senior credit facility to fund working capital and letter of credit needs. We believe that borrowing capacity under the senior credit facility, assuming that we are

The following table summarizes our cash flow activity for 2007 and 2006:


	For the years ended
	February 2,			February 3,
	2008			2007
	(in thousands)			(in thousands)

Net cash used in operating activities	$	(28,213	)	$	(14,550	)
Net cash used in investing activities		(5,686	)		(11,033	)
Net cash provided by (used in) financing activities		21,352			(60	)

NET DECREASE IN CASH AND CASH EQUIVALENTS	$	(12,547	)	$	(25,643	)

~~able~~ Operating toActivities. 2007 ~~obtain equity financing to pay off the~~operating ~~11 1/4%~~ activities ~~Senior~~utilized ~~Notes, together with~~ cash on hand, current and anticipated cash flow from operations, cost reductions associated with the 111 liquidation stores and the proceeds from the Equity Financing, will be adequate to meet our working capital and capital expenditure requirements through 2004. For 2003, the peak borrowings and peak letters of ~~credit outstanding under the senior credit facility were~~ $~~72.6 million and $~~28.9 million, respectively, and the average amount of borrowings and the average amount of letters of credit outstanding were $20.3 million and $12.7 million, respectively. For 2002, the peak borrowings and peak letters of credit outstanding under the senior credit facility were $132.4 million and $34.2 million, ~~respectively,~~compared ~~and~~to ~~the~~ utilizing ~~average~~cash ~~amount~~ of ~~borrowings and the average amount of letters of credit outstanding were~~ $4114.26 million ~~and $19.4 million,~~in ~~respectively~~2006. ~~For 2001, the peak borrowings~~ and peak letters of credit outstanding under the senior credit facility were $145.2 million and $47.9 million, respectively, and the average amount of borrowings and the average amount of letters of credit outstanding were $65.2 million and $25.9 million, respectively.

On Net ~~August 18,~~cash ~~1997,~~utilized weby ~~completed~~operating aactivities ~~private offering~~in of2007 of $7528.2 million ofwas ~~our~~comprised ~~11 1/4% Senior Notes~~primarily toof: ~~certain institutional buyers. Interest on the 11~~ (1~~/4%~~) ~~Senior~~our ~~Notes is payable semi-annually in~~net ~~arrears~~ loss ~~on February 15 and August 15~~ of ~~each year~~$77. ~~The 11~~5 ~~1/4% Senior~~million, ~~Notes mature on August~~(2) ~~15,~~a ~~2004~~$0. ~~The 11~~3 ~~1/4% Senior Notes are our general unsecured~~million ~~obligations~~ increase ~~and rank senior~~ in ~~right~~net ofaccounts ~~payment~~receivable ~~to all of our existing~~ and ~~future subordinated indebtedness and rank on equal~~(3) a ~~terms~~ $0.9 million decrease in ~~right~~income oftaxes ~~payment~~payable ~~with~~and ~~all of our~~ other ~~current and~~ ~~future~~ long-term ~~unsubordinated~~liabilities ~~indebtedness.~~(a ~~During 2000 and 1999, we repurchased~~ $130.35 million ~~and~~increase ~~$26.1 million,~~in income ~~respectively,~~ taxes ofpayable ~~our~~offset ~~11 1/4% Senior~~by ~~Notes.~~decreased Aslong-term liabilities of ~~January 31, 2004, we had~~ $301.64 million ~~of 11 1/4% Senior~~primarily ~~Notes~~related ~~outstanding,~~to ~~all~~deferred ~~of which was classified as current~~rent.)

We These ~~currently~~uses doof ~~not~~cash ~~have~~were ~~the~~somewhat ~~funds~~offset toby ~~pay~~ the ~~outstanding~~ ~~principal~~following ~~amount~~ sources of ~~the~~cash ~~11 1/4%~~and ~~Senior~~non-cash ~~Notes when~~charges: ~~they are due on August~~(1) ~~15, 2004~~$11.8 million ~~Our senior credit~~in ~~facility~~ non-cash ~~prohibits~~adjustments usfor ~~from~~depreciation ~~incurring~~and ~~any indebtedness which refunds~~amortization, (2) a ~~renews, extends or refinances the 11~~$19.7 ~~1/4%~~million ~~Senior Notes~~non-cash onasset ~~terms~~impairment ~~more burdensome than the terms of such notes~~charge, ~~and~~ ~~the~~ (3) $1.6 million ~~rate~~in ofnon-cash ~~interest~~charges ~~with~~related ~~respect~~ to ~~any replacement notes~~ ~~cannot~~ stock-based ~~exceed~~compensation ~~the sum of the rate of interest on United States treasury obligations of like tenor at the time of such refunding~~costs, ~~renewal,~~(4) a ~~extension or refinancing, plus 7.~~$0~~% per annum~~. ~~We anticipate that we will not be able to refund, renew, extend or refinance the 11~~5 ~~1/4% Senior Notes with~~million ~~indebtedness~~ increase ~~that~~in ~~would~~deferred ~~comply~~income ~~with such limitations. However~~taxes, if ~~we complete~~ (5) a ~~sale of our capital stock by August~~$16.6 ~~15,~~million ~~2004~~ conscious ondecision ~~terms that are acceptable~~ to ~~the~~reduce ~~lenders under~~ our ~~senior~~ ~~credit~~inventory ~~facility~~and, ~~such lenders have agreed that we may use the proceeds from such sale to pay our 11~~(6) ~~1/4% Senior~~a ~~Notes~~ $0.3 million ~~The~~decrease ~~lenders~~in ~~have~~prepaid ~~agreed that the terms of the Equity Financing described above under “—Additional Financing,” if consummated, would be acceptable for this purpose~~expenses.

In Net ~~October~~cash ~~2000,~~utilized weby ~~acquired~~operating Elactivities ~~Portal,~~in a2006 of ~~specialty~~ $14.6 million ~~retailer~~was comprised of: ~~premium~~(1) our ~~travel~~net ~~products~~loss ~~and accessories,~~of ~~for~~ $33.1 million, ~~approximately~~(2) a $175.84 million. ~~The~~net ~~acquisition~~decrease ~~was funded~~in ~~with~~ income ~~cash~~taxes ~~from~~payable ~~working capital~~ and ~~our~~other ~~senior~~liabilities ~~credit~~primarily ~~facility.~~resulting In from ~~April~~a ~~2001,~~decrease weof ~~acquired~~$4.8 million ~~Bentley’s,~~in ataxes ~~specialty~~payable ~~retailer~~due to the of income ~~travel~~tax ~~products~~benefit ~~and~~recorded ~~accessories,~~in ~~for~~2006 and a $340.36 million~~. The~~ ~~acquisition~~ decrease ~~was~~in ~~funded~~our ~~with~~deferred ~~cash~~rent ~~from~~liability ~~working~~and ~~capital~~(3) a $4.8 million ~~and~~increase ~~our~~in prepaid expenses primarily related ~~senior~~ to ~~credit~~the ~~facility~~timing of rent payments.

In These ~~January~~were ~~2002,~~somewhat weoffset ~~sold~~by ~~1,900,000 shares~~the following sources of cash: ~~common~~ (1) $13.2 million ~~stock~~in tonon-cash anadjustments ~~institutional~~for depreciation ~~investor~~and inamortization, (2) a ~~private placement~~$10.7 million ~~for~~ decrease ain ~~price~~inventories resulting from our aggressive management of inventory levels in 2006, (3) $112.003 ~~per~~million ~~share~~in non-cash ~~for~~charges ~~net~~related ~~proceeds~~to ofstock-based compensation costs, ~~approximately~~ (4) a $~~20.~~0.9 million. Indecrease ~~April~~in ~~2002,~~net ~~affiliates~~accounts ofreceivable ~~the~~ primarily ~~institutional~~relating ~~investor~~to ~~exercised~~outstanding ~~the~~insurance ~~option~~claims tofor ~~purchase~~damages ~~100~~ caused by Hurricane Katrina in 2005 and paid in 2006,~~000 shares~~ ofas ~~our~~well ~~common~~as decreased ~~stock~~credit atcard aand ~~purchase~~construction ~~price~~allowance ofreceivables, (5) a $110.007 ~~per~~million ~~share.~~increase ~~The~~in ~~sale~~accounts ~~was~~payable ~~completed~~and accrued onexpenses ~~April 12,~~primarily due to increased customer payables ~~2002,~~ related ~~for~~to ~~net~~outstanding ~~proceeds~~gift ofcards, ~~approximately~~and (6) a $1.0.7 million. non-cash charge related to the asset impairment loss we recorded for certain of our mall stores in 2006.

On Investing ~~April 30, 2002, we sold~~Activities. Investing ~~900,000 shares~~ activities offor ~~our~~2007 ~~common~~totaled ~~stock in a private placement at a purchase price of~~ $115.007 ~~per~~million ~~share, for net proceeds~~comprised primarily of ~~approximately~~ $94.90 million. ~~On June 10, 2002, the purchasers~~ in ~~the~~capital ~~April~~expenditures ~~private placement exercised the option~~related to ~~purchase~~the anrenovation ~~additional~~and ~~100,000 shares~~improvement of ~~our~~existing ~~common~~stores and ~~stock~~ leasehold atimprovements afor ~~purchase~~new ~~price~~mall ofand outlet stores and $111.007 ~~per~~million ~~share.~~for ~~The~~certain ~~sale~~information ~~was completed~~systems ~~on June 13~~projects, primarily ~~2002,~~new ~~for net proceeds~~ point-of ~~approximately~~-sale $1software.~~1 million.~~

On In ~~June 21~~2006, ~~2002,~~investing weactivities ~~completed~~were a net $11.0 million with ~~sale/leaseback~~ capital ~~transaction~~expenditures ~~for~~of ~~our~~$11.1 million ~~headquarters~~being ~~facility~~somewhat ~~and~~offset ~~distribution~~ by ~~center~~$0.1 million inof ~~Brooklyn~~proceeds ~~Park,~~on ~~Minnesota~~the ~~for~~disposition ~~net~~of ~~proceeds~~property of and equipment. Capital expenditures in 2006 included: (1) $126.50 million. Afor ~~portion~~the construction of new stores and the ~~net~~renovation ~~proceeds~~of ~~from~~and ~~the sale/~~improvements ~~leaseback,~~to existing stores, (2) $42.82 million, ~~was~~in ~~used~~new tofixtures ~~pay~~for ~~down~~our ~~the~~mall stores, ~~Term~~ (3) ~~B promissory note from~~ $252.0 million toin information systems projects including new cash register CPUs and printers for our stores, (4) a $200.25 million. ~~The~~automated ~~remainder~~conveyor ofsystem ~~the~~in ~~proceeds~~our distribution ~~was~~center, ~~used~~and ~~for~~(5) $0.4 million in other ~~general~~ administrative ~~corporate~~fixed ~~purposes~~assets.

Financing Activities. Financing activities for 2007 provided $21.4 million primarily related to the June 2007 Preferred Stock and Warrant financing, which included the issuance of 45,000 shares of preferred stock and warrants to purchase 15 million shares of common stock, for net proceeds of $36.0 million and $5.3 million, respectively. Issuances of common stock from our employee stock purchase plan and non-employee directors’ stock retainer totaling $0.2 million were partially offset by $0.1 million in costs incurred related to amending our senior credit facility. In addition, we repaid the $20.0 million balance of our Term B promissory note with the equity financing proceeds during the second quarter of 2007.

In 2006, financing activities utilized net cash of $0.1 million, with $0.4 million in debt acquisition costs relating to our restated credit agreement offsetting $0.3 million in proceeds from the issuance of common stock from the exercise of stock options, share grants to our non-employee directors and from our employee stock purchase plan.

On November 4, 2002, pursuant to the First Amendment to Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation and the syndicate, we reborrowed $4.8 million of the Term B promissory note, which brought the outstanding balance to $25.0 million.

On November 19, 2002, we announced the liquidation of the stores operated by our Travel Subsidiaries, as described in Note 3 to the consolidated financial statements on page F-12 of this report.

On January 22, 2004, we announced a reorganization and partial store liquidation as described in Note 4 to the consolidated financial statements on page F-14 of this report.

Cash Flow Analysis

The following table summarizes our cash flow activity for fiscal 2003, 2002 and 2001:

	For the years ended
	January 31,			February 1,			February 2,
	2004			2003			2002
	(In thousands)
Net cash provided by (used in) operating activities of continuing operations	$	29,850		$	(37,330	)	$	21,635
Net cash provided by (used in) investing activities of continuing operations		(7,289	)		3,713			(33,015	)
Net cash provided by financing activities of continuing operations		510			11,249			45,797
Net cash provided by (used in) discontinued operations		(11,110	)		13,857			(48,406	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	11,961		$	(8,511	)	$	(13,989	)

Operating Activities. Operating activities of continuing operations for 2003 resulted in cash provided of $29.9 million compared to cash used of $37.3 million and cash provided of $21.6 million in 2002 and 2001, respectively.

The $29.9 million of cash provided by operating activities in 2003 was comprised of: (1) a $29.4 million decrease in inventories due to a strategic operating decision to keep inventory levels more tightly managed than in previous years, (2) $23.2 million in non-cash adjustments for depreciation, amortization, property and equipment impairment, and restricted stock compensation expense, (3) a $12.8 million increase in deferred taxes, (4) a $6.7 million increase in taxes payable/receivable and other liabilities primarily due to net operating losses, and (5) a $0.1 million decrease in prepaid assets.

These sources of cash were primarily offset by: (1) a net loss from continuing operations of $33.6 million, (2) a $1.0 million increase in accounts receivable due to a higher mix of credit card sales at January 31, 2004, due to the 111 store liquidation sale that began in late January 2004 that only accepts cash and credit cards, and (3) a $7.8 million decrease in accounts payable and accrued expenses from a reduction in the volume of merchandise purchased and the lower level of general non-merchandise vendor purchases in 2003 compared to 2002.

The $37.3 million of cash used by operating activities in 2002 was comprised of cash used for: (1) the net loss from continuing operations of $14.3 million, (2) a $25.8 million increase in inventories due to lower sales volumes than anticipated, (3) a $12.0 million decrease in taxes payable/receivable and other liabilities primarily due to net operating losses, (4) a $10.8 million increase in deferred taxes, and (5) $0.9 million in cash used by various other operating activities.

These operating uses were partially offset with cash provided by: (1) $19.4 million in non-cash adjustments for depreciation, amortization, property and equipment impairment, and restricted stock compensation expense, (2) a $3.7 million decrease in accounts receivable due to fewer tenant allowances resulting from a reduction in capital expenditures from 2001, and (3) a $3.4 million increase in accounts payable and accrued expenses primarily as a result of longer aging of payables.

The $21.6 million in cash provided by operating activities in 2001 was comprised of: (1) $7.8 million provided by net income from continuing operations, (2) $19.6 million in non-cash adjustments for depreciation and amortization and property and equipment impairment, (3) a $13.2 million decrease in inventories, (4) a $5.6 million decrease in prepaid expenses due to the timing of February 2002 rent payments, (5) a $1.9 million decrease in accounts receivable, (6) a $1.6 million increase in deferred taxes, and (7) $0.2 million in cash provided by various other operating activities.

These operating uses were partially offset by (1) a $7.0 million decrease in accounts payable and (2) a $21.3 million decrease in income taxes payable and other liabilities due to reduced income.

Investing Activities. Investing activities of continuing operations for 2003 were comprised of $7.8 million in capital expenditures primarily for the construction of new stores and the renovation of and improvements to existing stores, offset by $0.5 million from proceeds on the sale of property and equipment. For 2004, capital expenditures are capped at $6.0 million.

Investing activities of continuing operations for 2002 were comprised of $8.8 million in capital expenditures and additions to other assets used primarily for the construction of new stores and the renovation of and improvements to existing stores, offset by $12.5 million in net proceeds from the sale/leaseback of our headquarters facility in Brooklyn Park, Minnesota.

Investing activities for 2001 were primarily comprised of $33.0 million in capital expenditures and additions to other assets used primarily for the construction of new stores and the renovation of and improvements to existing stores.

Financing Activities. Cash provided by financing activities of continuing operations in 2003 was $0.5 million, as a result of: (1) $1.1 million provided by the issuance of common stock from the exercise of stock options, (2) $0.5 million provided by the issuance of notes payable to finance an information services maintenance agreement. These amounts were offset by (1) $1.0 million used for debt acquisition costs for the refinancing of the senior credit facility in April 2003 and (2) $0.1 million used for the repayment of a note payable.

Cash provided by financing activities of continuing operations in 2002 was $11.2 million, which consisted of $13.2 million provided by the issuance of common stock from two private placement transactions and the exercise of stock options, offset by $2.0 million used for debt acquisition costs.

Cash provided by financing activities in 2001 was $45.8 million, primarily due to $23.4 million from the issuance of debt net of repayments and debt acquisition costs and $22.4 million from the issuance of common stock and exercise of stock options.

Contractual Obligations and Commercial Commitments. We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and the availability of capital resources. The tables noted below present a summary of these obligations and commitments:

Contractual Obligations

Payments Due by Period (in thousands)

	Total		Less Than		One to Three		Four to Five		After Five
	Obligations		One Year		Years		Years		Years
Operating leases(1)	$	274,352	$	45,161	$	112,960	$	81,824	$	34,407
Debt obligations		56,189		31,125		25,064		—		—
Total contractual cash obligations	$	330,541	$	76,286	$	138,024	$	81,824	$	34,407

(1) Includes store and distribution center operating leases, which generally provide for payment of direct operating costs in addition to rent. These obligation amounts include future minimum lease payments and exclude such direct operating costs.

Commercial Commitments

Amount of Commitment ~~Per~~by Period (in thousands)

	Total								After Five
	Amounts		Less Than		One to Three		Four to Five		After Five
	Obligations		2008		2009-2010		2011-2012		Years
	Committed		One Year		Years		Years		Years
Documentary letters of credit	$	8,604	$	8,604	$	—	$	—	$	—
Documentary letters of credit	$	955	$	955	$	—	$	—	$	—
Standby letters of credit		3,580		3,580		—		—		—
Standby letters of credit		5,786		5,786		—		—		—
Total commercial commitments	$	12,184	$	12,184	$	—	$	—	$	—
Total commercial commitments	$	6,741	$	6,741	$	—	$	—	$	—

In addition to the commitments reflected in the table above, we have future operating lease commitments of $154.9 million, including $44.4 million related to the liquidation stores.

Off-Balance Sheet Arrangements

We have operating lease commitments as noted above. There are no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Seasonality and Inflation

A majority of our net sales and operating profit is generated in the peak selling period from October through January, which includes the holiday selling season. As a result, our annual operating results have been, and will continue to be, ~~heavily~~ heavily dependent on the results of our peak selling period. Net ~~sales~~ sales are generally lowest during the period from April through July, and we typically do not become profitable, if at all, until the fourth quarter of a given year. Most of our stores are unprofitable during the first three quarters. Conversely, in a typical year nearly all of our stores are profitable during the fourth quarter, even those that may be unprofitable for the full year. During the fourth quarter of 2007, most of our mall stores were not profitable due to poor operating performance and the $19.7 million of impairment charges. Historically, we have opened most of our stores during the last half of the year. As a result, new mall stores opened just prior to the fourth quarter produce profits in excess of their annualized profits since the stores typically generate losses in the first nine months of the year.

We do not believe that inflation has had a material effect on the results of operations during the past three years; however, there can be no assurance that our business will not be affected by inflation in the future.

Discontinued Operations

In October 2000, we acquired El Portal, a 38 store chain of premium travel products and accessories located in Las Vegas, Nevada. In April 2001, we acquired Bentley’s, a 106 store chain of specialty luggage products based in Miami, Florida. During 2001 and 2002, we worked to integrate the operations of both companies by consolidating the two corporate operations in Las Vegas, Nevada and moving all back-office processing to our headquarters in Brooklyn Park and Maple Grove, Minnesota. Due to substantial losses experienced by the Travel Subsidiaries during 2001 and 2002, on November 19, 2002, we announced the liquidation of all 135 stores operated by the Travel Subsidiaries. The Travel Subsidiaries and certain of their affiliates entered into an agreement with a joint venture comprised of Hilco Real Estate, LLC and Hilco Merchant Resources, LLC (“Hilco”) to liquidate the remaining inventory of the Travel Subsidiaries and exit the store leases. As a result of this decision, the Travel Subsidiaries have been presented as discontinued operations effective November 19, 2002, and the consolidated financial statements were reclassified to separate the net investment in, and the liabilities and operating results of, the Travel Subsidiaries.

During 2002, we received net proceeds totaling $13.9 million as a result of discontinued operations. We also recorded a $27.2 million charge, net of tax, related to the exit of the Travel Subsidiaries. This charge primarily included severance costs, inventory markdowns, a write-off of store fixed assets, and lease termination fees. For 2002, we recorded a loss on discontinued operations of $42.0 million (net of tax), including the $27.2 million charge for the closure of the Travel Subsidiaries and the $14.8 million net operating loss in the Travel Subsidiaries during 2002. See “Consolidated Financial Statements of the Company, Note 3. Discontinued Operations” beginning on page F-12 of this report for more detail.

As of February 1, 2003, all of the Travel Subsidiaries’ stores had closed and substantially all of the lease terminations had been executed. At January 31, 2004, we had net obligations related to discontinued

operations of approximately $0.4 million, primarily for remaining lease termination costs for a distribution center and vendor chargeback liabilities. We believe that we have adequately reserved for the future obligations of the Travel Subsidiaries.

Reorganization and Partial Store Liquidation

On January 22, 2004, we announced that we would liquidate up to 100 underperforming mall and outlet stores (subsequently revised to 111 stores) and eliminate approximately 950 store-related positions. We entered into an Agency Agreement with a joint venture comprised of Hilco Merchant Resources, LLC, Gordon Brothers Retail Partners, LLC and Hilco Real Estate, LLC (the “Hilco/ Gordon Brothers Joint Venture”) to liquidate the inventory in the 111 stores and assist in the discussions with landlords regarding lease terminations in approximately 94 of these stores. Pursuant to the Agency Agreement, the Hilco/ Gordon Brothers Joint Venture will pay us a guaranteed amount of 84% of the cost value of the inventory, subject to certain adjustments. The Hilco/ Gordon Brothers Joint Venture is responsible for all expenses related to the sale. In addition, we announced that we would eliminate approximately 70 positions at our corporate headquarters in Brooklyn Park, Minnesota and distribution centers located in Minnesota and Nevada, as well as the closure of our distribution center in Las Vegas, Nevada, to better align our financial structure with current business conditions.

For these actions, we will take a total charge of approximately $34.0 million to $36.0 million, primarily during the first half of 2004. We will not book a tax benefit related to these charges, as we are in a net operating loss carryforward position. Approximately $18.0 to $20.0 million of the charges will be non-cash. Anticipated proceeds of the liquidation inventory will range from $14.0 to $16.0 million. The total cash outlay is anticipated to be at or near zero.

We recorded expense related to the charge for these actions of $8.6 million in January 2004. This consisted primarily of: (1) a $3.0 million writedown of inventory transferred to the Hilco/ Gordon Brothers Joint Venture, (2) a $3.9 million loss on disposal of fixed assets and accelerated depreciation related to the liquidation stores and closed distribution centers, (3) $0.7 million for severance and other employee termination benefits, and (4) $1.0 million in various additional costs primarily related to revised store asset lives.

The remaining estimated $25.0 million to $27.0 million in costs to be incurred in the first half of 2004 related to the liquidation, workforce reduction, and facilities closures actions will be primarily for lease termination costs, fixed asset accelerated depreciation for store closures, and various additional costs incurred to liquidate the inventories of the liquidation stores.

Subsequent Event

On April 25, 2004, we entered into a common stock and warrant purchase agreement pursuant to which we agreed to issue 17,948,718 shares of our common stock to three institutional investors at a price of $1.95 per share. As additional consideration for the investors’ commitment, we have issued two million warrants exercisable for five years to the investors, and at closing, will issue an additional two million warrants exercisable for five years, each at an exercise price of $3.00 per share of common stock. The closing of the transaction is subject to a number of closing conditions, the principal condition being shareholder approval.

We intend to use the proceeds from the Equity Financing to repay our 11 1/4% Senior Notes, and for general working capital purposes. However, there can be no assurance that all conditions to the closing will be met. If we are unable to close the Equity Financing for any reason, we will need to find an alternative source of permitted financing for the repayment of the 11 1/4% Senior Notes before we can borrow under the revolving portion of our senior credit facility. There can be no assurances that we will be able to obtain such financing, on acceptable terms or at all, before we need to access the revolving portion of our senior credit facility or before the 11 1/4% Senior Notes become due. We anticipate that we will need to access the revolving portion of our senior credit facility by the middle of July 2004, and if we do not obtain the necessary funding from some source other than operations before such time, we could eventually deplete our cash reserves and become insolvent or have to consider other alternatives, including filing for bankruptcy.

Quarterly Results

The following table sets forth certain unaudited consolidated financial information from our historical consolidated statements of operations for each fiscal quarter of 2003 and 2002. This quarterly information has been prepared on a basis consistent with our audited consolidated financial statements appearing elsewhere in this Form 10-K and reflects adjustments which, in the opinion of management, consist of normal recurring adjustments, necessary for a fair presentation of such unaudited quarterly results when read in conjunction with the audited consolidated financial statements and notes thereto. All prior periods have been reclassified to reflect discontinued operations of the Travel Subsidiaries.

	Quarter ended(1)
	Fiscal 2003											Fiscal 2002
	Jan. 31,		Nov. 1,			Aug. 2,			May 3,			Feb. 1,			Nov. 2,			Aug. 3,			May 4,
	2004		2003			2003			2003			2003			2002			2002			2002
Net sales	$	268,094	$	97,880		$	59,750		$	95,301		$	303,108		$	110,187		$	63,195		$	95,057
Gross margin		100,024		22,877			2,975			18,089			115,204			26,339			3,753			21,947
Operating income (loss)		43,040		(16,473	)		(33,527	)		(18,960	)		52,632			(18,104	)		(32,426	)		(15,705	)
Income (loss) from continuing operations before cumulative effect of a change in accounting principle		12,372		(11,618	)		(21,600	)		(12,737	)		29,800			(12,799	)		(20,870	)		(10,444	)
Loss from discontinued operations		—		—			—			—			(27,402	)		(4,212	)		(6,168	)		(4,232	)
Cumulative effect of a change in accounting principle(2)		—		—			—			—			—			—			—			(24,567	)
Net income (loss)	$	12,372	$	(11,618	)	$	(21,600	)	$	(12,737	)	$	2,398		$	(17,011	)	$	(27,038	)	$	(39,243	)
Basic earnings (loss) per share:
Income (loss) from continuing operations before cumulative effect of a change in accounting principle	$	0.60	$	(0.57	)	$	(1.05	)	$	(0.62	)	$	1.46		$	(0.63	)	$	(1.03	)	$	(0.54	)
Loss from discontinued operations		—		—			—			—			(1.34	)		(0.21	)		(0.30	)		(0.22	)
Cumulative effect of a change in accounting principle(2)		—		—			—			—			—			—			—			(1.28	)
Net income (loss)	$	0.60	$	(0.57	)	$	(1.05	)	$	(0.62	)	$	0.12		$	(0.84	)	$	(1.33	)	$	(2.04	)
Diluted earnings per share:
Income (loss) from continuing operations before cumulative effect of a change in accounting principle	$	0.60	$	(0.57	)	$	(1.05	)	$	(0.62	)	$	1.46		$	(0.63	)	$	(1.03	)	$	(0.54	)
Loss from discontinued operations		—		—			—			—			(1.34	)		(0.21	)		(0.30	)		(0.22	)
Cumulative effect of a change in accounting principle(2)		—		—			—			—			—			—			—			(1.28	)
Net income (loss)	$	0.60	$	(0.57	)	$	(1.05	)	$	(0.62	)	$	0.12		$	(0.84	)	$	(1.33	)	$	(2.04	)

(1)	The sum of the per share amounts for the quarters does not equal the totals for the year due to the application of the treasury stock method.
(2)	Relates to implementation of SFAS 142, “Goodwill and Other Intangible Assets.”

Recently Issued Accounting Pronouncements

See Note 21, “Summary of ~~the~~significant ~~consolidated financial~~accounting ~~statements~~ policies,” ~~beginning~~contained onin ~~page~~our ~~F-7~~consolidated offinancial statements, ~~this report~~ for a full description of recent accounting pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.


Item 7A.	Quantitative and Qualitative Disclosure About Market Risk

At Not ~~January 31, 2004, we had cash and cash equivalents totaling $42~~applicable.~~4 million. The effect of a~~ ~~100 basis point change in interest rates would have an estimated $0.4 million pre-tax earnings and cash flow impact, assuming other variables are held constant.~~

~~Our~~Item ~~senior credit facility carries interest rate risk that is generally related to LIBOR, the commercial paper rate or the prime rate~~8. IfFinancial ~~any~~Statements ofand ~~those~~Supplementary ~~rates were to change while we were borrowing under the facility,~~ Data

interest expense would increase or decrease accordingly. As of January 31, 2004, there were no outstanding borrowings under the senior credit facility (other than the Term B promissory note) and $6.7 million in outstanding letters of credit.

We have no earnings or cash flow exposure due to market risks on our long-term debt obligations as a result of the fixed-rate nature of the debt. However, interest rate changes would affect the fair market value of the debt. At January 31, 2004, we had fixed rate debt of $30.6 million maturing in August 2004.

Item 8. Consolidated Financial Statements

Consolidated financial statements required pursuant to this Item begin on page F-1 of this Form 10-K. Pursuant to the applicable accounting regulations of the Securities and Exchange Commission, we are not required to provide supplementary data.


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On May 9, 2002, we discontinued the engagement of Arthur Andersen LLP (“Arthur Andersen”) as our independent auditors and engaged KPMG LLP (“KPMG”) as our independent auditors for the fiscal year ending February 1, 2003 None. ~~Our Audit Committee approved~~ ~~discontinuing the engagement of Arthur Andersen and engaging KPMG as our independent auditors.~~

~~In connection with Arthur Andersen’s audits~~ ~~for our fiscal years ended February 2, 2002, and~~ 31 February 3, 2001, and through May 9, 2002, there were no disagreements between Arthur Andersen and us on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make reference to the subject matter of the disagreements in connection with its report on our consolidated financial statements for such years, and there were no reportable events as defined in Item 304(a)(i)(v) of Regulation S-K.

ReportsTable of Arthur Andersen on our consolidated financial statements for the fiscal years ended February 2, 2002, and February 3, 2001, contained no adverse opinions or disclaimers of opinion, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. Contents

~~During~~Item the years ended February 2, 2002, and February 3, 2001, and through May 9, 2002, we did not consult KPMG with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the Company and its subsidiaries, or any other matters or reportable events as set forth in Items 3049A(aT)~~(2)(i)~~. Controls and ~~(ii) of Regulation S-K.~~ Procedures

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Based~~ We onhave ~~their~~established ~~evaluation~~and asmaintain ofdisclosure ~~the~~controls ~~end of the period covered by this report, our Chief Executive Officer~~ and ~~our~~ procedures ~~Chief~~that ~~Financial~~are ~~Officer~~designed ~~have~~to ~~concluded~~ensure that ~~our~~material ~~disclosure~~information ~~controls~~ relating ~~and~~to ~~procedures~~us ~~(as defined in Rules 13a-15(e)~~ and ~~15d-15(e)~~ ~~under the Exchange Act) are effective~~ to ~~ensure~~our ~~that information~~subsidiaries required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s ~~Securities~~ rules and ~~Exchange~~forms, ~~Commission~~and ~~rules~~that such information is accumulated and communicated ~~forms.~~to ~~Disclosure~~our management, including the chairman of our ~~procedures~~ board, ~~only~~who ~~provide~~is ~~reasonable~~acting ~~assurance~~as ~~that~~our ~~the~~principal ~~controls~~executive officer, and our ~~will~~ chief ~~meet~~financial ~~their~~officer ~~objectives~~as appropriate to allow timely decisions regarding required disclosure. ~~There~~We ~~can~~carried beout noan ~~assurance~~evaluation, under ~~that~~the supervision and with the participation of our ~~controls~~ management, ~~will~~including beour ~~effective~~chairman inof ~~all~~the ~~circumstances.~~board, ~~There~~who ~~were~~is noacting ~~significant~~ as ~~changes~~our inprincipal ~~our~~executive ~~internal~~officer, ~~control~~and ~~over~~chief financial officer, ~~reporting~~ of ~~during~~ the ~~most~~effectiveness ~~recently~~of ~~completed~~the ~~fiscal~~design ~~quarter~~and ~~that~~operation of our ~~have~~ disclosure ~~materially~~controls ~~affected,~~and orprocedures ~~are~~as ~~reasonably~~of ~~likely~~the toend ~~materially~~of the period ~~affect~~ covered by this report. Based on that evaluation, ~~our~~the ~~internal~~chairman of ~~control~~the ~~over~~board and chief financial ~~reporting.~~officer concluded that our disclosure controls and procedures were effective as of the date of such evaluation.

36 Management’s Report on Internal Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive, which position is currently served by the chairman of our board, and our chief financial officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of February 2, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of February 2, 2008.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financing reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Change in Internal Control Over Financial Reporting

There were no changes in the our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	Other Information

None.

PART III

Certain information required by Part III is incorporated by reference from our definitive Proxy Statement for the 2008 Annual Meeting of Shareholders ~~to be held on June 3, 2004,~~ (the “Proxy Statement”), which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after ~~January~~February 312, ~~2004~~ 2008.

Except for those portions specifically incorporated in this Form 10-K by reference to our Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this Form 10-K.

Item 10. Directors, ~~and~~ Executive Officers ofand ~~the~~Corporate ~~Registrant~~Governance

Incorporated by reference in this Form 10-K is the information appearing under the headings “Proposal Number One — Election of of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in our Proxy Statement. ~~For~~ For information concerning executive officers and family relationships between any director or executive officer, see “ Item 4a4A. “Executive Officers of the Registrant” in this Form 10-K.

In March 2004, we adopted a Code of Business Ethics and Conduct applicable to all associates and directors of our company, including our chief executive officer, chief operating officer, chief financial officer, controller, treasurer, and other employees performing similar functions. A copy of the Code of Business Ethics and Conduct iswas ~~attached~~filed ~~to this Form 10-K~~ as Exhibit 14.1. incorporated Weby ~~intend~~reference to ~~file~~our ~~on a~~2004 Form 810-K. We intend to file on our Web site any amendments to, or waivers from, our Code of Business Ethics and Conduct within ~~two~~four business days of any such amendment or waiver. We intend to post on our Web site any amendments to, or waivers from, our Code of Business Ethics and Conduct that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, and other persons performing similar functions promptly following the date of such amendment or waiver. A copy of our Code of Business Ethics and Conduct is also available on our Web site (www.wilsonsleather.com).


Item 11.	Executive Compensation

Incorporated by reference in this Form 10-K is the information appearing under the ~~headings~~heading “~~Election of Directors— Director Compensation” and “~~Executive ~~Compensation— Summary Compensation~~ ~~Table,— Stock Options,— Option Grants in Last Fiscal Year,— Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values— Equity~~ Compensation ~~Plan Information and— Employment Contracts,~~” in our Proxy Statement.


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference in this Form 10-K is the information appearing under the ~~heading~~headings “Security Ownership of Principal Shareholders and Management,” and “Equity Compensation Plan Information,” in our Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Incorporated by reference in this Form 10-K is the information appearing under the ~~heading~~headings “Certain Relationships and Related Transactions,” and “Proposal Number One — Election of Directors — Board Matters and Meeting Attendance” in our Proxy Statement.


Item 14.	Principal Accountant Fees and Services

Incorporated ~~into this item~~ by reference in this Form 10-K is the information under the ~~headings~~heading “~~Audit~~ Fees, ~~Audit-Related~~Paid to ~~Fees,~~ Independent ~~Tax~~Registered ~~Fees,~~Public ~~and~~Accounting ~~All Other Fees~~Firm” ~~and “Pre-Approval of Services,”~~ in our Proxy Statement.

37 33

PART IV

Item 15. Exhibits, ~~Financial~~and ~~Statements,~~ Financial Statement ~~Schedule and Reports on Form 8-K~~Schedules

(a) Documents filed as part of this report:

1.		Financial Statements:
		Independent Auditors’ Report
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Shareholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
		Financial Statement Schedule

1. Financial Statements:

~~(b)~~ Report ~~Reports~~of onIndependent ~~Form~~Registered ~~8-K:~~Public Accounting Firm

On Consolidated ~~November~~Balance 18, 2003, the Company announced its third quarter earnings for the period ended November 1, 2003. On January 22, 2004, the Company announced the liquidation of over 100 stores (subsequently changed to 111) through a third-party liquidator. The report on Form 8-K regarding the liquidation was filed on February 6, 2004.Sheets

~~(c)~~ Consolidated ~~Exhibits:~~Statements of Operations

~~The following~~ Consolidated ~~exhibits~~Statements ~~are filed as part~~ of ~~this~~Shareholders’ ~~Form 10-K for~~Equity ~~the year ended January 31, 2004.~~

Exhibit
No.		Description	Method of Filing
	2.1	Sale Agreement dated as of May 24, 1996 by and among CVS New York, Inc. (formerly known as Melville Corporation), Wilsons Center Inc. and Wilsons The Leather Experts Inc. (1)		Incorporated by Reference
	3.1	Amended and Restated Articles of Incorporation of Wilsons The Leather Experts Inc. adopted June 16, 1998, as amended by the Articles of Amendment dated February 17, 2000, and the Articles of Amendment dated May 23, 2002.(2)		Incorporated by Reference
	3.2	Restated Bylaws of Wilsons The Leather Experts Inc. as amended June 16, 1998, January 25, 2000, May 23, 2002, and February 5, 2004.		Electronic Transmission
	4.1	Specimen of common stock certificate.(3)		Incorporated by Reference
	4.2	Indenture dated as of August 18, 1997, by and among Wilsons The Leather Experts Inc., the other corporations listed on the signature pages thereof, and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, National Association), including specimen Certificate of 11 1/4% Series A Senior Notes due 2004 and specimen Certificate of 11 1/4% Series B Senior Notes due 2004.(4)		Incorporated by Reference
	4.3	Registration Rights Agreement dated as of May 25, 1996, by and among CVS New York, Inc. (formerly known as Melville Corporation), Wilsons The Leather Experts Inc., the Managers listed on the signature pages thereto, Leather Investors Limited Partnership I and the Partners listed on the signature pages thereto.(5)		Incorporated by Reference

Consolidated Statements of Cash Flows

38 Notes to Consolidated Financial Statements

2. Financial Statement Schedule

3. Exhibits

The exhibit index attached to this report is incorporated by reference herein.

Exhibit
No.		Description	Method of Filing
	4.4	Amendment to Registration Rights Agreement dated as of August 12, 1999, by and among Wilsons The Leather Experts Inc. and the Shareholders listed on the attachments thereto.(6)		Incorporated by Reference
	4.5	Registration Rights Agreement dated as of January 10, 2002, by and among Wilsons The Leather Experts Inc. and the Investors signatory thereto.(7)		Incorporated by Reference
	4.6	Letter Amendment to the Common Stock Purchase Agreement and the Registration Rights Agreement dated January 14, 2002, by and between Wilsons The Leather Experts Inc. and Bricoleur Capital Management LLC.(8)		Incorporated by Reference
	4.7	Registration Rights Agreement dated as of April 24, 2002, by and among Wilsons The Leather Experts Inc. and the Investors signatory thereto.(9)		Incorporated by Reference
	4.8	Common Stock and Warrant Purchase Agreement, dated as of April 25, 2004, by and among Wilsons The Leather Experts Inc. and the purchasers identified on the signatory pages thereto (the “Purchase Agreement”).(10)		Incorporated by Reference
	4.9	Registration Rights Agreement, dated as of April 25, 2004, by and among Wilsons The Leather Experts Inc. and the investors identified therein.(11)		Incorporated by Reference
	4.10	Form of Warrant issued to the Purchasers named in the Purchase Agreement on April 25, 2004.(12)		Incorporated by Reference
	10.1	Parent Guaranty dated as of May 25, 1996, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons, Inc. in favor of General Electric Capital Corporation.(13)		Incorporated by Reference
	*10.2	Wilsons The Leather Experts Inc. Amended Executive and Key Management Incentive Plan.(14)		Incorporated by Reference
	*10.3	Wilsons The Leather Experts Inc. 401(k) Plan.(15)		Incorporated by Reference
	*10.4	Employment Agreement dated as of May 25, 1996, between Wilsons The Leather Experts Inc. and Joel Waller.(1)		Incorporated by Reference
	*10.5	Employment Agreement dated as of May 25, 1996, between Wilsons The Leather Experts Inc. and David Rogers.(1)		Incorporated by Reference
	10.6	Fourth Amended and Restated Credit Agreement dated as of April 23, 2002, among Wilsons Leather Holdings Inc., as Borrower, the Lenders signatory thereto from time to time, as Lenders, and General Electric Capital Corporation, as Agent, Lender, Term Lender and Swing Line Lender, GECC Capital Markets Corp., Inc. as Lead Arranger, the CIT Group/ Business Credit, Inc., as Lender and Documentation Agent and Wells Fargo Retail Finance LLC, as Lender and Syndication Agent.(16)		Incorporated by Reference
	10.7	Store Guarantors’ Guaranty dated as of May 25, 1996, by Bermans The Leather Experts, Inc., Wilsons House of Suede, Inc., Wilsons Tannery West, Inc., the Georgetown Subsidiaries that are signatories thereto and the Individual Store Subsidiaries that are signatories thereto, in favor of General Electric Capital Corporation.(17)		Incorporated by Reference
	*10.8	Wilsons The Leather Experts Inc. Amended 1996 Stock Option Plan.(3)		Incorporated by Reference
	10.9	Joinder Agreement dated as of May 24, 1999, by and between the Store Guarantors that are signatories thereto and General Electric Capital Corporation.(18)		Incorporated by Reference

SIGNATURES

39 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 on April 11, 2008:

~~Table~~ Wilsons ofthe ~~Contents~~Leather Experts Inc. (registrant)

Exhibit
No.		Description	Method of Filing
	10.10	Pledge Agreement dated as of May 24, 1999, by and between Wilsons Leather of Delaware Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(19)		Incorporated by Reference
	10.11	Pledge Agreement dated as of May 24, 1999, between Wilsons International, Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(20)		Incorporated by Reference
	10.12	Pledge Agreement dated as of May 25, 1996, between Wilsons The Leather Experts Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(21)		Incorporated by Reference
	10.13	Pledge Agreement dated as of May 25, 1996, between Wilsons Center, Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(22)		Incorporated by Reference
	10.14	Pledge Agreement dated as of May 25, 1996, between Rosedale Wilsons, Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(23)		Incorporated by Reference
	10.15	Pledge Agreement dated as of May 25, 1996, between River Hills Wilsons, Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(24)		Incorporated by Reference
	10.16	Reaffirmation of Guaranty dated as of May 24, 1999, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation.(25)		Incorporated by Reference
	10.17	Amendment No. 2 to Pledge Agreement dated as of July 31, 1997, between River Hills Wilsons, Inc. and General Electric Capital Corporation.(26)		Incorporated by Reference
	10.18	Joinder Agreement dated as of July 31, 1997, by and between Wilsons International Inc. and General Electric Capital Corporation.(27)		Incorporated by Reference
	10.19	Reaffirmation of Guaranty dated as of July 31, 1997, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons, Inc., in favor of General Electric Capital Corporation.(28)		Incorporated by Reference
	10.20	Wilsons The Leather Experts Inc. 1998 Stock Option Plan. (29)		Incorporated by Reference
	10.21	Reaffirmation of Guaranty dated September 24, 1999, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons, Inc.(30)		Incorporated by Reference
	*10.22	First Amendment to Employment Agreement dated as of April 3, 2000, between Wilsons The Leather Experts Inc. and Joel N. Waller.(31)		Incorporated by Reference
	*10.23	First Amendment to Employment Agreement as of March 23, 2000, between Wilsons The Leather Experts Inc. and David L. Rogers.(32)		Incorporated by Reference
	10.24	Amended and Restated Security Agreement dated as of June 19, 2001, by and among Wilsons Leather Holdings Inc. and the other Grantors listed on the signature pages thereto, in favor of General Electric Capital Corporation, in its capacity as Agent for Lenders.(33)		Incorporated by Reference


	By:	/s/ Stacy A. Kruse

40 Stacy A. Kruse Chief Financial Officer and Treasurer (principal financial and accounting officer)

~~Table~~ Pursuant to the requirements of ~~Contents~~the Securities Exchange Act of 1934, this report has been signed below on April 11, 2008 by the following persons on behalf of the registrant and in the capacities indicated:

Exhibit
No.		Description	Method of Filing
	10.25	Joinder Agreement dated as of October 31, 2000, by and between the Store Guarantors that are signatories thereto and General Electric Capital Corporation.(34)		Incorporated by Reference
	10.26	Pledge Amendment dated as of October 31, 2000, by River Hills Wilsons, Inc.(35)		Incorporated by Reference
	10.27	Pledge Agreement dated as of October 31, 2000, by and between WWT, Inc. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(36)		Incorporated by Reference
	10.28	Reaffirmation of Guaranty dated as of October 31, 2000, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation.(37)		Incorporated by Reference
	10.29	Wilsons The Leather Experts Inc. 2000 Long Term Incentive Plan, as amended on August 24, 2000, March 21, 2002, June 11, 2003 and September 18, 2003.(38)		Incorporated by Reference
	10.30	Joinder Agreement dated as of April 13, 2001, by and between the Store Guarantors that are signatory thereto and General Electric Capital Corporation.(39)		Incorporated by Reference
	10.31	Pledge Amendment, dated as of April 13, 2001, by WWT, Inc. (40)		Incorporated by Reference
	10.32	Pledge Agreement, dated as of April 13, 2001, between Bentley’s Luggage Corp. and General Electric Capital Corporation, individually and as agent for the lenders signatory to the Credit Agreement.(41)		Incorporated by Reference
	10.33	Reaffirmation Of Guaranty dated as of April 13, 2001, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons, Inc., in favor of General Electric Capital Corporation.(42)		Incorporated by Reference
	10.34	Reaffirmation Of Guaranty dated as of June 19, 2001, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons, Inc., in favor of General Electric Capital Corporation.(43)		Incorporated by Reference
	10.35	Reaffirmation of Guaranty dated as of April 23, 2002, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders.(44)		Incorporated by Reference
	10.36	Agreement to Purchase Office/ Warehouse Building by and between Bermans The Leather Experts, Inc., a Delaware Corporation, as Seller and IRET Properties, a North Dakota limited partnership, as Purchaser, Dated as of June 19, 2002.(45)		Incorporated by Reference
	10.37	Lease, IRET Properties Landlord to Bermans The Leather Experts, Inc. Tenant, dated June 21, 2002.(46)		Incorporated by Reference
	10.38	First Amendment to Fourth Amended and Restated Credit Agreement dated as of November 1, 2002, by and among Wilsons Leather Holdings Inc., General Electric Capital Corporation, the credit parties signatory thereto and the lenders signatory thereto.(47)		Incorporated by Reference
	*10.39	Unqualified Release Agreement dated August 22, 2002, by and between John A. Fowler and Wilsons Leather Holdings Inc. (48)		Incorporated by Reference
	*10.40	Consulting Agreement dated August 11, 2002, by and between John A. Fowler and Wilsons Leather Holdings Inc.(49)		Incorporated by Reference



/s/ Michael T. Sweeney Michael T. Sweeney				Chairman of the Board of Directors (acting principal executive officer)

/s/ Stacy A. Kruse Stacy A. Kruse				Chief Financial Officer and Treasurer (principal financial and accounting officer)

/s/ Darren L. Acheson Darren L. Acheson				Director

/s/ Gail A. Cottle Gail A. Cottle				Director

/s/ William F. Farley William F. Farley				Director

/s/ Peter V. Handal Peter V. Handal				Director

/s/ Bradley K. Johnson Bradley K. Johnson				Director

/s/ David L. Rogers David L. Rogers				Director

/s/ Mark G. Schoeppner Mark G. Schoeppner				Director

/s/ R. Ted Weschler R. Ted Weschler				Director

41 35

Exhibit
No.		Description	Method of Filing
	10.41	Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement dated as of January 21, 2003, among Wilsons Leather Holdings Inc., General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto.(50)		Incorporated by Reference
	*10.42	Unqualified Release Agreement dated December 9, 2002, by and between John Serino and River Hills Wilsons, Inc.(51)		Incorporated by Reference
	10.43	Limited Waiver and Third Amendment to Fourth Amended and Restated Credit Agreement dated as of April 11, 2003, among Wilsons Leather Holdings Inc., General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto.(52)		Incorporated by Reference
	10.44	Reaffirmation of Guaranty dated as of April 11, 2003, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders.(53)		Incorporated by Reference
	*10.45	Wilsons The Leather Experts Inc. Employee Stock Purchase Plan, as amended.(54)		Incorporated by Reference
	10.46	Fourth Amendment to Fourth Amended and Restated Credit Agreement dated as of January 21, 2004, among Wilsons Leather Holdings Inc., General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto.		Electronic Transmission
	10.47	Reaffirmation of Guaranty dated as of January 21, 2004, by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders.		Electronic Transmission
	10.48	Limited Waiver and Fifth Amendment to Fourth Amended and Restated Credit Agreement dated as of April 15, 2004 among Wilsons Leather Holdings Inc., General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto		Electronic Transmission
	10.49	Reaffirmation of Guaranty dated as of April 15, 2004 by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders		Electronic Transmission
	10.50	Reaffirmation of Guaranty dated as of November 1, 2002 by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders		Electronic Transmission
	10.51	Joinder Agreement dated as of October 10, 2000, by and between Wilsons Leather Direct Inc. and General Electric Capital Corporation(55)		Incorporated by Reference

Exhibit
No.		Description	Method of Filing
	10.52	Sixth Amendment to Fourth Amended and Restated Credit Agreement dated as of April 27, 2004 among Wilsons Leather Holdings Inc., General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto		Electronic Transmission
	10.53	Reaffirmation of Guaranty dated as of April 27, 2004 by Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc. and the Store Guarantors listed on the signature pages thereto in favor of General Electric Capital Corporation as Agent for Lenders.		Electronic Transmission
	14.1	Code of Business Ethics and Conduct.		Electronic Transmission
	16.1	Letter Regarding Arthur Andersen LLP.(56)		Incorporated by Reference
	21.1	Subsidiaries of Wilsons The Leather Experts Inc.		Electronic Transmission
	23.1	Consent of KPMG LLP.		Electronic Transmission
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Electronic Transmission
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Electronic Transmission
	32.1	Certification of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Electronic Transmission
	32.2	Certification of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Electronic Transmission

* Management contract, compensating plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

	(1)	Incorporated by reference to the same numbered exhibit to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on October 11, 1996.
	(2)	Incorporated by reference to the same numbered exhibit to the Company’s Report on Form 10-Q for the quarter ended May 4, 2002 (File No. 0-21543).
	(3)	Incorporated by reference to the same numbered exhibit to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on December 24, 1996.
	(4)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
	(5)	Incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on October 11, 1996.
	(6)	Incorporated by reference to the same numbered exhibit to the Company’s Report on Form 10-K for the fiscal year ended January 29, 2000, filed with the Commission (File No. 0-21543).
	(7)	Incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 8-K filed with the Commission on January 23, 2002.
	(8)	Incorporated by reference to Exhibit 4.3 to the Company’s Report on Form 8-K filed with the Commission on January 23, 2002.
	(9)	Incorporated by reference to Exhibit 4.2 to the Company’s Report on Form 8-K filed with the Commission on May 3, 2002.

(10)	Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 26, 2004.
(11)	Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 26, 2004.

(12)	Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated April 26, 2004.
(13)	Incorporated by reference to Exhibit 10.8 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
(14)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended May 4, 2002, filed with the Commission.
(15)	Incorporated by Reference to Exhibit 10.3 to the Company’s Report on Form 10-K for the fiscal year ended February 2, 2002, filed with the Commission.
(16)	Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended May 4, 2002 filed, with the Commission.
(17)	Incorporated by reference to Exhibit 10.10 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
(18)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q for the quarter ended May 1, 1999, filed with the Commission.
(19)	Incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q for the quarter ended May 1, 1999, filed with the Commission.
(20)	Incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 10-Q for the quarter ended May 1, 1999, filed with the Commission.
(21)	Incorporated by reference to Exhibit 10.21 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on May 27, 1997.
(22)	Incorporated by reference to Exhibit 10.22 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on May 27, 1997.
(23)	Incorporated by reference to Exhibit 10.23 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on May 27, 1997.
(24)	Incorporated by reference to Exhibit 10.24 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (333-13967) filed with the Commission on May 27, 1997.
(25)	Incorporated by reference to Exhibit 10.6 to the Company’s Report on Form 10-Q for the quarter ended May 1, 1999, filed with the Commission.
(26)	Incorporated by reference to Exhibit 10.6 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
(27)	Incorporated by reference to Exhibit 10.7 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
(28)	Incorporated by reference to Exhibit 10.9 to the Company’s Report on Form 10-Q for the quarter ended August 2, 1997, filed with the Commission.
(29)	Incorporated by reference to Exhibit 10.31 to the Company’s Report on Form 10-K for the fiscal year ended January 31, 1998, filed with the Commission.
(30)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended October 30, 1999, filed with the Commission.
(31)	Incorporated by reference to Exhibit 10.27 to the Company’s Report on Form 10-K for the fiscal year ended January 29, 2000, filed with the Commission.
(32)	Incorporated by reference to Exhibit 10.28 to the Company’s Report on Form 10-K for the fiscal year ended January 29, 2000, filed with the Commission.
(33)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 8-K filed with the Commission on June 25, 2001.
(34)	Incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q for the quarter ended October 28, 2000, filed with the Commission.

(35)	Incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 10-Q for the quarter ended October 28, 2000, filed with the Commission.
(36)	Incorporated by reference to Exhibit 10.6 to the Company’s Report on Form 10-Q for the quarter ended October 28, 2000, filed with the Commission.
(37)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q for the quarter ended October 28, 2000, filed with the Commission.
(38)	Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (333-109977) filed with the Commission on October 24, 2003.
(39)	Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended May 5, 2001, filed with the Commission.
(40)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended May 5, 2001, filed with the Commission.
(41)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q for the quarter ended May 5, 2001, filed with the Commission.
(42)	Incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q for the quarter ended May 5, 2001, filed with the Commission.
(43)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 8-K filed with the Commission on June 25, 2001.
(44)	Incorporated by reference to Exhibit 10.2 to the Company’s Report of Form 10-Q for the quarter ended May 4, 2002, filed with the Commission.
(45)	Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended August 3, 2002, filed with the Commission.
(46)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended August 3, 2002, filed with the Commission.
(47)	Incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended November 2, 2002, filed with the Commission.
(48)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended November 2, 2002, filed with the Commission.
(49)	Incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q for the quarter ended November 2, 2002, filed with the Commission.
(50)	Incorporated by reference to Exhibit 10.41 to the Company’s Report on Form 10-K for the year ended February 1, 2003, filed with the Commission.
(51)	Incorporated by reference to Exhibit 10.42 to the Company’s Report on Form 10-K for the year ended February 1, 2003, filed with the Commission.
(52)	Incorporated by reference to Exhibit 10.43 to the Company’s Report on Form 10-K for the year ended February 1, 2003, filed with the Commission.
(53)	Incorporated by reference to Exhibit 10.44 to the Company’s Report on Form 10-K for the year ended February 1, 2003, filed with the Commission.
(54)	Incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended May 3, 2003, filed with the Commission.
(55)	Incorporated by reference to Exhibit 10.33 to the Company’s Report on Form 10-K for the year ended February 3, 2001, filed with the Commission.
(56)	Incorporated by reference to Exhibit 16.1 to the Company’s Report on Form 8-K filed on May 15, 2002, with the Commission.

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements and Financial Statement Schedule

	Page
Independent Auditors’ Report		F-2
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of January 31, 2004, and February 1, 2003		F-3
Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007		F-3
Consolidated Statements of Operations for the years ended January 31, 2004, February 1, 2003, and February 2, 2002		F-4
Consolidated Statements of Operations for the years ended February 2, 2008 and February 3, 2007		F-4
Consolidated Statements of Shareholders’ Equity for the years ended January 31, 2004, February 1, 2003, and February 2, 2002		F-5
Consolidated Statements of Shareholders’ Equity for the years ended February 2, 2008 and February 3, 2007		F-5
Consolidated Statements of Cash Flows for the years ended January 31, 2004, February 1, 2003, and February 2, 2002		F-6
Consolidated Statements of Cash Flows for the years ended February 2, 2008 and February 3, 2007		F-6
Notes to Consolidated Financial Statements		F-7
Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts		F-27
Schedule II — Valuation and Qualifying Accounts		F-29

F-1

~~INDEPENDENT~~ Report ~~AUDITORS’~~of Independent ~~REPORT~~Registered Public Accounting Firm

To The Board of Directors and Shareholders,

Wilsons The Leather Experts Inc.:

We have audited the accompanying consolidated balance sheets of Wilsons The Leather Experts Inc. and subsidiaries as of ~~January~~ February 312, ~~2004,~~2008 and February 13, ~~2003~~ 2007, and the related consolidated statements of operations, shareholders’ equity and cash flows for ~~each of~~ the ~~three~~ fiscal years inthen ~~the period~~ ended ~~January 31, 2004~~. In ~~connection~~ connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with ~~auditing~~ the standards ~~generally~~of ~~accepted~~the Public inCompany ~~the~~Accounting Oversight Board (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~~ financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wilsons The Leather Experts Inc. and subsidiaries as of ~~January~~February 312, ~~2004,~~2008 and February 13, ~~2003~~2007, and the results of their operations and their cash flows for ~~each of~~ the ~~three~~ fiscal years inthen ~~the period~~ ended ~~January 31~~, ~~2004,~~ in conformity with ~~accounting~~ ~~principles~~ U.S. generally accepted inaccounting ~~the United States of America~~principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the ~~consolidated~~ financial statements, ~~effective~~the Company ~~February 3,~~has ~~2002,~~suffered ~~the~~recurring losses from operations and ~~Company~~ negative ~~adopted~~cash ~~the~~flows ~~provisions~~from ofoperating ~~Statement~~activities ofthat ~~Financial~~raise ~~Accounting~~ substantial ~~Standards~~doubt Noabout its ability to continue as a going concern. ~~142,~~ ~~Goodwill~~Management’s ~~and~~plans ~~Other~~in regard to these matters are ~~Intangible~~ also ~~Assets~~described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” on February 4, 2007.

/s/ KPMG LLP

Minneapolis, Minnesota

~~March~~ April 911, ~~2004, except as to~~2008

Note 18, which is as of

April 27, 2004

F-2

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(In thousands, except share and per share amounts)


	February 2,			February 3,
	2008			2007

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,362		$	19,909
Accounts receivable, net of allowance of $48 and $71 in 2007 and 2006, respectively		3,462			3,132
Inventories		58,307			74,897
Prepaid expenses		6,821			7,267
Income taxes receivable		141			—

TOTAL CURRENT ASSETS		76,093			105,205
Property and equipment, net		13,681			38,890
Other assets, net		815			1,250

TOTAL ASSETS	$	90,589		$	145,345


LIABILITIES, PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	16,288		$	14,337
Accrued expenses		12,718			14,534
Income taxes payable		—			921
Deferred income taxes		723			220

TOTAL CURRENT LIABILITIES		29,729			30,012
Long-term debt		—			20,000
Income taxes payable		1,367			—
Other long-term liabilities		15,441			16,832

TOTAL LIABILITIES		46,537			66,844

COMMITMENTS AND CONTINGENCIES
Preferred stock, $.01 par value; 200,000 shares authorized; 46,667 and no shares issued and outstanding on February 2, 2008 and February 3, 2007, respectively (liquidation preference of $47,309)		39,033			—

COMMON SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value; 150,000,000 shares authorized; 39,336,903 and 39,204,299 shares issued and outstanding on February 2, 2008 and February 3,2007, respectively		393			392
Additional paid-in capital		140,500			136,441
Accumulated deficit		(135,876	)		(58,334	)
Accumulated other comprehensive income		2			2

TOTAL COMMON SHAREHOLDERS’ EQUITY		5,019			78,501

TOTAL LIABILITIES, PREFERRED STOCK AND COMMON SHAREHOLDERS’ EQUITY	$	90,589		$	145,345

			January 31,			February 1,
			2004			2003
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	42,403		$	30,442
	Accounts receivable, net of allowance of $88 and $145 in 2003 and 2002, respectively			6,122			5,162
	Inventories			89,298			118,701
	Prepaid expenses			3,719			3,812
	Assets of discontinued operations			—			3,379
	Deferred income taxes			—			3,777
	Refundable income taxes			—			3,064
		TOTAL CURRENT ASSETS		141,542			168,337
Property and equipment, net				60,047			73,974
Goodwill and other assets, net of accumulated amortization of $4,721 and $2,979 in 2003 and 2002, respectively				2,538			3,315
Deferred income taxes				—			865
		TOTAL ASSETS	$	204,127		$	246,491
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	10,198		$	19,447
	Notes payable			490			—
	Current portion of long-term debt			30,635			45
	Accrued expenses			26,670			25,219
	Liabilities of discontinued operations			406			15,075
	Income taxes payable			3,214			—
	Deferred income taxes			6,477			—
		TOTAL CURRENT LIABILITIES		78,090			59,786
Long-term debt				25,064			55,695
Other long-term liabilities				13,893			13,782
Deferred income taxes				1,726			—
		TOTAL LIABILITIES		118,773			129,263
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value; 150,000,000 shares authorized; 20,807,706 and 20,473,033 shares issued and outstanding on January 31, 2004 and February 1, 2003, respectively				208			205
Additional paid-in capital				100,633			99,010
Retained earnings (accumulated deficit)				(14,788	)		18,707
Unearned compensation				(701	)		(691	)
Accumulated other comprehensive income (loss)				2			(3	)
		TOTAL SHAREHOLDERS’ EQUITY		85,354			117,228
		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	204,127		$	246,491

The accompanying notes are an integral part of these consolidated financial statements.

F-3

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

		For the years ended		~~For the years ended~~
				January 31,				February 1,			February 2,
		February 2,				February 3,
				2004				2003			2002
		2008				2007
NET SALES		$	280,438	$	~~521,025~~	$	321,262	$	~~571,547~~		$	~~598,299~~
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS			225,523		~~377,060~~		234,251		~~404,304~~			~~403,335~~
Gross margin	~~Gross margin~~		54,915		~~143,965~~		87,011		~~167,243~~			~~194,964~~
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			99,657		~~150,678~~		109,423		~~164,513~~			~~158,511~~
DEPRECIATION AND AMORTIZATION			11,319		~~19,207~~		12,462		~~16,333~~			~~13,942~~
	Operating income (loss)				(25,920	)			(13,603	)		22,511
ASSET IMPAIRMENTS			19,705				736
INTEREST EXPENSE, net					10,868				10,253			9,584
Operating loss			(75,766	)			(35,610	)
	Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle				(36,788	)			(23,856	)		12,927
INTEREST EXPENSE, NET			1,333				1,862
INCOME TAX PROVISION (BENEFIT)					(3,205	)			(9,543	)		5,171
Loss before income taxes			(77,099	)			(37,472	)
	Income (loss) from continuing operations before cumulative effect of a change in accounting principle				(33,583	)			(14,313	)		7,756
INCOME TAX PROVISION (BENEFIT)			443				(4,377	)
LOSS FROM DISCONTINUED OPERATIONS, net of tax (including loss on disposal of $0, $27,247 and $0 in 2003, 2002 and 2001, respectively)					—				(42,014	)		(22,093	)
Net loss			(77,542	)			(33,095	)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, net of tax of $1,727 in 2002					—				(24,567	)		—
Less: Preferred stock paid-in-kind dividends			(3,415	)			—
		Net loss		$	(33,583	)		$	(80,894	)	$	(14,337	)
Beneficial conversion feature on preferred stock			(14,877	)			—
BASIC AND DILUTED LOSS PER SHARE:
Deemed dividend to warrant holders			(967	)			—
	Income (loss) from continuing operations before cumulative effect of a change in accounting principle			$	(1.64	)		$	(0.71	)	$	0.45
Net loss available to common shareholders		$	(96,801	)		$	(33,095	)
	Loss from discontinued operations				—				(2.10	)		(1.28	)
BASIC LOSS PER SHARE:
	Cumulative effect of a change in accounting principle				—				(1.22	)		—
Basic loss per share		$	(2.46	)		$	(0.85	)
		Basic and diluted loss per share		$	(1.64	)		$	(4.03	)	$	(0.83	)
Basic weighted average common shares outstanding			39,277				39,154
		Weighted average shares outstanding—basic and diluted			20,528				20,053			17,172
DILUTED LOSS PER SHARE:
Diluted loss per share		$	(2.46	)		$	(0.85	)
Diluted weighted average common shares outstanding			39,277				39,154

The accompanying notes are an integral part of these consolidated financial statements.

F-4

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

																				Retained				Accumulated
																		Accumulated
				Common stock								Additional								earnings/				other			Total
										Additional								other				Total
												paid-in				Deferred				(accumulated				comprehensive			shareholders’
		Common stock								paid-in				Accumulated				comprehensive				shareholders’
		Shares		~~Shares~~		Amount		~~Amount~~		capital		~~capital~~		deficit		~~compensation~~		income (loss)		~~deficit)~~		equity		~~income (loss)~~			~~equity~~
BALANCE, February 3, 2001					16,885,750			$	169			$	60,495			$	—			$	114,017			$	29		$	174,710
BALANCE, January 28, 2006			39,087,652			$	391			$	133,853			$	(26,201	)		$	11			$	108,054
	Net loss				—				—				—				—				(14,337	)			—			(14,337	)
Cumulative effect of adjustment resulting from adoption of SAB No. 108, net of tax			—				—				—				962				—				962
	Other comprehensive loss—
BALANCE, January 28, 2006 as adjusted			39,087,652				391				133,853				(25,239	)			11				109,016
		Foreign currency translation adjustment			—				—				—				—				—				(59	)		(59	)
Net loss			—				—				—				(33,095	)			—				(33,095	)
	Comprehensive loss				—				—				—				—				—				—			(14,396	)
Other comprehensive loss-foreign currency translation adjustment			—				—				—				—				(9	)			(9	)
	Stock options exercised				281,921				2				1,874				—				—				—			1,876
Comprehensive loss			—				—				—				—				—				(33,104	)
	Tax benefit on employee stock options				—				—				1,412				—				—				—			1,412
Compensation expense for options issued to employees			—				—				2,267				—				—				2,267
	Shares issued under the Company’s employee stock purchase plan				54,374				1				526				—				—				—			527
Stock options exercised			44,040				—				128				—				—				128
	Restricted stock issued to employees				82,500				1				1,569				(1,570	)			—				—			—
Shares issued under the Company’s employee stock purchase plan			55,487				1				130				—				—				131
	Compensation expense for restricted stock issued to employees				—				—				—				327				—				—			327
Shares issued to non-employee directors			17,120				—				63				—				—				63
	Private placement of common stock, net of issuance costs				1,900,000				19				20,020				—				—				—			20,039
BALANCE, February 3, 2007			39,204,299				392				136,441				(58,334	)			2				78,501
BALANCE, February 2, 2002					19,204,545				192				85,896				(1,243	)			99,680				(30	)		184,495
Net loss			—				—				—				(77,542	)			—				(77,542	)
	Net loss				—				—				—				—				(80,894	)			—			(80,894	)
Other comprehensive loss-foreign currency translation adjustment			—				—				—				—				—				—
	Other comprehensive loss—
Comprehensive loss			—				—				—				—				—				(77,542	)
		Foreign currency translation adjustment			—				—				—				—				—				27			27
Issuance of warrants in connection with Preferred Stock			—				—				5,266				—				—				5,266
	Comprehensive loss				—				—				—				—				—				—			(80,867	)
Paid-in-kind cumulative preferred stock dividend			—				—				(2,984	)			—				—				(2,984	)
	Stock options exercised				108,664				1				720				—				—				—			721
Preferred stock beneficial conversion feature (“BCF”)			—				—				—				—				—				—
	Tax benefit on employee stock options				—				—				168				—				—				—			168
Paid-in-kind cumulative preferred stock dividend — BCF component			—				—				—				—				—				—
	Shares issued under the Company’s employee stock purchase plan				71,449				1				498				—				—				—			499
Deemed dividend to warrant holders			—				—				—				—				—				—
	Restricted stock cancellation				(11,625	)			—				(221	)			221				—				—			—
Compensation expense for options issued to employees			—				—				1,608				—				—				1,608
	Compensation expense for restricted stock issued to employees				—				—				—				331				—				—			331
Shares issued under the Company’s employee stock purchase plan			79,385				1				92				—				—				93
	Private placement of common stock, net of issuance costs				1,100,000				11				11,949				—				—				—			11,960
Shares issued to non-employee directors			53,219				—				77				—				—				77
	Joint venture distribution				—				—				—				—				(79	)			—			(79	)
BALANCE, February 2, 2008			39,336,903			$	393			$	140,500			$	(135,876	)		$	2			$	5,019
BALANCE, February 1, 2003					20,473,033				205				99,010				(691	)			18,707				(3	)		117,228
	Net loss				—				—				—				—				(33,583	)			—			(33,583	)
	Other comprehensive loss—
		Foreign currency translation adjustment			—				—				—				—				—				5			5
	Comprehensive loss				—				—				—				—				—				—			(33,578	)
	Stock options exercised				144,648				1				794				—				—				—			795
	Tax benefit on employee stock options				—				—				185				—				—				—			185
	Shares issued under the Company’s employee stock purchase plan				76,742				1				288				—				—				—			289
	Net restricted stock issued to employees				113,283				1				356				(360	)			—				—			(3	)
	Compensation expense for restricted stock issued to employees				—				—				—				350				—				—			350
	Joint venture contribution				—				—				—				—				88				—			88
BALANCE, January 31, 2004					20,807,706			$	208			$	100,633			$	(701	)		$	(14,788	)		$	2		$	85,354

The accompanying notes are an integral part of these consolidated financial statements.

F-5

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

		For the years ended			~~For the years ended~~
					January 31,				February 1,			February 2,
		February 2,				February 3,
					2004				2003			2002
		2008				2007
OPERATING ACTIVITIES:
Net loss	~~Net loss~~	$	(77,542	)	$	~~(33,583~~$	)(33,095	)	$	~~(80,894~~	)	$	~~(14,337~~	)
		Loss from discontinued operations, net of tax				—				42,014			22,093
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Cumulative effect of a change in accounting principle, net of tax				—				24,567			—
Depreciation and amortization			11,318				12,462
	Income (loss) from continuing operations					(33,583	)			(14,313	)		7,756
Amortization of deferred financing costs			513				698
	Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
Loss (gain) on disposal of assets			107				(13	)
		Depreciation				19,134				16,291			13,878
Asset impairments			19,705				733
		Amortization				73				42			64
Stock compensation expense			1,608				2,267
		Amortization of deferred financing costs				1,728				1,104			728
Deferred income taxes			503				167
		Loss on disposal of assets				1,903				1,586			4,924
Changes in operating assets and liabilities:
		Restricted stock compensation expense				350				331			327
Accounts receivable, net			(330	)			931
		Deferred income taxes				12,845				(10,790	)		1,600
Inventories			16,590				10,748
	Changes in operating assets and liabilities:
Prepaid expenses			305				(4,805	)
		Accounts receivable, net				(960	)			3,715			1,866
Accounts payable and accrued expenses			(44	)			733
		Inventories				29,403				(25,761	)		13,224
Income taxes payable and other liabilities			(946	)			(5,376	)
		Prepaid expenses				93				(874	)		5,619
Net cash used in operating activities			(28,213	)			(14,550	)
		Refundable income taxes				3,064				(3,064	)		—
INVESTING ACTIVITIES:
		Accounts payable and accrued expenses				(7,798	)			3,365			(7,025	)
Additions to property and equipment			(5,706	)			(11,112	)
		Income taxes payable and other liabilities				3,598				(8,962	)		(21,326	)
Proceeds from sale of property and equipment			20				79
			Net cash provided by (used in) operating activities of continuing operations			29,850				(37,330	)		21,635
Net cash used in investing activities			(5,686	)			(11,033	)
INVESTING ACTIVITIES:
FINANCING ACTIVITIES:
	Additions to property, equipment and other assets					(7,788	)			(8,754	)		(32,990	)
Proceeds from issuance of common stock, net			171				322
	Proceeds from sale of property and equipment					499				—			—
Net proceeds from issuance of preferred stock			36,049				—
	Net proceeds from sale leaseback					—				12,546			—
Net proceeds from issuance of common stock warrants			5,266				—
	Changes in other assets					—				(79	)		(25	)
Debt acquisition costs			(134	)			(373	)
			Net cash provided by (used in) investing activities of continuing operations			(7,289	)			3,713			(33,015	)
Repayments of long-term debt			(20,000	)			—
FINANCING ACTIVITIES:
Other			—				(9	)
	Proceeds from issuance of common stock, net					1,081				13,180			22,442
Net cash provided by (used in) financing activities			21,352				(60	)
	Proceeds from issuance of notes payable					490				—			—
NET DECREASE IN CASH AND CASH EQUIVALENTS			(12,547	)			(25,643	)
	Debt acquisition costs					(1,025	)			(2,108	)		(1,586	)
CASH AND CASH EQUIVALENTS, beginning of year			19,909				45,552
	Proceeds from issuance of long-term debt					—				4,950			25,000
CASH AND CASH EQUIVALENTS, end of year		$	7,362			$	19,909
	Repayments of long-term debt					(41	)			(4,800	)		—
SUPPLEMENTAL CASH FLOW INFORMATION:
	Other					5				27			(59	)
Cash paid (refunded) during the year for —
			Net cash provided by financing activities of continuing operations			510				11,249			45,797
Interest		$	1,531			$	2,829
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS						(11,110	)			13,857			(48,406	)
Income taxes		$	(364	)		$	219
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						11,961				(8,511	)		(13,989	)
CASH AND CASH EQUIVALENTS, beginning of period						30,442				38,953			52,942
CASH AND CASH EQUIVALENTS, end of period					$	42,403			$	30,442		$	38,953
SUPPLEMENTAL CASH FLOW INFORMATION:
	Cash paid during the year for—
		Interest			$	9,265			$	9,199		$	8,478
		Income taxes			$	898			$	1,651		$	14,699

The accompanying notes are an integral part of these consolidated financial statements.

F-6

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~January~~ February 312, 2008 ~~2004,~~ and February 13, 2007 ~~2003~~

1 Summary of ~~Nature~~significant ofaccounting ~~organization~~policies

~~Wilsons The Leather Experts Inc. (“Wilsons~~ ~~Leather”~~ Nature ~~or “the Company”) is the leading specialty retailer~~ of ~~quality leather outerwear, accessories and~~ ~~apparel in the United States. At January 31, 2004, Wilsons~~ organization Leather operated 460 stores (excluding 111 underperforming mall and outlet stores the Company is in the process of liquidating, as discussed in Note 4) located in 45 states and the District of Columbia, including 334 Wilsons Leather mall stores, 107 Wilsons Leather outlet stores and 19 airport locations. The Company supplemented its permanent stores with 229, 284, and 281 seasonal stores during its peak selling season from October through January during fiscal years 2003, 2002 and 2001, respectively.

Wilsons The Leather Experts Inc. (“Wilsons Leather” or “the Company”) a Minnesota corporation, is a specialty retailer of quality leather outerwear, accessories and apparel in the United States. At February 2, ~~Summary~~2008, Wilsons Leather operated 391 stores (including 158 stores that we are liquidating — See Note 17, “Subsequent events,”) located in 42 states, including 259 mall stores, 118 outlet stores and 14 airport locations. Operation of the ~~significant~~Company’s ~~accounting~~temporary ~~policies~~seasonal stores was suspended in 2006 and for the foreseeable future.

Basis of presentation

The accompanying consolidated financial statements include those of the Company and all of its subsidiaries. All material intercompany balances and transactions between the entities have been eliminated in consolidation. At ~~January~~February 312, ~~2004~~2008, Wilsons Leather operated in one reportable segment: selling leather outerwear, accessories and apparel. The Company’s chief operating decision-maker evaluates revenue and profitability performance on an enterprise basis to make operating and strategic decisions.

As more fully described in Note 3, El Portal Group, Inc., Bentley’s Luggage Corp. and Florida Luggage Corp. (the “Travel Subsidiaries”) were liquidated during 2002 and are being presented as discontinued operations effective November 19, 2002, and the consolidated financial statements have been reclassified to segregate the net investment in, and the liabilities and operating results of, the Travel Subsidiaries for all prior periods presented. Prior to the liquidation, the Travel Subsidiaries were reported as a separate operating segment.

As more fully described in Note 4, on January 22, 2004, the Company announced that it would liquidate up to 100 underperforming mall and outlet stores (subsequently revised to 111 stores) and eliminate approximately 950 store-related positions. In addition, the Company recorded certain reorganization costs related to asset write-offs and severance and outplacement costs for approximately 70 positions at its headquarters location and distribution centers.

Fiscal year

The Company’s fiscal year ends on the Saturday closest to January 31. The periods that will end or have ended January 31, ~~2004~~2009, February 12, ~~2003~~2008, and February 23, ~~2002,~~2007 are referred to herein as fiscal years ~~2003~~ 2008, ~~2002~~2007 and ~~2001~~2006, respectively. ~~The~~Fiscal ~~results~~years of2008 ~~operations~~and ~~for~~2007 ~~fiscal~~ are 52 week years. ~~2003,~~Fiscal ~~2002~~2006 ~~and 2001~~ consisted of 5253 weeks.

Use of estimates

The preparation of financial statements in conformity with ~~accounting principles~~ U.S. generally accepted inaccounting ~~the~~principles ~~United~~ (“GAAP”) ~~States of America~~ requires management to make estimates ~~and~~ 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. Matters of significance in which management relies on these estimates relate primarily to the realizability of assets, such as ~~accounts receivable~~ inventories, property and equipment, and ~~inventories~~accounts receivable, and the adequacy of certain accrued liabilities and reserves. Ultimate results could differ from those estimates.

Fair values of financial instruments

The carrying value of the Company’s current financial assets and liabilities, because of their short-term nature, approximates fair value.

Cash and cash equivalents

Cash equivalents consist principally of short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair value. The short-term investments consist solely of money market funds. Interest income of $0.5 million and $1.6 million in fiscal years 2007 and 2006, respectively, is included in interest expense, net in the accompanying statements of operations.

Inventories

F-7

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~Reclassifications~~ merchandise, freight, duty, sourcing overhead, and other merchandise-specific charges. A periodic review of inventory quantities on hand is performed to determine if inventory is properly stated at the lower of cost or market. Factors related to current inventories such as future consumer demand, fashion trends, current aging, current and anticipated retail markdowns, and class or type of inventory are analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required.

~~Certain~~ Permanent ~~amounts~~markdowns ~~included~~designated infor ~~the~~clearance ~~consolidated~~activity are ~~financial~~ recorded ~~statements~~at ~~have~~the ~~been~~point ~~reclassified~~of indecision, ~~prior~~when ~~years~~the tovalue of inventory ~~conform~~ has ~~with~~diminished, versus the ~~fiscal~~point ~~2003~~of ~~financial~~sale. ~~statement~~Factors ~~presentation.~~considered in ~~Reclassification~~ the determination of ~~these~~permanent ~~amounts~~markdowns ~~had~~include nocurrent ~~effect~~and anticipated ondemand, ~~previously reported~~customer ~~shareholders’~~preferences, ~~equity~~age orof ~~net~~the merchandise, ~~income~~and ~~(loss)~~style trends. The corresponding reduction to gross margin is also recorded in the period that the decision is made.

~~Fair~~ Shrinkage ~~values~~is estimated as a percentage of ~~financial~~sales ~~instruments~~for the period from the last inventory date to the end of the fiscal year. Physical inventories are taken at least biannually for all stores and the Company’s distribution center and inventory records are adjusted accordingly. The shrink rate for the most recent physical inventory, in combination with current events and historical experience, is used as the accrual rate to record shrink for the next inventory cycle.

~~The~~ Any ~~carrying~~significant ~~value~~unanticipated ofchanges in the ~~Company’s~~factors ~~current~~noted above ~~financial~~ could ~~assets~~have ~~and~~a ~~liabilities,~~significant ~~because~~impact ofon ~~their~~the ~~short-term nature, approximates fair~~ value. ~~The carrying value~~ of the Company’s ~~11 1/4% Senior~~inventories ~~Notes~~and ~~due August 15,~~its ~~2004,~~reported ~~(the~~operating ~~“11 1/4% Senior Notes”) issued in August 1997 approximated fair value as of January 31, 2004 and February 1, 2003~~results.

Cash and cash equivalents

Cash equivalents consist principally of short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair value. The short-term investments consist primarily of commercial paper and money market funds. Interest income of $0.1 million, $0.2 million and $0.8 million in fiscal years 2003, 2002 and 2001, respectively, is included in interest expense, net in the accompanying statements of operations.

Inventories

The Company values its inventories, which consist primarily of finished goods held for sale that have been purchased from domestic and foreign vendors, at the lower of cost or market value, determined by the retail inventory method on the last-in, first-out (“LIFO”) basis. As of January 31, 2004, and February 1, 2003, the LIFO cost of inventories approximated the first-in, first-out (“FIFO”) cost of inventories. The inventory cost includes the cost of merchandise and freight. A periodic review of inventory quantities on hand is performed to determine if inventory is properly stated at the lower of cost or market. Factors related to current inventories such as future consumer demand, fashion trends, current aging, current and anticipated retail markdowns, and class or type of inventory are analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. Any significant unanticipated changes in the factors noted above could have a significant impact on the value of the Company’s inventories and its reported operating results.

Inventories consisted of the following (in thousands):

	January 31,		February 1,
	February 2,		February 3,
	2004		2003
	2008		2007
Raw materials	$	31,~~189~~348	$	2,~~872~~940
Finished goods		8656,~~109~~959		~~115~~71,~~829~~957
	$	89,298	$	118,701
Total	$	58,307	$	74,897

Property and equipment

The Company’s property and equipment ~~consists~~ consist principally of store leasehold improvements and store fixtures and are ~~included~~ included in the “Property and equipment” line item in ~~its~~ its consolidated balance sheets included in this report. ~~These~~Leasehold ~~long~~ improvements include the cost of improvements funded by landlord incentives and lease costs during the pre-~~lived~~opening ~~assets~~period of construction, renovation, fixturing, and merchandise placement (the “build-out” period). Prior to the third quarter of 2005, the Company capitalized rental costs incurred during the build-out period. Beginning with the third quarter of 2005, the Company has expensed all such build-out period rental costs pursuant to Financial Accounting Standards Board (“FASB”) Staff Position No. FAS 13-1 (“FSP FAS 13-1”). Leasehold improvements are recorded at cost and are amortized ~~using~~ using the straight-line method over the lesser of the applicable ~~store~~ store lease term or the estimated useful life ~~of the leasehold improvements~~. The typical initial lease term for the Company’s stores is ~~ten~~ 10 years and the estimated useful lives of the assets range from ~~five~~three to ~~ten~~ 10 years. ~~Lease~~Capital additions required for lease extensions subsequent to initial lease term ~~requiring capital additions~~ are ~~depreciated~~ amortized over the term of the lease extension. Computer hardware and ~~Property~~ software and distribution center equipment are amortized over three to five years and 10 years, respectively. Property and equipment retired or disposed of are removed from cost and related accumulated depreciation accounts. Maintenance and repairs are charged directly to expense as incurred. Major renewals or replacements are capitalized after making the necessary adjustment to the asset and accumulated depreciation accounts for the items renewed or replaced.

Store closing and impairment of long-lived assets

The Company continually reviews its stores’ operating performance and assesses plans for store closures. Prior to 2007, the Company evaluated potential impairment for store assets using a geographic based market level approach. In 2007, the Company evaluated potential impairment for store assets on an individual store basis, as opposed to a geographic based market level approach. Losses related to the impairment of long-lived assets are

F-8

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~accumulated~~ recognized ~~depreciation~~when ~~accounts~~expected future cash flows are less than the asset’s carrying value. ~~Maintenance~~When a store is closed or when a change in circumstances indicates the carrying value of an asset may not be recoverable, the Company evaluates the carrying value of the asset in relation to its expected future cash flows. If the carrying value is greater than the expected future cash flows, a provision is made for the impairment of the asset to write the asset cost down to its estimated fair value. As more fully described in Note 17, “Subsequent events,” on February 15, 2008, the Company announced that it would liquidate up to 160 stores (subsequently revised to 158 stores) and ~~repairs~~eliminate ~~are~~938 ~~charged~~store-related ~~directly~~positions. The Company had decided in January of 2008 that a partial store liquidation was required in order to ~~expense~~cut ascosts ~~incurred~~and reduce working capital needs. As ~~Major~~a result, the Company determined that the $9.3 million ~~renewals~~ of orassets ~~replacements~~located ~~are~~at ~~capitalized~~these ~~after~~liquidation ~~making~~stores were impaired, as the future undiscounted cash flows of the liquidation sales ~~necessary~~ would ~~adjustment~~not be sufficient to recover the ~~asset~~carrying value of those store assets. In addition, the Company determined another $10.4 million of store assets related to the 100 remaining mall stores and ~~accumulated~~four ~~depreciation~~outlet stores were also impaired, as the ~~accounts~~ future ~~for~~undiscounted cash flows related to these stores would not be sufficient to recover the ~~items~~carrying ~~renewed~~value orof ~~replaced~~those store assets. Accordingly, the Company recorded an impairment loss of $19.7 million in the fourth quarter of 2007 related to those store assets. Such assets were written down to fair value less the expected disposal value, if any, of such furniture, fixtures and equipment. The Company determined that these assets had no fair value, as the majority of such assets relate to leasehold improvements and other store-specific fixtures and equipment.

~~Store~~ In ~~closing~~the ~~and~~fourth quarter of 2006, the Company determined, based on its then current sales projections that certain geographic markets did not have sufficient future undiscounted cash flows to recover the carrying value of those markets’ mall store fixed assets. Accordingly, the Company recorded an impairment loss of ~~long~~$0.7 million in the fourth quarter of 2006 related to those mall stores’ assets. Such assets were written down to fair-~~lived~~value less the expected disposal value, if any, of such furniture, fixtures and equipment. Similar to 2007, the Company determined that these assets had no fair value, as the majority of such assets related to leasehold improvements and other store-specific fixtures and equipment. The 2007 and 2006 impairment losses are recorded on a separate line item entitled, “Asset impairments” in the accompanying Consolidated Statements of Operations.

~~The~~ When ~~Company~~a ~~continually reviews its stores’ operating performance and assesses plans for~~ store ~~closures.~~under ~~In accordance~~a ~~with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS No. 144”) losses related to the impairment of~~ long-~~lived~~term ~~assets~~lease ~~are recognized when expected future cash flows are less than the asset’s carrying value. When a store~~ is ~~closed~~to ~~or when a change in circumstances indicates the carrying value of an asset may not~~ be ~~recoverable~~closed, ~~the~~ ~~Company evaluates~~ the ~~carrying value of the asset in~~ ~~relation~~ Company torecords ~~its~~a ~~expected~~liability ~~future~~for ~~cash~~any ~~flows.~~lease Iftermination ~~the~~or ~~carrying~~broker ~~value~~ fees isat ~~greater than~~ the ~~expected~~time ~~future~~an ~~cash~~agreement ~~flows,~~related ~~a provision is made for the impairment of the asset~~ to ~~write~~such ~~the asset~~closing ~~down to its estimated fair value. Fair value~~ is ~~determined~~ by executed. ~~estimating~~At ~~net~~February 2, ~~future~~2008 ~~cash~~and ~~flows~~February 3, ~~discounted using a~~2007, ~~risk-adjusted~~ the ~~rate~~Company ofhad ~~return.~~no ~~These~~amounts ~~impairment~~accrued ~~charges~~for ~~are recorded~~store aslease ~~a component of selling, general and administrative expenses and are disclosed in Note 7~~terminations.

When a store under a long-term lease is to be closed, the Company records a liability for any lease termination or broker fees at the time an agreement related to such closing is executed. At January 31, 2004, and February 1, 2003, the Company had $0.5 million and $0.4 million, respectively, accrued for store lease terminations.

Goodwill

Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, (“SFAS No. 142”) as of February 3, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144.

Under the transitional provisions of SFAS No. 142, the Company’s goodwill related to the Travel Subsidiaries was tested for impairment during the second quarter of 2002 using a February 2, 2002, measurement date. Each of the Company’s reporting units was tested for impairment by comparing the fair value of each reporting unit with its carrying value. A reporting unit is the same as, or one level below, an operating segment. For the purposes of the Company, reporting units were defined as Wilsons and Travel at the measurement date. Fair value was determined based on a valuation study performed by an independent third-party that primarily considered the discounted cash flow method, “guideline company” (comparable companies) and similar transaction methods. As a result of the Company’s impairment test, the Company recorded a pretax impairment loss to reduce the carrying value of goodwill of the Travel Subsidiaries by $26.3 million to its implied fair value. Impairment was due to a combination of factors including acquisition price, post-acquisition capital expenditures and operating performance. In accordance with SFAS No. 142, the cumulative effect of this accounting change was reported in the Company’s statement of operations net of a $1.7 million tax benefit.

Debt issuance costs

Debt issuance costs are amortized ~~over~~on a straight-line basis over the life of the related debt. Accumulated amortization amounted to to approximately $43.68 million and $24.90 million at ~~January~~ February 312, ~~2004,~~2008 and February 13, ~~2003~~2007, respectively. Amortization expense is included in interest expense in the accompanying consolidated statements of operations.

Operating leases

The Company has approximately 392 noncancelable operating leases, primarily for retail stores, which expire at various times through 2017. These leases generally require the Company to pay costs, such as real estate taxes, common area maintenance costs and contingent rentals based on sales. In addition, these leases generally include scheduled rent increases and may include rent holidays. The Company accounts for these scheduled rent increases and rent holidays on a straight-line basis over the initial terms of the leases, including any rent holiday periods, commencing on the date the Company can take possession of the leased facility. Resulting liabilities are recorded as short-term or long-term deferred rent liabilities as appropriate. Rent expense for lease extensions subsequent to the initial lease terms are also calculated under a straight-line basis to the extent that they include scheduled rent increases or rent holidays. In addition, leasehold improvements funded by landlord incentives are recorded as short-term or long-term deferred rent liabilities as appropriate. These liabilities are then amortized as a reduction of rent expense on a straight-line basis over the life of the related lease. Prior to the third quarter of 2005, the Company

F-9

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

capitalized rental costs incurred during the build-out period. Beginning with the third quarter of 2005, the Company has expensed all such build-out period rental costs pursuant to FSP FAS 13-1.

Revenue recognition

The Company recognizes sales upon customer receipt of the merchandise generally at the point of sale. The Company has ~~Shipping~~ historically recognized layaway sales in full upon final payment and ~~handling~~delivery ~~revenues~~of ~~are~~the ~~excluded~~merchandise ~~from~~to ~~net~~the ~~sales~~customer. asAll acustomer ~~contra-expense~~ payments ~~and~~prior to the ~~related~~final ~~costs~~payment ~~are~~were recorded as customer deposits and included in ~~costs~~accrued ofexpenses in the Company’s ~~goods~~ balance ~~sold~~sheet. As of December 2006, ~~buying~~the Company’s layaway program was discontinued and ~~occupancy~~all ~~costs~~layaway sales had been recognized by the end of fiscal year 2006. Revenue for gift ~~certificate~~ ~~or gift~~ card sales and store credits is recognized at redemption. Wilsons Leather gift cards do not have expiration dates and the Company does not currently recognize gift card breakage for unused or unredeemed gift cards. A reserve is provided at the time of sale ~~for~~ for projected merchandise returns based upon historical experience. The Company recognizes revenue for on-line sales at the time goods are received by the customer. An allowance for on-line sales is recorded tofor ~~cover~~shipments in-transit ~~shipments~~at period end, as product is shipped to these customers Free on Board destination. Revenue on sales to wholesale customers is recognized upon the transfer of title and risk of ownership to such customers, which is generally upon shipment, as our standard terms are Free on Board origin. Wholesale revenue is recorded net of trade-term discounts and estimated returns and allowances. Generally, there are no return rights other than those for merchandise that is defective or in breach of any express warranties. Wholesale revenues may be recognized post shipment if the contractual shipping or right-of-return terms differ from the Company’s standard terms.

Store opening costs

Non-capital expenditures, such as advertising and payroll costs related to new store openings, are charged to expense as incurred.

Advertising costs

Advertising costs included in selling, general ~~and~~ and administrative expenses, are expensed when incurred. ~~Advertising~~ Advertising costs amounted to $125.86 million and $9.0 million in 2007 and 2006, respectively. Included in the Company’s balance sheet in “Prepaid expenses” are prepaid advertising costs of approximately $120.65 million and $130.37 million inas ~~2003~~of February 2, ~~2002~~2008 and ~~2001~~ February 3, 2007, respectively.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those ~~temporary~~ temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes ~~the~~ the enactment date. In light of cumulative losses over the past five fiscal years, the Company believes this it is more likely than not that the Company’s net deferred tax asset will not be realized. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets.

~~Foreign~~ Significant ~~currency~~judgment ~~translation~~is required in determining the Company’s provision/benefit for income taxes. In the ordinary course of business, the final tax outcome is uncertain for many transactions. Changes in estimates may create volatility in the Company’s effective tax rate in future periods due to settlements with various tax authorities, expiration of the statute of limitations on certain tax positions and the availability of new information regarding certain tax positions that may cause changes to management’s estimates. An uncertain income tax position is recognized in the Company’s consolidated financial statements if it is more likely than not to be sustained. The tax

The functional currency for the Company’s foreign operations is the applicable foreign currency. The translation from the applicable foreign currency to U.S. dollars is performed for balance sheet accounts using the current exchange rate in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses resulting from such translation are included in shareholders’ equity as other comprehensive loss. Transaction gains and losses are reflected in income. The Company did not enter into any hedging transactions during 2003.

Loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common shares related to stock options had been issued

F-10

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~(calculated~~ provisions ~~using~~are ~~the~~analyzed ~~treasury~~quarterly ~~stock~~and ~~method).~~applicable ~~The~~adjustments are ~~following~~ made ~~table~~as ~~reconciles~~events ~~the~~occur ~~number~~that ofwarrant ~~shares~~adjustments ~~utilized~~to ~~in the~~those ~~loss per share calculations (in thousands):~~ provisions.

	For the years ended
	January 31,		February 1,		February 2,
	2004		2003		2002
Weighted average common shares outstanding—basic		20,528		20,053		17,172
Effect of dilutive securities: stock options		—		—		—
Weighted average common shares outstanding—diluted		20,528		20,053		17,172

Sales taxes

~~Stock-based~~ The ~~compensation~~Company presents sales taxes on a net basis in its consolidated financial statements. For all periods presented, the Company’s sales are recorded net of applicable sales taxes.

~~As permitted by SFAS No. 123,~~ ~~Accounting for Stock-Based~~ Foreign ~~Compensation,(“SFAS No. 123”)~~ currency ~~the~~translation Company uses the intrinsic-value method for employee stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB No. 25”) under which no compensation cost has been recognized. The Company adopted the disclosure provisions for employee stock-based compensation and the fair-value method for non-employee stock-based compensation of SFAS No. 123. Had compensation cost for the stock option plans been determined consistent with SFAS No. 123, the Company’s net loss and basic and diluted loss per share would have been the following pro forma amounts (in thousands, except per share amounts):

		For the years ended
		January 31,			February 1,			February 2,
		2004			2003			2002
Net loss:
	As reported	$	(33,583	)	$	(80,894	)	$	(14,337	)
	Stock option and purchase plans		(1,519	)		(1,700	)		(1,412	)
	Pro forma loss	$	(35,102	)	$	(82,594	)	$	(15,749	)
Basic and diluted loss per share:
	As reported	$	(1.64	)	$	(4.03	)	$	(0.83	)
	Stock option and purchase plans		(0.07	)		(0.09	)		(0.09	)
	Pro forma loss	$	(1.71	)	$	(4.12	)	$	(0.92	)
	Weighted average fair value of options granted	$	2.04		$	6.60		$	7.22

The functional currency for the Company’s foreign operations is the applicable foreign currency. The translation from the applicable foreign currency to U.S. dollars is performed for balance sheet accounts using the current exchange rate in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses resulting from such translation are included in shareholders’ equity as other comprehensive income (loss) and have been insignificant in all fiscal years presented. Transaction gains and losses are reflected in income. The Company did not enter into any hedging transactions during 2007 or 2006.

~~The pro forma amounts shown above may not be~~ ~~indicative of the effects on reported net~~ Income (loss.) ~~The~~per ~~fair value~~share ~~of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2003, 2002 and 2001:~~

	Weighted Average		Dividend		Expected		Expected
	Risk Free Rate		Yield		Lives		Volatility
2003		3.0%		0.0%		5.0		55.3%
2002		2.0%		0.0%		6.5		52.6%
2001		3.5%		0.0%		6.9		46.3%

Basic net income (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the year. Net income (loss) available to common shareholders is computed by subtracting the accrued paid-in-kind preferred stock dividend, the beneficial conversion feature on the Preferred Stock and the deemed dividend to warrant holders from the reported net income (loss). Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders as adjusted for impacts related to dilutive shares by the sum of the weighted average number of common shares outstanding plus all potentially dilutive shares. Potentially dilutive shares include common stock options and warrants calculated using the treasury stock method and convertible preferred stock calculated using the “as-if converted” method. Pursuant to the treasury method, in periods of net loss, potentially dilutive common shares related to stock options, warrants and conversion of the Company’s preferred stock have been excluded from the calculation of weighted average shares outstanding, as their inclusion would have an anti-dilutive effect on net loss per share. The following table reconciles the number of shares utilized in the net income (loss) per share calculations (in thousands):

New accounting pronouncements


	For the years ended
	February 2,		February 3,
	2008		2007

Weighted average common shares outstanding — basic		39,277		39,154
Effect of dilutive securities: stock options		—		—
Effect of dilutive securities: warrants		—		—

Weighted average common shares outstanding — diluted		39,277		39,154

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number (“FIN”) 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces

F-11

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~FIN 46,~~ Potentially ~~Consolidation~~dilutive ~~of Variable Interest Entities~~shares, which ~~was~~were ~~issued~~excluded infrom ~~January~~the ~~2003. The~~above ~~Company~~ calculations ~~is required to apply FIN 46R to variable interests~~ in ~~variable~~2007 ~~interest~~and ~~entities (“VIEs”) created after December 31~~2006, ~~2003.~~periods ~~For~~of ~~variable~~net ~~interests in VIEs created before January 1~~loss, ~~2004,~~as ~~FIN 46R will be applied~~their ~~beginning~~ inclusion ~~on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIEs initially~~ would behave ~~measured~~had atan ~~their carrying~~anti-dilutive ~~amounts,~~effect ~~with~~on ~~any differences between the~~ net ~~amounts added~~loss ~~to the balance sheet and any previously recognized~~per ~~interest~~ share, ~~being~~are ~~recognized~~ as ~~the~~follows ~~cumulative effect of a change~~ (in ~~accounting principle. If determining the carrying amounts is~~thousands): not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIEs. FIN 46R did not have an impact on the Company’s consolidated financial statements.

FASB Statement No. 150 (the “Statement”) Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. The Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003, and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. As of January 31, 2004, the Company does not have any financial instruments that are within the scope of the Statement. The provisions of the Statement will be applied to future financial instruments that are entered into or modified subsequent to January 31, 2004.


	For the years ended
	February 2,		February 3,
	2008		2007

Stock options		2,990,651		1,471,660
Warrants		20,022,364		4,000,000
Preferred stock⁽¹⁾		31,111,333		—

Total potentially dilutive shares		54,124,348		5,471,660

~~In December 2002, the Emerging Issues Task Force~~ (~~“EITF”~~1) ~~issued~~Weighted ~~EITF 00-21,~~average ~~Revenue Arrangements~~shares ~~with Multiple Deliverables (“EITF 00-21”). EITF 00-21 addresses certain aspects~~ of ~~the~~preferred ~~accounting~~stock ~~for~~using arrangements under which a company will perform multiple revenue generating activities. In some arrangements, the different revenue generating activities (deliverables) are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables (that is, there are separate units of accounting). In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. EITF 00-21 addresses the circumstances under which an ~~arrangement~~“as ~~involving~~if ~~multiple~~converted” ~~deliverables should be divided into separate units of accounting~~method. EITF 00-21 does not change otherwise applicable revenue recognition criteria. The provisions of EITF 00-21 were effective beginning in the third quarter of 2003. The adoption of EITF 00-21 did not have an impact on the Company’s revenue recognition.

~~3 Discontinued operations~~ Stock-based compensation

In On ~~November~~January 29, ~~2002~~2006, the Company ~~liquidated~~adopted the provisions of ~~Travel~~ Statement ~~Subsidiaries~~of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), ~~which~~Share-Based ~~consisted~~Payment (“SFAS No. 123R”), using the modified prospective transition method. Under this method, the Company recognizes compensation costs for new grants of ~~135~~stock-based awards, ~~stores~~awards modified on or after the effective date of January 29, ~~due~~2006 toand ~~their~~the remaining portion of the fair ~~large~~ value ~~operating~~of ~~losses.~~the Inunvested ~~accordance~~awards ~~with~~at January 29, 2006. SFAS No. ~~144,~~123R requires the ~~Travel~~recognition ~~Subsidiaries~~of ~~have~~compensation expense ~~been~~in an amount equal to the fair market value of ~~presented~~ share-based aspayments agranted ~~discontinued~~to ~~operation~~employees ~~effective~~and non-employee ~~November 19,~~ directors. ~~2002~~These share-based payments include employee stock options, ~~and~~employee stock purchases related to the ~~consolidated~~Company’s employee ~~financial~~stock purchase plan and other stock-based awards ~~statements~~ (“stock-based ~~were~~compensation”). ~~reclassified~~Prior to January 29, ~~segregate~~2006, the ~~assets~~Company accounted for employee stock-based compensation using the intrinsic-value method pursuant to Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to ~~liabilities~~ Employees (“APB No. 25”), and ~~operating~~its ~~results~~related implementation ofguidance ~~the~~under ~~Travel~~which ~~Subsidiaries~~no ~~for~~compensation cost had ~~all~~ been ~~periods~~recognized. ~~presented~~As permitted by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), the Company adopted the disclosure provisions for employee stock-based compensation and only disclosed such compensation pro forma in the notes to the consolidated financial statements.

~~Beginning~~ The onCompany ~~November~~adopted SFAS ~~19,~~No. 123R ~~2002,~~using ~~and~~the modified ~~continuing~~ prospective ~~through~~transition ~~the~~method. ~~fourth~~Under ~~quarter~~this ~~of 2002~~method, the Company ~~liquidated~~ recognizes ~~the~~compensation ~~inventory~~costs ~~and~~for ~~fixed~~new ~~assets~~grants of ~~the Travel~~stock-based ~~Subsidiaries.~~ awards, ~~The~~awards ~~Travel~~modified ~~Subsidiaries~~on ~~and~~or ~~certain~~after ofthe ~~their affiliates~~effective ~~entered~~date ~~into an Agency Agreement with a joint venture comprised~~ of ~~Hilco Merchant Resources, LLC and Hilco Real~~ ~~Estate~~ January 29, ~~LLC~~2006 ~~(collectively “Hilco”) to liquidate the inventory in such stores~~ and ~~exit~~ the ~~store~~remaining ~~leases.~~portion ~~Pursuant~~of to the ~~Agency Agreement, Hilco paid the Company a guaranteed amount~~fair of value ~~85%~~ of the ~~cost~~unvested ~~value~~awards ofat ~~the inventory~~January 29, ~~subject~~2006. ~~to certain~~The ~~adjustments.~~ Company’s ~~Hilco~~consolidated ~~was~~financial ~~responsible~~statements ~~for~~as ~~all~~of ~~expenses~~and ~~related to~~for the ~~sale.~~fiscal Inyears ~~addition~~ended February 2, ~~Hilco~~2008 ~~assisted~~and February 3, in2007 ~~negotiations~~reflect tothe ~~exit certain~~impact ~~leases~~of SFAS No. 123R.

The following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the grant date fair value of awards granted:


	For the years ended
	February 2,		February 3,
	2008		2007

Expected term (in years)		3.8		4.1
Expected volatility		63.3%		68.4%
Risk-free interest rate		4.3%		4.8%
Dividend yield		0.0%		0.0%
Weighted average fair value of options granted	$	0.59	$	1.82

The weighted average expected term reflects the period of time for which options are expected to be outstanding. That is, from grant date to expected exercise or other expected settlement. The Company’s calculation of expected term is based on historical experience of its option plans as well as expectations of future employee

F-12

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A stock ~~summary~~option behavior. The expected volatility of the Company’s ~~components~~stock price is based on the actual historical volatility over a period that is commensurate to the expected term of the ~~Travel~~option. The risk-free interest rate is based on the ~~Subsidiaries~~ average ~~discontinued~~implied ~~operations~~yield ~~charges~~on U.S. Treasury instruments with a term approximating the expected term of the option. The expected dividend yield is zero, as ~~follows~~the (Company has not declared a dividend in the past and the ability to pay cash dividends in ~~millions):~~ the future is limited by certain provisions in the Company’s senior credit facility.

	Charges for the
	Year Ended
	February 1, 2003
Inventory Markdowns	$	5.9
Fixed asset write-downs		18.2
Other selling and administrative expenses		4.6
Lease terminations and store closing costs		10.7
	$	39.4
Loss on disposition, net of tax	$	27.2

The Company’s SFAS No. 123R fair value calculations are based on a single-option valuation approach and applicable compensation cost is recognized on a straight-line basis over the vesting period of the stock-based award. A similar approach was taken for periods prior to January 29, 2006 under SFAS No. 123 for the required pro forma disclosures. In addition, the amount of stock-based compensation cost recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the pro forma disclosures required under SFAS No. 123 for the period prior to 2006, the Company factored estimated forfeitures as of the grant date into the compensation expense to be recognized. Pursuant to SFAS No. 123R, the stock-based compensation expense recognized in 2007 and 2006 has been reduced for estimated forfeitures. The estimated forfeiture rate is based on historical experience of the Company’s option plans and any adjustment to the forfeiture rate in the future will result in a cumulative adjustment in the period that this estimate is changed. Ultimately, the total compensation expense recognized for any given stock-based award over its vesting period will only be for those shares that actually vest.

~~The~~ Stock-based ~~charges~~compensation ~~referred~~expense torecognized ~~above~~under SFAS No. 123R ~~represent~~for 2007 and 2006 totaled ~~expenditures~~ $1.6 million and $2.3 million, respectively, before income taxes primarily for expenses related to employee stock options. All of the ~~following~~Company’s ~~major~~stock-based ~~liquidation~~compensation ~~activities:~~is recognized as part of selling, general and administrative expenses.

• In ~~markdowns~~addition onto ~~inventories;~~the •recognition ~~write-off~~of expense in the financial statements, under SFAS No. 123R, any excess tax benefits received upon exercise of ~~substantially~~options are to be presented as financing activity inflow in the statement of cash flows. Prior to the adoption of SFAS No. 123R, all ~~store~~tax benefits ~~fixed~~resulting from the exercise of stock options were included as operating cash flows. However, due to Wilsons Leather’s net operating loss carryforward position and the valuation allowance recorded against the Company’s deferred tax assets, there is no cash flow effect for ~~the~~any ~~135~~excess ~~store~~tax benefits ~~chain;~~from •stock ~~miscellaneous~~option ~~employee~~exercises ~~related~~for ~~termination~~2007 ~~costs~~or ~~and~~2006. ~~other~~Excess tax ~~administrative~~benefits ~~costs~~will be recorded when a deduction realized for income tax purposes related to ~~the~~settlement ~~liquidation;~~of ~~and~~a •stock-based ~~lease~~award exceeds ~~termination~~the ~~fees~~compensation tocosts ~~exit~~recognized ~~all~~for ~~store~~financial reporting ~~leases~~purposes.

~~The following represents the summary operating~~ ~~results of the Travel Subsidiaries presented as discontinued~~ New ~~operations~~ accounting ~~(in thousands):~~pronouncements

	For the years ended
	January 31,		February 1,			February 2,
	2004		2003			2002
Net sales	$	—	$	77,570		$	121,783
Loss before income taxes	$	—	$	(24,613	)	$	(32,080	)
Net loss, net of income tax	$	—	$	(14,767	)	$	(22,093	)
Loss on disposition, net of income tax		—		(27,247	)		—
Loss from discontinued operations	$	—	$	(42,014	)	$	(22,093	)
Loss before income taxes, per share	$	—	$	(1.23	)	$	(1.87	)
Net loss per share, net of income tax	$	—	$	(0.74	)	$	(1.28	)
Loss on disposition, per share		—		(1.36	)		—
Loss from discontinued operations, per share	$	—	$	(2.10	)	$	(1.28	)

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for and disclosure of uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. In May 2007, the FASB issued Staff Position No. 48-1, Definition of Settlement in FASB Interpretation No. 48 (“FIN 48-1”), which is an amendment to FIN 48. FIN 48-1 provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The Company adopted FIN 48 and FIN 48-1 in the first quarter of fiscal 2007 resulting in an insignificant reduction of its tax reserves.

In ~~2002~~September 2006, the ~~Travel~~FASB ~~Subsidiaries~~issued ~~also~~SFAS No. 157, ~~recorded an~~Fair ~~after-tax~~ Value ~~loss~~Measurements ~~of $24~~(“SFAS No.6 ~~million~~157”), which is effective for ~~the~~fiscal ~~cumulative~~years ~~effect of~~beginning aafter ~~change~~November 15, 2007 inand ~~accounting~~for ~~principle~~interim ~~due~~periods towithin ~~goodwill~~those ~~impairment~~years. In November ~~The~~ 2007, ~~charge~~the ~~was~~FASB ~~effective~~deferred, asfor ofone year, the ~~beginning~~fair ofvalue measurement ~~2002~~requirements ~~under~~for non-financial assets and ~~SFAS No~~ liabilities that are not required or permitted to be measured at fair value on a recurring basis. ~~142.~~ This statement

F-13

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~The~~ defines ~~current~~fair ~~and~~value, ~~noncurrent~~establishes ~~assets~~a ~~and~~framework ~~liabilities~~for measuring fair of value and expands the ~~Travel~~related ~~Subsidiaries~~disclosure asrequirements. ofThe Company ~~January 31,~~is ~~2004,~~currently ~~and~~evaluating the impact of ~~February~~ SFAS 1,No. 157 ~~2003,~~on ~~were~~its asconsolidated ~~follows~~financial ~~(in thousands):~~statements.

	January 31,			February 1,
	2004			2003
Cash and cash equivalents	$	—		$	882
Accounts receivable, net		—			104
Other current assets		—			2,393
Current assets of discontinued operations		—			3,379
Total assets of discontinued operations	$	—		$	3,379
Accounts payable	$	—		$	590
Other current liabilities		406			14,485
Current liabilities of discontinued operations		406			15,075
Total liabilities of discontinued operations		406			15,075
Net liabilities of discontinued operations	$	(406	)	$	(11,696	)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its consolidated financial statements.

~~In May 2003, the Company sold its Miami, Florida distribution center for net proceeds of $~~2~~.5 million.~~ ~~This facility~~Liquidity/going was an asset acquired in the Bentley’s Luggage Corp. acquisition. The $2.4 million in net assets held for sale was reported as “current assets of discontinued operations” at February 1, 2003. The net proceeds from the sale decreased cash used by discontinued operations for the period. concern

The ~~following~~Company ~~summarizes~~has incurred net losses of $77.5 million and $33.1 million and used $28.2 million and $14.6 million in cash for operating activities during 2007 and 2006, respectively. In addition, the ~~Travel~~Company’s ~~Subsidiaries~~ $45.6 million cash balance at the beginning of 2006 has decreased to $7.4 million at the end of 2007. The Company’s ~~disposal~~senior credit facility was amended on February 14, 2008. The amendment, among other things, allowed for the liquidation of 158 stores, revised the borrowing base by adding a $10.0 million reserve, ~~activity~~prohibits borrowing under the revolving line of credit until the Company provides projections and a business plan that are acceptable to its lender, and requires a monthly appraisal of the Company’s inventory. In order to execute its go forward plans, the Company will need to amend some of the restrictions in its current credit facility, or find alternative sources of credit, and raise additional capital during the ~~year~~second quarter of 2008. The ~~ended~~ Company ~~January 31~~is pursuing possible sources of funding, ~~2004~~including possible (sales of existing assets. However, there can be no assurance that additional funding will be available or can be obtained on terms that are favorable to the Company, or at all. The Company has not received an indication from the lender in its ~~thousands):~~current credit facility that the lender will agree to amend the terms of the facility. If the Company is not able to obtain additional capital in the second quarter of 2008, it will not be able to continue its operations outside of bankruptcy. Under certain bankruptcy events, the Company may be required to redeem shares of its Preferred Stock at their liquidation value, which is the $45 million purchase price for those shares plus any accrued but unpaid dividends. However, the redemption would not be permitted by law, unless the Company is able to pay its debts as they come due, and would be prohibited by the terms of its existing credit facility. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

	February 1,								January 31,
	2003		Usage			Transfers			2004
Store closing(1)	$	12,653	$	(12,608	)	$	343		$	388
Taxes		720		(645	)		(57	)		18
Severance		600		(590	)		(10	)		—
Miscellaneous		512		(374	)		(138	)		—
Accounts payable		590		(452	)		(138	)		—
Total liabilities of discontinued operations	$	15,075	$	(14,669	)	$	—		$	406


3	Accounts receivable

~~(1)~~ Accounts ~~Primarily~~receivable ~~includes~~consisted ~~lease termination costs and vendor chargebacks associated with the liquidation~~ of the ~~Travel~~following ~~Subsidiaries.~~(in thousands):

4 Reorganization and partial store liquidation


	February 2,			February 3,
	2008			2007

Trade receivables	$	3,238		$	2,359
Other receivables		388			929

Total		3,626			3,288
Less—Allowance for doubtful accounts		(48	)		(71	)
Less—Deferred sales⁽¹⁾		(116	)		(85	)

Total	$	3,462		$	3,132

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Filing Compare · PreVu, INC