The following discussion should be read in conjunction with the historical consolidated financial statements and the related notes and the other financial information included elsewhere in this Annual Report on Form 10-K. 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 "Risk Factors" and under other captions contained elsewhere in this Annual Report on Form 10-K.

Effective January 1, 2003, we changed our operating and reporting period to a 52-53 week fiscal year ending on the Saturday nearest to December 31. The Company refers to the fiscal year ended December 29, 2007 as "fiscal 2007," to the fiscal year ended January 3, 2009 as "fiscal 2008," and to the fiscal year ending

January 2, 2010 as "fiscal 2009." The 52-week fiscal years consist of four equal quarters of 13 weeks each, and our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter. The financial results for our 53-week fiscal years and 14-week fiscal quarters will not be exactly comparable to our 52-week fiscal years and 13-week fiscal quarters. Fiscal 2007 and fiscal 2009 each include 52 weeks and fiscal 2008 includes 53 weeks.

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®, and for the reported period, our licenses included Tommy Bahama®, Wranglers and Riders.

During fiscal 2008, our operations were comprised of three reportable segments:
footwear, premium footwear, and accessories. Our footwear segment includes our Trotter and SoftWalk brands. Our premium footwear segment consisted of H.S. Trask and Tommy Bahama. In our accessories segment, we sold predominately leather belts and accessories.

Since 2000, our portfolio of brands has changed through a series of acquisitions and divestitures, including two divestitures during fiscal 2007.

During fiscal 2007, in an effort to enhance stockholder 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 Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Disposal of Long-Lived Assets (SFAS 144).

On July 2, 2007, we sold our Royal Robbins division to Kellwood 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. This letter of credit was not drawn upon and expired as of December 31, 2008.

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, 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 was recognized as a loss from sale of discontinued operations in the fourth quarter of fiscal 2008. Additionally, Tactical agreed that we could recover up to $200,000 from the amount paid on the indemnity claims if we 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 closing date working capital review performed by Tactical, we recorded a reserve for a working capital adjustment of approximately $197,000 at December 29, 2007. 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 with our then existing bank. On June 16, 2008, we entered into a secured credit facility with a new lender, Wells Fargo Bank, N.A. 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. As of January 3, 2009, we had $11.2 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.

We have been in continuing default under our Wells Fargo Credit facility since September 27, 2008 by failing to meet the financial covenant for income before income taxes. We have been in continuing discussions with Wells Fargo regarding our restructuring activities in an effort to obtain a waiver of the past financial covenant default and amend future financial covenants. The bank is continuing to evaluate our restructuring activities and has provided no assurance that is will provide a waiver or amend our agreement. Accordingly, there can be no assurance when, or if, an amendment or waiver will be provided.

On November 11, 2008 we announced the formation of a Special Committee of independent directors to explore strategic opportunities. The Committee has retained BB&T Capital Markets as its independent financial advisor to assist it in its work. Since its formation, the committee has explored ways to increase value for our stockholders including a potential sale of our company as well as our separate operating divisions. After evaluating available opportunities, the Special Committee has directed management to focus on ways to return our Company to profitability and reduce our bank debt to an appropriate level.

In response to the Special Committee's directive, during the first quarter of fiscal 2009, the Company developed and implemented the following key initiatives:

• We exited the Tommy Bahama business and are in the process of liquidating its working capital;

• We restructured and reduced the size of our business operations; and

• We are in the process of exiting our Chambers belt and accessories business, and are negotiating to sell the private label business and certain of its assets, following which we plan to wind-down the Wrangler license business as those licenses expire unrenewed and monetize the associated working capital.

In February 2009, we terminated our Tommy Bahama license agreement. At the same time, we discontinued production and sales of Tommy Bahama branded products other than pending orders and sales to Tommy Bahama Group to fulfill a products purchase agreement. By shutting down the Tommy Bahama footwear division, we eliminated a division which incurred operating losses of $2.4 million and $3.5 million during fiscal 2008 and fiscal 2007, respectively. Additionally, we are in the process of monetizing the associated working capital and plan to use the resulting proceeds to reduce our bank debt by an estimated $2.5 million. In the first quarter of fiscal 2009, we will report the results of our Tommy Bahama business as discontinued operations. In connection with this action, in the first quarter of fiscal 2009, we will record a pre-tax charge of between $680,000 and $830,000.

During the first quarter of fiscal 2009, we took steps to reduce our corporate overhead. In addition to the 3 positions eliminated relating to Tommy Bahama, 13 managerial and support positions were also eliminated. This restructuring is expected to result in an estimated savings of greater than $2.0 million in annual payroll and

related expenses. In connection with this action, in the first quarter of fiscal 2009, we will record a pre-tax restructuring charge of approximately $1.0 million for these activities.

Our exclusive Wrangler licenses for the leather belts and accessories terminate on December 31, 2009 for the mass market and December 31, 2010 for the western market. Wrangler Apparel advised us of its intent to directly enter the accessories business and take in-house its Wrangler mass license business. Therefore, the mass license will not be renewed. We expect that Wrangler Apparel will eventually do the same with the Wrangler western license. These licenses have historically been the basis for a substantial portion of Chambers' revenue. In the wake of this development and in light of the Special Committee's directive, we have decided to sell the Chambers private label accessories business and certain assets. More specifically, we are negotiating with interested parties the terms of a sale transaction which would include Chambers' manufacturing equipment, certain Chambers inventory at cost, certain intellectual property and customer relationships. We do not plan to include in a Chambers sale the division's accounts receivables or Wrangler licenses. Upon closing a transaction, we plan to collect these receivables and wind down the divisions remaining activities as our Wrangler licenses expire unrenewed. See "Risk Factors - Our exclusive Wrangler mass license for leather belts and accessories expires December 31, 2009 and we do not expect that it will be renewed which will materially adversely affect our operating results unless we are able to identify and successfully execute a strategy that effectively addresses the loss of sales associated with this license."

We expect that the Tommy Bahama transaction and a Chambers transaction would yield sufficient net proceeds to extinguish our bank debt during fiscal 2009. Until a Chambers transaction is agreed upon and entered into, we cannot provide any assurance that a sale will occur or the ultimate amount of proceed that will result from it.

After the Chambers sale is completed, our two main product lines will consist of our Trotters and SoftWalk product lines. We will also continue to hold Wrangler accessories licenses, but anticipate that these businesses will be wound down as the licenses expire unrenewed. Our ongoing, restructured business will also include the H.S. Trask brand which we are seeking to build using the new products that have been developed during the past two fiscal years.

Results of Operations

The following table sets forth selected consolidated operating results for each of the last two fiscal years, presented as a percentage of net sales.

Fiscal 2008 Compared to Fiscal 2007



                                                 Fiscal Year Ended
                                      January 3, 2009        December 29, 2007        Increase (Decrease)
                                                                (In thousands)
Net sales                           $  75,070      100%    $    82,871      100%    $     (7,801 )     (9)%
Cost of goods sold(1)                  50,493       67%         57,215       69%          (6,722 )    (12)%

Gross profit                           24,577       33%         25,656       31%          (1,079 )     (4)%
Operating expenses:
Selling, general and
administrative expense                 32,267       43%         34,921       42%          (2,654 )     (8)%
Intangible impairment charges          10,831       14%          6,034        7%           4,797        80%
Other (income) expenses, net           (1,500 )    (2)%            451        1%          (1,951 )       *%

Total operating expenses               41,598       55%         41,406       50%             192         1%

Operating loss                        (17,021 )   (23)%        (15,750 )   (19)%           1,271         8%
Interest expense                        1,613        2%          1,402        2%             211        15%

Loss before income taxes and
discontinued operations               (18,634 )   (25)%        (17,152 )   (21)%           1,482         9%
Income tax expense (benefit)              149       - %           (559 )    (1)%            (708 )       *%

Loss before discontinued
operations                            (18,783 )   (25)%        (16,593 )   (20)%           2,190        13%
Earnings from discontinued
operations                               (677 )    (1)%         15,249       18%         (15,926 )       *%

Net loss                            $ (19,460 )   (26)%    $    (1,344 )    (2)%    $     18,116         *%

(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, internal transfer costs and royalties. 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 from continuing operations for fiscal 2008 decreased $7.8 million to $75.1 million compared to $82.9 million in net sales for fiscal 2007, representing a 9% decrease. Of this decrease, $3.1 million is attributable to the footwear segment, $500,000 is attributable to the premium footwear segment, and $4.2 million attributable to the accessories segment. These reductions in revenue are all a reflection of an unusually weak retail market for the Company's products, particularly during the second half of the fiscal year.

Consolidated Gross Profit from Continuing Operations

Consolidated gross profit from continuing operations for fiscal 2008 decreased 4% to $24.6 million compared to $25.7 million for the comparable prior year period. Gross profit as a percentage of net sales from

continuing operations increased to 33% compared to 31% in the prior year period. The decrease in our gross profit dollars was due to lower sales across all channels. The gross profit as a percentage increased primarily due to lower percentage of close out sales in 2008. In addition, we realized $250,000 in gross margin in fiscal 2008 due to negotiating a favorable outcome with American Red Cross.

Consolidated Operating Expenses from Continuing Operations

Consolidated selling, general and administrative, or SG&A expenses, was $32.3 million, or 43% of net sales for fiscal 2008 compared to $34.9 million or 42% of net sales for fiscal 2007. The decrease in SG&A expenses in fiscal 2008 is primarily attributable to decrease in corporate expenses which include savings in legal and tax fees and an overall decrease in headcount expenses.

Consolidated "Other expense (income), net" was $1,500,000 in net income for fiscal 2008, compared to $450,000 in net expense for 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. The fiscal 2007 expense consisted primarily of severance costs related to the departure of our chief financial officer, vice president of sourcing, and a reduction of staff at our corporate headquarters.

In performing our annual impairment test of goodwill and intangible assets in accordance with SFAS No. 142 Goodwill and Other Intangible Assets (SFAS 142), we determined that the carrying value of goodwill, unamortizable intangible and intangible assets-net associated with certain of our segments exceeded their estimated fair values. Consequently, for fiscal 2008, we recorded impairment charges of $1.9 million, $50,000 and $8.8 million for the footwear, premium footwear and accessories business segments, respectively. For fiscal 2007, we recorded impairment charges of $1.1 million and $4.9 million for the premium footwear and accessories business segments, respectively. For further details see Note 5 - "Goodwill and Intangible Assets" of Notes to Consolidated Financial Statements.

Consolidated Interest Expense from Continuing Operations

Consolidated interest expense, net, was approximately $1.6 million and $1.4 million for the fiscal 2008 and 2007, respectively. The increase in interest expense from the same period in fiscal 2007 is primarily due to the write-off of approximately $620,000 of debt issuance costs capitalized under our previous credit facility, which was replaced in June 2008. This increase is offset by reduced interest as a result of lower debt balances. As of January 3, 2009 and December 29, 2007, the outstanding debt balances were approximately $11.2 million and $22.7 million, respectively.

Consolidated Income Tax Provision from Continuing Operations

We recorded an income tax expense from continuing operations of $150,000 during fiscal 2008 compared to income tax benefit from continuing operations of $560,000 during fiscal 2007. Our effective tax rate during fiscal 2008 and 2007 was 1% and 3.3%, respectively. Our fiscal 2008 tax rate was impacted by valuation allowances that were recorded against our deferred tax assets. We do not expect our fiscal effective tax rate to return to more historical levels until the Company returns to stabilized profitability. Until then the Company will continue to record a tax valuation allowance.

Consolidated Net Loss from Continuing Operations

Our net loss from continuing operations for fiscal 2008 was $18.8 million compared to a net loss from continuing operations of $16.6 million for fiscal 2007. Included in the net loss for fiscal year 2008 is a non-cash write off of capitalized debt issuance costs totaling $620,000 and non-cash impairment charges of $10.8 million. In fiscal 2007 we recorded non-cash impairment charges of $6.0 million.

Net Earnings (Loss) from Discontinued Operations

During fiscal 2007, we sold our wholly owned subsidiaries, Royal Robbins, which represented our apparel business, and Altama, which represented our military boot business. The divestiture of these businesses generated a combined after-tax gain of approximately $14.7 million for the fiscal year ended December 29, 2007. As a result of the sale of our Royal Robbins, and related Canadian operations, and Altama divisions, all operating results related to Royal Robbins and Altama have been reclassified and included in discontinued operations. For fiscal 2008, net loss from discontinued operations was $680,000, or $0.08 net loss per basic and diluted share, and for fiscal 2007, net earnings from discontinued operations was $15.2 million, or $1.90 net earnings per basic and diluted share.

Footwear

Net Sales

Net sales were $25.1 million and $28.3 million for fiscal 2008 and 2007, respectively. The decrease of $3.2 million, or 11%, was attributable to lower demand experienced in a difficult economic environment. Specifically, the decrease was a result of specialty, department store and closeout channels which were down $2.2 million, $490,000 and $340,000, respectively, offset by a $500,000 increase in the direct to consumer channel, a $430,000 increase in the internet channel and a $240,000 increase in the catalog channel.

Gross Profit

Gross profit was $10.9 million and $10.8 million for fiscal 2008 and 2007, respectively. The slight increase of $50,000 was primarily attributable to improved profit margins on lower sales. Profit margins were 43.2% and 38.3% for fiscal 2008 and 2007, respectively. The improved profit margin is a result higher per unit sales prices along with decreased closeout sales and air freight charges. In addition, we realized a $525,000 gross margin loss upon exiting the American Red Cross product line due to the liquidation of all related inventory, accrued royalties and similar exit costs. Subsequently, in fiscal 2008, we realized a $250,000 gross margin gain resulting from the settlement of outstanding accrued royalties.

Operating Expenses

SG&A expenses were $9.9 million, or 40% of net sales, and $7.6 million, or 27% of net sales, for fiscal 2008 and 2007, respectively. The increase of $2.4 million, or 31%, is primarily attributable to a $1.9 million goodwill impairment charge, a $240,000 increase in salaries and employee related expenses, a $240,000 increase in information technology and network expenses, a $150,000 increase in bad debt expense, a $200,000 increase in sample expenses and higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units spread to both SoftWalk and Trotters. These increases were offset by a $430,000 decrease in selling expenses related to our exit of the American Red Cross product line in fiscal 2007.

Premium Footwear

Net Sales

Net sales were $12.6 million and $13.1 million for fiscal 2008 and 2007, respectively. The decrease of $500,000, or 4%, was attributable to lower demand experienced in a difficult economic environment. Specifically, the decrease was a result of catalog and specialty channels which were down $800,000 and $1.3 million, respectively, offset by a $340,000 increase in the department store channel, a $230,000 increase in the internet channel and an $840,000 increase in the closeout channel.

Gross Profit

Gross profit was $2.8 million and $3.5 million for fiscal 2008 and 2007, respectively. The decrease of $700,000 was primarily attributable to eroded profit margins on lower sales. Profit margins were 21.9% and 26.5% for fiscal 2008 and 2007, respectively. The decrease in profit margin is primarily due to higher percentage of closeout sales combined with a higher sales mix of licensed product which resulted in higher royalties as a percent of sales, offset by higher profit margins.

Operating Expenses

SG&A expenses were $7.9 million, or 63% of net sales, and $9.5 million, or 73% of net sales, for fiscal 2008 and 2007, respectively. The decrease of $1.6 million, or 17%, is primarily attributable to a $1.1 million decrease in goodwill and intangible impairment charges and directly to our Tommy Bahama business, which consisted of a $280,000 decrease in design and development, a $200,000 decrease in marketing related expenses, a $530,000 decrease in salaries and employee related expenses. These decreases were offset by a $220,000 increase in bonuses and higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units spread to both Tommy Bahama and H.S. Trask.

Accessories Business

Net Sales

Net sales were $37.4 million and $41.5 million for fiscal 2008 and 2007, respectively. The decrease of $4.1 million, or 10%, was attributable to lower demand experienced in a difficult economic environment. Specifically, the decrease was a result of women's mass and specialty channels which were down $3.5 million and $1.2 million, respectively, coupled with $530,000 and $850,000 decreases in men's western and premium channels, respectively. The decreases were offset by a $1.4 million combined increase in our men's' and boys' mass channels.

Gross Profit

Gross profit was $11.0 million and $11.4 million for fiscal 2008 and 2007, respectively. The slight decrease of $420,000 was primarily attributable to sales pricing pressures experienced in a difficult economic environment combined with a higher sales mix of licensed product which resulted in higher royalties as a percent of sales, offset by higher profit margins. Profit margins were 29.3% and 27.4% for fiscal 2008 and 2007, respectively.

Operating Expenses

SG&A expenses were $18.2 million, or 49% of net sales, and $14.9 million, or 36% of net sales, for fiscal 2008 and 2007, respectively. The increase of $3.3 million, or 23%, is primarily attributable to a $3.9 million increase in goodwill and intangible impairment charges, a $200,000 increase in bad debt expense and higher absorption of corporate shared services subsequent to the divestiture of our Royal Robbins and Altama business units. These increases were offset by a $380,000 decrease in salaries and employee related expenses and a $120,000 decrease in shipping related expenses.

Summarized Quarterly Fluctuations



                                                             Fiscal Year 2008 Quarters
                                                 1st            2nd            3rd             4th
                                                                   (In thousands)
Net sales from continuing operations           $ 21,998       $ 17,924       $ 18,669       $  16,479
Operating income (loss) from continuing
operations                                     $    101       $ (1,360 )     $ (1,868 )     $ (13,894 )

                                                             Fiscal Year 2007 Quarters
                                                 1st            2nd            3rd             4th
                                                                   (In thousands)
Net sales from continuing operations           $ 21,328       $ 19,815       $ 22,319       $  19,409
. . .