Volkswagen (VLKAY)

Year Ended December 31, 2008, compared with Year Ended December 31, 2007:

Operating Revenues—Total operating revenues for 2008 were $28,396,336, a decrease of 11% from $31,867,590 in 2007. The decrease resulted from a decrease in commission and fee income received by CFS.

Fee Income—Fee income for 2008 was $1,551,245, a 27% decrease from $2,127,388 in 2007. The decrease was due to a reduction in fee income received by CFS, as a result of lower values of client assets under management.

The Company earns investment advisory fees in connection with CFS' registered investment advisor. The Company pays the registered representatives a portion of this fee income as commission expense and retains the balance. These fees constituted 6% of the Company's consolidated revenues in 2008.

Commission Income—Commission income includes CFS commissions. The Company pays the registered representatives a percentage of this income as commission expense and retains the balance. Commission income for 2008 was $25,869,214, an 11% decrease from $29,198,732 in 2007. The decreases were due primarily to a decrease in commissions received by CFS due to market conditions, and reduced sales of alternative investment products. Future market conditions will continue to impact commission levels. Commission revenues constituted 91% of the Company's consolidated revenues in 2008.

Other Income—Other income for 2008 was $975,877, an 80% increase from $541,470 in 2007. Other income is comprised primarily of due diligence and marketing allowances received by CFS. Other income constituted 3% of the Company's consolidated revenues in 2008.

Operating Expenses—Total operating expenses for 2008 were $27,721,401, a 16% decrease from $33,064,838 in 2007. The decrease resulted primarily from decreased commission expense, which corresponds to decreases in fee and commission income.

Compensation and Benefits—Compensation and benefits expense for 2008 was $2,089,297, a 36% decrease from $3,261,695 in 2007. The decrease results primarily from decreased incentive overrides paid to certain employees for the recruitment of new registered representatives in CFS, and a decrease in the number of employees during the twelve month period.

On January 24, 2007, the Company announced the retirement of Robert E. Walstad, the Company's founder, chief executive officer and chairman of the board of directors, effective February 1, 2007. In connection with Mr. Walstad's retirement, the Company entered into a separation agreement with Mr. Walstad. Under the terms of the separation agreement, subject to Mr. Walstad meeting his obligations thereunder in all respects, Mr. Walstad is entitled to receive a cash payment in the amount of $274,500, options to purchase 60,000 common shares, and certain commission payments. The $274,500 separation payment was expensed in February of 2007.

Commission Expense—Commission expense for 2008 was $24,390,850, a 13% decrease from $28,190,323 in 2007. The decrease corresponds with the decreases in fee and commission income.

General and Administrative Expenses—Total general and administrative expenses for 2008 were $1,125,767, a decrease of 19% from $1,389,196 in 2007. The decrease is due primarily to a decrease in promotion expenses, license fees and dues paid out by the Company.

Depreciation and Amortization—Depreciation and amortization for 2008 was $115,487, a 48% decrease from $223,624 in 2007. The primary reason for the change was a decrease in amortization of computer software costs.

Year ended December 31, 2008 compared to the year ended December 31, 2007

Cash flows from operating activities. Net cash provided by operating activities was $27.3 million for fiscal 2008 as compared to $23.8 million for fiscal 2007. The primary reasons for the increase were cash provided by the operations of acquired businesses and a decrease in prepaid expenses and other current assets from existing operations, partially offset by a decrease in accounts payable and accrued expenses from existing operations.

Cash flows from investing activities. Net cash used in investing activities was $38.9 million for fiscal 2008 as compared to $39.7 million for fiscal 2007. The decrease in cash used in investing activities is due to a reduction in net cash used in business acquisitions. The net cash used decreased $2.3 million to $27.0 million for acquisitions in fiscal 2008 compared to $29.3 million for acquisitions in fiscal 2007. This decrease was partially offset by an increase in capital expenditures of $1.6 million to $12.7 million for fiscal 2008 compared to $11.1 million for fiscal 2007.

Cash flows from financing activities. Net cash used in financing activities was $10.3 million for fiscal 2008 as compared to $36.4 million of cash provided by financing activities for fiscal 2007. The primary reason for this fluctuation was borrowings of $40.0 million on the acquisition facility during fiscal 2007 associated with the 2007 acquisitions of CMJ’s operations and McGurk and the acquisition of Tri-Ad in January 2008. As of December 31, 2007, the Company has borrowed all of the $40.0 million available under the acquisition facility. In addition, combined principal payments on the long-term obligations were $10.2 million during fiscal 2008 compared to $3.5 million during fiscal 2007.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Gross revenues decreased 3.8% for the Combined year ended December 31, 2008 from $484.6 million for the year ended December 31, 2007. The decrease in gross revenues for the period was due primarily to an overall decrease in gaming and hotel revenues across the majority of our properties as the result of the weakening Las Vegas and U.S. economies. Declining real estate values, volatile oil prices, increased unemployment, difficult consumer credit markets, and declining consumer confidence have all precipitated an economic slowdown which has negatively impacted our operations.

Income from operations declined 47.7% for the Combined year ended December 31, 2008 as compared to the year ended December 31, 2007. The decrease is due to declining revenue due to the weakening economic conditions as discussed above. In addition, during the Combined year ended December 31, 2008, we recognized non-cash charges of approximately $13.6 million for a loss on the early extinguishment of debt in the Predecessor period, $11.9 million for impairment of assets (see Impairment of Assets section), and $875,000 for a loss on the disposal of assets. We also expensed approximately $1.5 million for services related to the Acquisition and $2.6 million for management fees to Highgate. As a result, our consolidated net operating margin decreased to 8.9% for the Combined year ended December 31, 2008 compared to 16.3% for the year ended December 31, 2007 and EBITDA decreased 44.0% for the Combined year ended December 31, 2008 compared to the year ended December 31, 2007.

Fiscal 2008 Compared to Fiscal 2007

Fiscal 2008 Compared to Fiscal 2007

Net sales increased approximately $33.0 million, or 4.5%, to $761.1 million in fiscal 2008 from $728.1 million in fiscal 2007. The components of this $33.0 million increase in net sales are as follows:

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In fiscal 2008, Hot Topic and Torrid each had annual average store volumes, excluding Internet sales, of $0.8 million, compared to $0.8 million and $0.9 million for Hot Topic and Torrid, respectively, in fiscal 2007. Hot Topic division sales of apparel category merchandise, as a percentage of total net sales, was 55% in fiscal 2008 compared to 57% in fiscal 2007. Torrid division sales of apparel category merchandise, as a percentage of total net sales, was 78% in fiscal 2008 compared to 79% in fiscal 2007.

Gross margin increased approximately $21.9 million to $273.3 million in fiscal 2008 from $251.4 million in fiscal 2007. As a percentage of net sales, gross margin increased to 35.9% in fiscal 2008 from 34.5% in fiscal 2007. The components of this 1.4 percentage point increase in gross margin as a percentage of net sales are as follows:

Selling, general and administrative expenses increased approximately $15.4 million to $242.5 million in fiscal 2008 from $227.1 million in fiscal 2007. As a percentage of net sales, selling, general and administrative expenses were 31.9% in fiscal 2008 compared to 31.2% in fiscal 2007. The total dollar increase in selling, general and administrative expenses was primarily attributable to an increase in the performance-based bonus for fiscal 2008, partially offset by a decrease in other store expenses. The components of this 0.7 percentage point increase in selling, general and administrative expenses as a percentage of net sales are as follows:

Income from operations increased to $30.8 million in fiscal 2008 from $24.3 million in fiscal 2007. As a percentage of net sales, income from operations was 4.0% in fiscal 2008 compared to 3.3% in fiscal 2007. Operating income on an average store basis was approximately $37,000 in fiscal 2008 compared to $29,000 in fiscal 2007. Net income included net losses from our ShockHound concept of $2.3 million in fiscal 2008. ShockHound did not impact our net income in fiscal 2007.

Interest income, net of interest expense, and other income as a percentage of sales remained the same at 0.3% in both fiscal 2008 and fiscal 2007.

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Our effective tax rate was 39.2% and 39.0% in fiscal 2008 and 2007, respectively. The increase was primarily due to a decrease in non-taxable income arising from lower interest rate yields, an increase in non-deductible expense arising from deferred compensation investment losses and an increase in the liability associated with unrecognized tax benefits. The increase was partially offset by the benefit obtained from federal and state tax research and development credits.

2008 (52 weeks) Compared with 2007 (52 weeks)

Net revenue

Net revenue for 2008 increased 14.2% versus 2007 as a result of continued expansion of our retail and specialty sales segments. Sales of whole bean and related products increased 12.7% to $151.1 million. Sales from beverages and pastries increased 16.0% to $133.8 million.

In the retail segment, net revenue increased 11.5% compared to 2007 as a result of increased sales from new stores and the sales they generated in their first 12 months. Stores operating for at least one year contributed only

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a nominal amount of sales growth for the Company. We opened 23 new stores in 2008 and 30 new stores in 2007. Sales of whole bean coffee and related products in the retail segment increased by 3.8% to $55.1 million, while sales of beverages and pastries increased by 15.0% to $132.6 million. The increase in beverage and pastry sales was primarily related to sales at the stores we opened in 2007 and 2008 and increased traffic in our existing stores. The slower growth in whole bean and related products was primarily due to continuing cannibalization of bean sales in retail stores as we increased the availability of Peet’s coffee in grocery stores and our own new retail stores.

In the specialty sales segment, net revenue increased 19.9% compared to 2007 as summarized by business channel below. The growth in net revenue in grocery was due to the 2,400 new stores we added during 2008, as well as growth in our existing accounts in the western United States. Foodservice and office net revenue increased 34.7% over the prior year primarily due to 38 new licensed partner locations opened during 2008 and 150 additional “We Proudly Brew” accounts that serve Peet’s coffee in their own branded locations. Net revenue in the home delivery channel declined primarily due to cannibalization from our grocery business expanding in the eastern U.S. and lower gift sales during the 2008 holiday season.

Cost of sales and related occupancy expenses

Cost of sales and related occupancy expenses consist of product costs, including manufacturing costs, rent and other occupancy costs. As a percent of net revenue, cost of sales decreased from 47.5% in 2007 to 46.9% in 2008. The decrease from 2007 was primarily due to procurement savings (-0.7%), leverage of costs related to the roasting facility that opened in 2007 (-0.4%), and increased prices in retail and grocery (-0.3%), partially offset by higher green coffee costs (0.8%).

Operating expenses

Operating expenses consist of both retail store and specialty operating costs, such as employee labor and benefits, repairs and maintenance, supplies, training, travel and banking and card processing fees. Operating expenses as a percent of net revenue for 2008 increased 0.3% to 34.7%. The increase was primarily due to higher costs associated with expanding the grocery business (0.7%), opening 53 new retail stores in 2008 and 2007 (0.2%), partially offset by favorable workers’ compensation insurance expense (-0.3%) and other cost savings. The favorable workers’ compensation expense resulted primarily from a decrease in our self-insurance reserve for prior policy years due to favorable claims experience and settlement history.

General and administrative expenses

General and administrative expenses in 2008 were $22.5 million, or 7.9% of net revenue, compared to $22.7 million, or 9.1% in 2007. The decrease in expenses as a percent of net revenue is primarily due to higher net revenue (1.1%) and lower professional fees associated with our stock option review and related litigation (0.5%), partially offset by increases in headcount (0.2%) and various professional services. Professional fees associated with our stock option review and related litigation were $1.4 million in 2007 and $16,000 in 2008. The related lawsuits were dismissed in March 2008.

Depreciation and amortization expenses

Depreciation and amortization expenses increased in 2008 primarily due to the 53 stores we opened during 2008 and 2007.

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Interest income, net

We invest in U.S. government, agency, municipal and guaranteed student loan obligations. Interest income, net includes interest income and gains or losses from the sale of these instruments. We earned $726,000 in interest income in 2008, compared to $1.4 million in 2007, due to our lower average cash and investment balances and lower interest rates.

Income tax provision

The effective income tax rate for 2008 was 37.0% compared to 35.8% in 2007. Our effective rate increased 1.2% primarily due to a lower impact from the domestic production deduction and decreased tax-exempt interest income.

52 Weeks Ended December 27, 2008 (Fiscal 2008) Compared to 52 Weeks Ended December 29, 2007 (Fiscal 2007)

        Net sales.    Net sales decreased to $265.7 million from $274.5 million, a decrease of $8.7 million, or 3.2%, below the prior fiscal year. This reflected $10.5 million of decreased net sales, as a result of a 4.1% decrease in comparable store sales, an increase of $2.2 million of net sales from our wholesale division, and a decrease of $398,000 from our non-comparable store sales. During the first half of fiscal 2008, comparable store sales increased due to a strong customer response to our sportswear assortment and the Company's aggressive pricing strategy. This increase during the first half of fiscal 2008 was offset by a decrease during the second half of fiscal 2008, primarily due to the economic crisis, which resulted in a dramatic reduction in mall traffic where Cache stores are located coupled with a shift in consumer spending pattern that favored lower priced or discounted merchandise. The decrease in net sales during fiscal 2008 reflected a 2.4% increase in the number of sales transactions, which was offset by a 6.3% decrease in average dollars per transactions, we believe primarily due to the economic crisis.

        Gross profit.    Gross profit decreased to $109.7 million from $127.0 million, a decrease of $17.3 million, or 13.6%, below the prior fiscal year. This decrease was the combined result of lower net sales, as described above, and decreased gross profit margins. As a percentage of net sales, gross profit decreased to 41.3% from 46.3%. This decrease as a percentage of net sales was primarily due to an increase in markdowns combined with the Company's implementation of a new pricing strategy, as compared to the prior fiscal year, and partially due to an increase in operational costs related to our subsidiary AVD, which was acquired during the third quarter of fiscal 2007. The increase in markdowns was due to the significant deterioration in the United States economic environment during the fourth quarter of fiscal 2008. These increased costs were partially offset by savings from increased direct sourcing of merchandise through AVD and a decrease in buying expenses, as compared to the prior fiscal year.

        Store operating expenses.    Store operating expenses decreased to $95.3 million from $97.0 million, a decrease of $1.7 million, or 1.7%, below the prior fiscal year. As a percentage of net sales, store operating expenses increased to 35.9% from 35.4%. Store operating expenses decreased principally due

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to lower marketing ($1.9 million) and payroll ($1.1 million) expenses. A reduction in marketing expense was primarily caused by the Company eliminating all branding (TV and Print) efforts in fiscal 2008, along with a reduction in direct mail advertisements mailed to customers. Payroll expenses were reduced due to a cut back in the number of hours allotted to store employees coupled with a reduction in bonus and commission expense, as a result of decreased sales. The decrease in marketing and payroll expenses were primarily offset by an increase in self insured medical expense ($926,000), due to an increase in claim payments made to the insurance company and depreciation expense ($168,000), due to full twelve months of depreciation and amortization on assets purchased towards the latter part of fiscal 2007, assets purchased to enhance our customer service department and installation of second registers at a majority of our stores.

        General and administrative expenses.    General and administrative expenses decreased to $21.3 million from $22.7 million, a decrease of $1.4 million or 6.3%, below the prior fiscal year. As a percentage of net sales, general and administrative expenses decreased to 8.0% from 8.3%. General and administrative expenses decreased, primarily due to lower professional fees ($1.5 million) and payroll expenses ($851,000). Professional fees were reduced during fiscal 2008 primarily due to lower audit fees during the current fiscal year and the inclusion of nonrecurring legal settlement costs ($924,000) in the same period last year. Payroll expenses were reduced during fiscal 2008 due to the resignation of the Company's previous Chairman and CEO, as well as the termination of certain employees from the corporate office due to a decline in the business, which resulted from the slowdown in the economy. These decreases were primarily offset by increases in shipping expense ($363,000), due to shipment of our wholesale products, sales commissions ($341,000), paid to an agent for the sale of our wholesale products and depreciation expense ($389,000).

        Store exit costs.    During fiscal 2008, the Company recorded a pre-tax charge of $2.8 million ($1.7 million after tax or $0.13 per diluted share) for 16 underperforming stores. Of the 16 underperforming stores, the Company closed six during fiscal 2008 and closed an additional eight stores in fiscal 2009. Included in the store exit costs is a write down of equipment and leasehold improvements and furniture and fixtures in the amount of $2.3 million, severance accrual of $198,000 and lease termination costs of $990,000. These costs were offset by the reversal of $750,000 of deferred rent accruals. In fiscal 2007, the Company reversed $78,000 of store closing costs previously reserved in fiscal 2006.

        Impairment charges.    During fiscal 2008, the Company recorded a pre-tax impairment charge of $1.1 million ($715,000 after tax or $0.05 per diluted share) for 12 underperforming stores. During fiscal 2007, the Company recorded an impairment charge of $73,000 for one store, which was closed in January 2008.

        In addition, Cache also recorded an impairment charge of approximately $1.0 million ($624,000 after tax or $0.05 per diluted share) against the carrying value of its goodwill.

        Other income/expense.    Other income (expense) decreased to $463,000 from $2.6 million, a decrease of $2.1 million, or 82.2%, as compared to the prior fiscal year. This decrease was due to a reduction in interest income of $1.7 million, caused by lower interest rates as well as lower average cash and marketable securities balances, coupled with charges related to interest expense for the note payable recorded in connection with the acquisition of AVD. The reduction in average cash balances was primarily due to the repurchase of the Company's common stock.

        Income taxes.    During fiscal 2008, an income tax benefit of $4.3 million was recorded as compared to an income tax provision of $3.4 million in the same period last year. The income tax benefit was attributable to the operating loss incurred by the Company during fiscal 2008, as discussed above. The effective rate increased to 37.4% in fiscal 2008 from 34.2% in fiscal 2007.

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        Net income (loss).    As a result of the factors discussed above, net loss of $7.1 million was recorded during fiscal 2008 and net income of $6.5 million was recorded during fiscal 2007, a decrease of $13.6 million, as compared to the prior fiscal year.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Year Ended October 31, 2008 Compared to Year Ended October 31, 2007

Year ended December 31, 2008 Compared to Year ended December 31, 2007