The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements contained in this report, and Management's Discussion and Analysis of Financial Condition and Results of Operations, the historical consolidated financial statements and the related notes and the other financial information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") for the fiscal year ended December 29, 2007. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth under "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors" below.

Our annual accounting period ends on the Saturday nearest to December 31. References to our "fiscal 2006" refer to our fiscal year ended December 30, 2006, references to our " fiscal 2007 " refer to our fiscal year ended December 29, 2007, and references to our " fiscal 2008 " refer to our fiscal year ending January 3, 2009.

Overview

We design, develop and market men's and women's footwear, belts, and accessories. The brands we own are Trotters®, SoftWalk ®, and H.S. Trask ®, while our licenses include Tommy Bahama®, Wranglers and Riders.

Since 2000, we have developed and refined our portfolio of brands through a series of acquisitions and divestitures, including two divestitures during fiscal 2007.

Our operations are comprised of three reportable segments: footwear, premium footwear, and accessories.

Our footwear segment includes our Trotter and SoftWalk brands. By emphasizing traditional style, quality and fit in this segment, we believe we can better maintain a loyal consumer following that is less susceptible to fluctuations due to changing fashion trends and consumer preferences. A significant number of these product styles carry over from year-to-year. In addition, our design and product development teams seek to create and introduce new products and styles that complement these longstanding core products and are consistent with our brand positioning.

Our premium footwear segment consists of H.S. Trask and Tommy Bahama and emphasizes unique leathers, exceptional quality and comfort. Tommy Bahama ® is a premier lifestyle brand for which we have the license to market footwear, hosiery and accessories.

In our accessories segment, we sell predominately products which are licensed. These exclusive license agreements include "Wrangler Hero ® ," "Timber Creek ® by Wrangler ®," "Wrangler Jeans Co.®," "Wrangler Outdoor Gear ®," "Wrangler ®," "Wrangler Rugged Wear ®," "20X ®" and "Twenty X ®". The products are designed based on each brand's respective lifestyle and price point.

During fiscal 2007, in an effort to enhance shareholder value, improve working capital, and focus on our core brands, we sold our Royal Robbins and Altama divisions. The divestiture of these businesses generated combined gross proceeds of $53.0 million and an after-tax gain of approximately $14.7 million. We have reported the results of our Royal Robbins and Altama businesses as discontinued operations for all current and prior periods presented, pursuant to SFAS No. 144, Accounting for the Disposal of Long-Lived Assets.

On July 2, 2007, we sold our Royal Robbins division to Kellwood Company for a net cash purchase price of $37.2 million, with a resulting gain, net of tax, of $14.3 million. As part of the transaction, we caused a $3.0 million standby letter of credit to be issued by our bank for Kellwood's benefit to partially fund indemnification payments. We are required to maintain the $3.0 million standby letter of credit for 18 months following the closing, subject to reduction on the first anniversary of the closing to an amount equal to the greater of $1.5 million or the amount of all unresolved indemnification claims made by Kellwood, if any. On July 2, 2008, the first anniversary of the sale of Royal Robbins, we were not notified of any unresolved indemnification claims made by Kellwood, therefore the $3.0 million standby letter of credit was reduced to $1.5 million in accordance with the agreement.

On December 29, 2007, we sold all of the outstanding capital stock of our wholly-owned subsidiary, Altama, to Tactical Holdings, Inc. At closing, the gross purchase price of $13.5 million was paid through the delivery of a promissory note which was paid in its entirety with principal and interest on February 29, 2008. Pursuant to the acquisition terms, $3.0 million of this payment was deposited into an 18 month interest bearing escrow account to secure our indemnification obligations to Tactical and was recorded as restricted cash. On September 15, 2008, the escrow account was released to the Company and replaced with a standby letter of credit. In October 2008, we had requested that Tactical reduce the amount required to be posted under the letter of credit to secure the indemnification obligation. In connection with those discussions, Tactical sought reimbursement of approximately $572,000 for employee liability related claims. On November 6, 2008, we agreed to pay the indemnity claims in exchange for Tactical agreeing to reduce the letter of credit required to secure additional future indemnity obligations to approximately $928,000. The reimbursement of approximately $572,000 will be recognized as expenses from discontinued operations in the fourth quarter of fiscal 2008. Additionally, we and Tactical agreed that the Company could recover up to $200,000 from the amount paid on the indemnity claims if it can demonstrate by June 29, 2009 that any of the indemnity claims had been fully resolved prior to the consummation of the transactions contemplated by the sale transaction.

As a result of the post-closing review, the closing date working capital adjustment was adjusted down by approximately $81,000, to $116,000. Subsequent to the final working capital adjustment, the sale resulted in a gain, net of tax of $519,000. The tax benefit included in this amount was approximately $7.4 million. In addition to the aggregate cash consideration, we entered into a Transition Services Agreement with Tactical providing for total payments to us in 2008 of $1.5 million in consideration for providing ongoing administrative and other services for the operation of the Altama business post-closing.

We used the net proceeds from both the Royal Robbins and Altama sales (other than the amount deposited into escrow) to retire outstanding bank debt. On June 16, 2008, we entered into a secured credit facility with a new lender, Wells Fargo Bank, N.A., or Wells Fargo. The facility includes a three year revolving line of credit and letters of credit collateralized by all of our assets and those of our subsidiaries. Under the facility we can borrow up to $17.0 million (subject to a borrowing base which includes eligible receivables and eligible inventory), which, subject to the satisfaction of certain conditions, may be increased to $20.0 million. The credit facility also includes a $7.5 million letter of credit sub facility. This new credit facility replaces our prior credit facility with Manufacturers & Traders Trust Company, or M&T. As of September 27, 2008, we had $9.9 million of bank debt outstanding under our revolving line of credit. All payments on accounts receivable go directly to the lender as a reduction of the debt. Although we expect that the reduction in the letter of credit posted for the Altama sale indemnification obligations will help our availability under the line of credit, we are still in discussions with the bank to obtain a waiver of a past financial covenant default and amend future financial covenants. We were in default of the financial covenant for income before taxes as of the end of our third quarter and expect that we will not meet this financial covenant as of the end of fiscal 2008. There can be no assurance when, or if, an amendment or waiver will be provided.

In October 2008, our Board of Directors formed a Special Committee of independent outside directors to consider strategic opportunities, including proposals for the purchase of the Company or one or more of its divisions, in an effort to enhance stockholder value. The Special Committee is authorized to negotiate on behalf of the Board of Directors and to consider, pursue and accept or reject any proposals received, subject to required stockholder approval. James R. Riedman, our Chairman of the Board and largest stockholder, has expressed an interest in forming a group to make a proposal to the Special Committee.

The Special Committee's members include Steven DePerrior, Gregory Harden, John Kratzer and Fred Port. The Committee has retained BB&T Capital Markets as its independent financial advisor to assist it in its work. The Committee has also retained independent legal counsel. The Special Committee has not received a proposal of any kind as of the date of this report and there can be no assurance

that any definitive offer will be made, that any definitive agreement will be executed or if a definitive offer is received, that any transaction will be approved or consummated. The Special Committee does not intend to provide ongoing disclosure with respect to the progress of its work unless a definitive agreement is approved and executed unless the Committee believes disclosure is otherwise appropriate.

Results of Operations

Fiscal Quarter Ended September 27, 2008 Compared to Fiscal Quarter Ended
September 29, 2007

The following table sets forth selected consolidated operating results for each
of the quarterly periods indicated, presented as a percentage of net sales.



                                                         Three Months Ended
                                           September 27, 2008          September 29, 2007          Increase (Decrease)
                                                           (In thousands)
Net sales                                $     18,669       100 %    $     22,319       100 %    $      (3,650 )     (16 %)
Cost of goods sold(1)                          12,538        67 %          16,738        75 %           (4,200 )     (25 %)

Gross profit                                    6,131        33 %           5,581        25 %              550        10 %
Operating expenses:
Selling, general and administrative
expense                                         7,999        43 %           8,337        37 %             (338 )      (4 %)
Other (income) expense, net                        -         -  %             (30 )      -  %              (30 )    (100 %)

Total operating expenses                        7,999        43 %           8,307        37 %             (308 )      (4 %)

Operating loss                                 (1,868 )     (10 %)         (2,726 )     (12 %)            (858 )     (31 %)
Interest expense, net                             183         1 %             442         2 %             (259 )     (59 %)

Loss before income taxes and
discontinued operations                        (2,051 )     (11 %)         (3,168 )     (14 %)          (1,117 )     (35 %)
Income tax expense (benefit)                        7        -  %          (1,391 )      (6 %)          (1,398 )       * %

Loss before discontinued operations            (2,058 )     (11 %)         (1,777 )      (8 %)             281        16 %
(Loss) earnings from discontinued
operations                                        (60 )      -  %          12,839        58 %          (12,899 )       * %

Net (loss) income                        $     (2,118 )     (11 %)   $     11,062        50 %    $     (13,180 )       * %

(1) All costs incurred to bring finished products to our warehouse are included in cost of goods sold. These items include shipping and handling costs, agent and broker fees, letter of credit fees, customs duty, inspection costs, inbound freight and internal transfer costs. Costs associated with our own distribution and warehousing are recorded in selling, general and administrative expenses. Our gross margins may not be comparable to others in the industry as some entities may record and classify these costs differently.

* Greater than 100%

Consolidated Net Sales from Continuing Operations

Consolidated net sales were approximately $18.7 million and $22.3 million for the third quarters of fiscal 2008 and 2007, respectively. Net sales for our footwear, premium footwear and accessories segments decreased by 8%, 36% and 16%, respectively, from the same period in fiscal 2007 largely as a result of lower retail demand from the difficult economic environment.

Consolidated Gross Profit from Continuing Operations

Consolidated gross profits were approximately $6.1 million and $5.6 million for the third quarters of fiscal 2008 and 2007, respectively. This represents an increase of approximately $500,000, or 10% from the same period in fiscal 2007. Consolidated gross margins as a percentage of sales were 33% and 25% for the third quarters of fiscal 2008 and 2007, respectively. Gross margin increased from the same period in fiscal 2007 in our footwear segment primarily due to higher per unit sales prices, decreased closeout sales and decreased air freight charges and in our accessories segment due to improved efficiencies in the manufacturing operations that are resulting in reduced product costs.

Consolidated Operating Expenses from Continuing Operations

Consolidated selling, general and administrative expenses, or SG&A, were approximately $8.0 million, or 43% of net sales, and $8.3 million, or 37% of net sales, for the third quarters of fiscal 2008 and 2007, respectively. The increase in the percentage of net sales from the same period in fiscal 2007, while the total expenses decreased slightly between the same periods, is primarily attributable to lower sales, offset by higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Consolidated Interest Expense, net, from Continuing Operations

Consolidated interest expense, net, was approximately $183,000 and $442,000 for the third quarters of fiscal 2008 and 2007, respectively. The decrease in interest expense from the same period in fiscal 2007 is due to the lower debt balances. As of September 27, 2008 and September 29, 2007, the outstanding debt balances were approximately $9.9 million and $22.7 million, respectively.

Net Earnings from Discontinued Operations

Net loss from discontinued operations for the third quarter of fiscal 2008 was approximately $60,000 compared to net earnings from discontinued operations of approximately $12.8 million for the third quarter of fiscal 2007. Net loss per share from discontinued operations was $0.01 for the third quarter of fiscal 2008 and net earnings per share from discontinued operations was $1.60 for the third quarter of fiscal 2007. Net earnings from discontinued operations for the third quarter of fiscal 2007 consisted primarily of the one-time after-tax gain from the sale of Royal Robbins of approximately $14.0 million realized during the third quarter of fiscal 2007, offset by Altama's after-tax operating loss of approximately $1.2 million. Income tax expense and related effective tax rate for discontinued operations were approximately $8.7 million and 40%, respectively, for the third quarter of 2007.

Footwear

Net Sales

Net sales were approximately $7.4 million and $8.0 million for the third quarters of fiscal 2008 and 2007, respectively. The decrease of approximately $600,000, or 8%, from the same period in fiscal 2007 was primarily attributable to lower demand experienced in a difficult economic environment.

Gross Profit

Gross profits were approximately $3.3 million and $2.3 million for the third quarters of fiscal 2008 and 2007, respectively. This represents an increase of approximately $1.0 million, or 42% from the same period in fiscal 2007. Gross margins were 44% and 29% for the third quarters of fiscal 2008 and 2007, respectively. Inventory write-offs and liquidation costs associated with the discontinuance of the American Red Cross product line resulted in negative margins of approximately $525,000 during the third quarter of fiscal 2007 for this specific product line. The remaining increase in gross margin is partially due to higher per unit sales prices along with decreased closeout sales and air freight charges.

Operating Expenses

SG&A expenses were approximately $2.2 million, or 30% of net sales, and $2.1 million, or 26% of net sales, for the third quarters of fiscal 2008 and 2007, respectively. The increase of approximately $100,000, or 5%, from the same period in fiscal 2007 is primarily attributable to higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Premium Footwear

Net Sales

Net sales were approximately $2.3 million and $3.6 million for the third quarters of fiscal 2008 and 2007, respectively. The decrease of approximately $1.3 million, or 36%, from the same period in fiscal 2007 was primarily attributable to lower demand experienced in a difficult economic environment across all distribution channels.

Gross Profit

Gross profits were approximately $300,000 and 600,000 for the third quarters of fiscal 2008 and 2007, respectively. This represents a decrease of approximately $300,000, or 50% from the same period in fiscal 2007. Gross margins were 13% and 18% for the third quarters of fiscal 2008 and 2007, respectively. The decrease in gross margin is primarily due to the sales mix and an increase, as a percentage of sales, in minimum Tommy Bahama royalty expenses.

Operating Expenses

SG&A expenses were approximately $2.0 million, or 85% of net sales, and $2.0 million, or 57% of net sales, for the third quarters of fiscal 2008 and 2007, respectively. The increase in the percentage of net sales from the same period in fiscal 2007, while the total expenses remained flat between the same periods, is primarily attributable to lower sales, offset by higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Accessories Business

Net Sales

Net sales were approximately $9.0 million and $10.7 million for the third quarters of fiscal 2008 and 2007, respectively. The decrease of approximately $1.7 million, or 16%, from the same period in fiscal 2007 was primarily attributable to lower demand experienced in a difficult economic environment.

Gross Profit

Gross profits were approximately $2.6 million for the third quarters of fiscal 2008 and 2007. Gross margins were 29% and 25% for the third quarters of fiscal 2008 and 2007, respectively. The increase in gross margin as a percentage of sales from the same period in fiscal 2007 is due primarily to improved efficiencies in the manufacturing operations that are resulting in reduced production costs.

Operating Expenses

SG&A expenses were approximately $2.1 million, or 23% of net sales, and $2.2 million, or 20% of net sales, for the third quarters of fiscal 2008 and 2007, respectively. The increase in the percentage of net sales from the same period in fiscal 2007, while the total expenses remained relatively flat between the same periods, is primarily attributable to lower sales, offset by higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Fiscal Nine Months Ended September 27, 2008 Compared to Fiscal Nine Months Ended
September 29, 2007

The following table sets forth selected consolidated operating results for each
of the nine month periods indicated, presented as a percentage of net sales.



                                                         Nine Months Ended
                                           September 27, 2008          September 29, 2007          Increase (Decrease)
                                                                         (In thousands)
Net sales                                $     58,591       100 %    $     63,462       100 %    $      (4,871 )      (8 %)
Cost of goods sold(1)                          38,456        66 %          42,878        68 %           (4,422 )     (10 %)

Gross profit                                   20,135        34 %          20,584        32 %             (449 )      (2 %)
Operating expenses:
Selling, general and administrative
expense                                        24,762        42 %          25,522        40 %             (760 )      (3 %)
Other (income) expense, net                    (1,500 )      (3 %)            (28 )      -  %            1,472         * %

Total operating expenses                       23,262        39 %          25,494        40 %           (2,232 )      (9 %)

Operating loss                                 (3,127 )      (5 %)         (4,910 )      (8 %)          (1,783 )     (36 %)
Interest expense, net                           1,406         2 %           1,107         2 %              299        27 %

Loss before income taxes and
discontinued operations                        (4,533 )      (8 %)         (6,017 )     (10 %)          (1,484 )     (25 %)
Income tax expense (benefit)                       45        -  %          (2,579 )      (4 %)          (2,624 )       * %

Loss before discontinued operations            (4,578 )      (8 %)         (3,438 )      (5 %)          (1,140 )      33 %
Earnings from discontinued operations              21        -  %          13,985        22 %          (13,964 )    (100 %

Net loss                                 $     (4,557 )      (8 %)   $     10,547       (17 %)   $     (15,104 )       * %

(1) All costs incurred to bring finished products to our warehouse are included in cost of goods sold. These items include shipping and handling costs, agent and broker fees, letter of credit fees, customs duty, inspection costs, inbound freight and internal transfer costs. Costs associated with our own distribution and warehousing are recorded in selling, general and administrative expenses. Our gross margins may not be comparable to others in the industry as some entities may record and classify these costs differently.

* Greater than 100%

Consolidated Net Sales from Continuing Operations

Consolidated net sales were approximately $58.6 million and $63.5 million for the first nine months of fiscal 2008 and 2007, respectively. Our footwear, premium footwear and accessories segments decreased by 4%, 1% and 12%, respectively, from the same period in fiscal 2007 largely as a result of lower retail demand from the difficult economic environment.

Consolidated Gross Profit from Continuing Operations

Consolidated gross profits were approximately $20.1 million and $20.6 million for the first nine months of fiscal 2008 and 2007, respectively. Consolidated gross margins as a percentage of sales were 34% and 32% for the first nine months of fiscal 2008 and 2007, respectively. Gross margin increased from the same period in fiscal 2007 in our footwear segment due to higher per unit sales prices along with decreased closeout sales and air freight charges and in our accessories segment due to improved efficiencies in the manufacturing operations that are resulting in reduced product costs.

Consolidated Operating Expenses from Continuing Operations

Consolidated selling, general and administrative expenses, or SG&A, were approximately $24.8 million, or 42% of net sales, and $25.5 million, or 40% of net sales, for the first nine months of fiscal 2008 and 2007, respectively. The increase in the percentage of net sales from the same period in fiscal 2007, while the total expenses decreased slightly between the same periods, is primarily attributable to lower sales, offset by higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Consolidated "Other (income) expense, net" was $1.5 million in net income for the first nine months of fiscal 2008, compared to $28,000 in net income for the first nine months of fiscal 2007. The fiscal 2008 income consisted of $1.5 million received from Tactical Holdings, Inc. in accordance with the Transition Services Agreement we entered into, providing ongoing administrative and other services for continuing to support the operations of the Altama business subsequent to our sale of the business in fiscal 2007.

Consolidated Interest Expense, net, from Continuing Operations

Consolidated interest expense, net, was approximately $1.4 million and $1.1 million for the first nine months of fiscal 2008 and 2007, respectively. The increase in interest expense from the same period in fiscal 2007 is due to the write-off of approximately $620,000 of debt issuance costs previously capitalized under our previous credit facility, which was replaced during the second quarter of fiscal 2008. This increase is offset by reduced interest as a result of lower debt balances. As of September 27, 2008 and September 29, 2007, the outstanding debt balances were approximately $9.9 million and $22.7 million, respectively.

Net Earnings from Discontinued Operations

Net earnings from discontinued operations for the first nine months of fiscal 2008 was approximately $21,000 compared to approximately $14.0 million for the first nine months of fiscal 2007. Net earnings per share from discontinued operations were $0 and $1.74 for the first nine months of 2008 and 2007, respectively. Net earnings from discontinued operations for the first nine months of fiscal 2007 consisted primarily of the after-tax gain from the sale of Royal Robbins of approximately $14.0 million realized during the year. Income tax expense and related effective tax rate for discontinued operations were approximately $9.0 million and 40%, respectively, for the first nine months of 2007.

Footwear

Net Sales

Net sales were approximately $20.6 million and $21.5 million for the first nine months of fiscal 2008 and 2007, respectively. The decrease of approximately $900,000, or 4%, from the same period in fiscal 2007 was primarily attributable to lower demand experienced in a difficult economic environment.

Gross Profit

Gross profits were approximately $8.8 million and $8.4 million for the first nine months of fiscal 2008 and 2007, respectively. This represents an increase of approximately $400,000, or 5% from the same period in fiscal 2007. Gross margins were 43% and 39% for the first nine months of fiscal 2008 and 2007, respectively. Inventory write-offs and liquidation costs associated with the discontinuance of the American Red Cross product line resulted in negative margins of approximately $465,000 during the first nine months of fiscal 2007 for this specific product line.

Operating Expenses

SG&A expenses were approximately $6.2 million, or 30% of net sales, and $5.7 million, or 26% of net sales, for the first nine months of fiscal 2008 and 2007, respectively. The increase of approximately $500,000, or 9%, from the same period in fiscal 2007 is primarily attributable to higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units.

Premium Footwear

Net Sales

. . .