Use these links to rapidly review the documentTABLE OF CONTENTS CACHE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010, AND DECEMBER 27, 2008

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended January 1, 2011oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)


Commission file number 0-10345

CACHE, INC.(Exact name of registrant as specified in its charter)

Florida(State or other jurisdiction of
incorporation or organization)

59-1588181(IRS Employer
Identification No.)1440 Broadway, New York, New York(Address of principal executive offices)

10018(Zip Code)


Registrant's
telephone number, including area code:(212) 575-3200

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

Title of Class

Name of each exchange on which registeredCommon Stock, $.01 par value

Nasdaq Global Select Market


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required
to submit and post such files). Yes o    No o

Indicate by check mark if 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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $56 million as of July 2, 2010,
the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of $5.25 of the registrant's Common Stock as reported on the Nasdaq Global
Select Market on such date. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.

As
of April 1, 2011, 12,820,711 common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy Statement to be filed subsequent to the date hereof with the Commission pursuant to Regulation 14A in
connection with the registrant's 2011 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days after the conclusion of the registrant's fiscal year ended January 1, 2011.



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CACHE, INC.  FORM 10-K ANNUAL REPORT  JANUARY 1, 2011

TABLE OF CONTENTS



PagePART IItem 1.

Business


3Item 1A.

Risk Factors


10Item 1B.

Unresolved Staff Comments


16Item 2.

Properties


16Item 3.

Legal Proceedings


17Item 4.

Reserved


17PART IIItem 5.

Market for the Registrant's Common Stock and Related Stockholder Matters


18Item 6.

Selected Financial Data


19Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


35Item 8.

Financial Statements and Supplementary Data


36Item 9.

Changes in and/or Disagreements with Accountants on Accounting and Financial Disclosure


36Item 9A.

Controls and Procedures


36Item 9B.

Other Information


37PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


38Item 11.

Executive Compensation


38Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


38Item 13.

Certain Relationships and Related Transactions and Director Independence


38Item 14.

Principal Accountant Fees and Services


38PART IVItem 15.

Exhibits and Financial Statement Schedule


39


2

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STATEMENT REGARDING FORWARD LOOKING STATEMENTS

Except for the historical information and current statements contained in this Annual Report, certain matters discussed herein,
including, without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements within the meaning of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements, written, oral or otherwise made, represent the Company's expectation or belief concerning future events.
Without limiting the foregoing, the words "believes," "thinks," "anticipates," "estimates," "plans," "expects," and similar expressions are intended to identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. Actual results and timing of certain events could differ materially from those projected in or contemplated by forward-looking statements
due to a number of important factors, including, without limitation, general economic conditions and consumer spending patterns, industry trends, merchandise and fashion trends, competition, vendor
procurement issues, the ability to obtain financing and the factors discussed under "Item 1A. Risk Factors." The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable securities laws.

PART I

ITEM 1.    BUSINESS

OVERVIEW/RECENT DEVELOPMENTS

We are a nationwide, mall and web based specialty retailer of lifestyle sportswear and dresses targeting style-conscious women. Our
merchandise offerings extend from elegant eveningwear to sophisticated casual and daytime sportswear, which encompasses a variety of tops, bottoms, dresses and accessories, all of which are sold under
our Cache brand. We believe the appeal of our merchandise is enhanced through the intimate boutique-like environment we offer to our customers. This environment is achieved through a high
level of customer service combined with our smaller store format, which averages approximately 2,000 square feet. As of January 1, 2011, we operated 282 stores, primarily situated in central
locations in high traffic, upscale malls, in 43 states, Puerto Rico and the U.S. Virgin Islands.

We
target women between the ages of 25 and 45 through our differentiated merchandising mix. Our brand appeals to a woman who has a youthful attitude, is self-confident and
fashion-conscious. Our sportswear embodies a mix of lifestyle separates for both day and evening. Our stores carry a range of diverse merchandise, which includes dresses for daytime and evening. We
believe that we continue to be an important dress resource and destination for our target customers. Our accessories complement the seasonal themes and palettes of our sportswear and dresses.

We
continued to face a challenging retail environment in fiscal 2010, as the economic landscape remained unsettled and consumers remained cautious. Our business continued to be
negatively affected, which resulted in decreased net sales in fiscal 2010. We were disappointed in our operating results, as the macroeconomic environment impacted our results for fiscal 2010.

We
added key executives to the organization, in late 2009 and early 2010, within the design, merchandising and production areas. With these strategic changes to our organization, we
intend to improve both our merchandise and overall performance, while placing Cache in a more competitive position with other specialty retailers.

During
the fourth quarter of fiscal 2010, we recorded a pre-tax impairment charge of approximately $9.1 million against the remaining carrying value of goodwill for
our Adrienne Victoria Designs, Inc. ("AVD") reporting unit, coupled with an impairment charge of approximately $974,000

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Table of Contents

for
15 underperforming stores. See Item 7 and Notes 6 and 10 to the consolidated financial statements contained herein for additional details.

On
April 22, 2010, we amended our one year credit facility with Bank of America (the "Bank"). Under this facility, we may direct the Bank to issue letters of credit up to a total
of $2.5 million. Any outstanding letters of credit under this facility are collateralized by a security interest in various certificates of deposit held by us and our subsidiaries with the
Bank, amounting to a total of $2.5 million. This one year credit facility will expire on May 1, 2011. We are currently reviewing our future requirements for a credit facility and we plan
to initiate discussion with our bankers to renew this credit line or negotiate a new credit facility.

During
2010, we worked with our store design team to develop a new prototype store. The goal was to create a modern, feminine and inviting place for our customers to shop, while
showcasing our merchandise in an appealing manner. Our new cash-wrap area combines both modern and traditional elements and our new fitting room design creates a more feminine and
glamorous environment for our customers. The new prototype includes fixtures that allow for flexibility in displaying merchandise, as well as ease of shopping. We believe our new design creates an
overall softer, warmer store environment that a woman feels comfortable in while enjoying her shopping experience. We will utilize this new prototype for future store openings, as well as for major
remodeling to existing stores.

We
currently do not anticipate opening any new Cache stores in fiscal 2011 and plan to remodel approximately five stores. During fiscal 2010, we closed eight stores and, to date, during
fiscal 2011, we closed two stores and expect to close another two stores, in the normal course of business.

Merchandising, Design and Production

Our merchandising focuses on providing an attractive selection of sportswear and dresses extending from casual and daytime sportswear
into elegant day and eveningwear, as well as a collection of complementary accessories. All of our merchandise is sold under our own Cache label.

During
the fourth quarter of 2009 and in early 2010, we added new personnel to revamp the merchandise design selection and flow. With these key additions to the organization, Cache has
begun to shift from a retailer who relied heavily on a fast-track calendar, typically a three-month calendar, to a more traditional design and production calendar, typically a
six-month calendar. The shift to a traditional calendar provides us with a greater ability to source higher-quality fabrics and trims, thereby adding special details to elevate the appeal
of our offerings. With our earlier planning schedule, we have been able to reduce our sourcing costs, which we believe will lead to improved gross margins.

Our
merchandising strategy continues to focus on sophisticated fashion apparel and day-into-evening dresses. We plan to continue to appeal to our existing Cache
customers, while broadening our customer reach. Our goal is to serve more of our customers' lifestyle needs, in an effort to increase shopping frequency, while also attracting new customers to our
stores.

Merchandise

We design and market three general categories of merchandise:

Sportswear.Sportswear consists of related tops and bottoms, versatile enough to be worn during the day or out for evening events. Price
points for
sportswear in our stores generally range from $35 to $280.

Dresses.Dresses range from shorter lengths for day-time, cocktail, as well as day-into-evening wear to special
occasion long dresses. Price points for dresses in our stores generally range from $75 to $420.

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Accessories.Accessories consist primarily of jewelry, belts and handbags selected to complement our sportswear and dress selections.
Price points
for accessories in our stores generally range from $5 to $100.

While
the majority of our merchandise is the same in all of our stores of the same concept, we employ both lower price point merchandise and higher priced merchandise in select
locations.

The
following table indicates the percentage of net sales by merchandise category at our retail stores for each of the periods indicated below:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1,
2011

January 2,
2010

December 27,
2008Sportswear


57.9
%

57.3
%

60.7
%Dresses


33.3


32.8


30.4Accessories


8.8


9.9


8.9Total


100.0
%

100.0
%

100.0
%


The
percentage of net sales represented by dresses at our stores is typically higher in the first half of the year, due to the prom season.

Design

Our merchandise offerings are organized around the spring and fall seasons. Our design team consists of seasoned designers who have
experience in the apparel industry, and are given a significant amount of creative freedom in the design process. Following the end of a season, our merchandising team reviews data from that season's
results, as well as market research, retail trends and trade shows. Based on this information, our team develops seasonal themes, which influence our exclusive designs for the following year.

Prior
to each season, our design team selects specific styles that reflect seasonal themes. The design team collaborates, with our merchants to adjust test garments for color and style
to ensure our offerings reflect the appropriate balance between fashion content and marketability. Our team then works with our technical department, fit models and manufacturers to guarantee our fit
and high-comfort standards are met. Our direct sourcing ability and close relationships with our vendors facilitate a fluid design cycle that enables us to create fashion-forward,
exclusive styles.

Accessories
are manufactured for us by third party vendors, a process that allows our design and merchandising team to focus on our core apparel offerings. We also maintain close
relationships with our accessory vendors, so that our accessories complement our seasonal themes and palettes.

Planning and Merchandising

We conduct our planning process based on our historical point-of-sale data, economic trends, seasonality and
anticipated demand. We determine at a corporate level the composition and amount of our merchandise by product, print, color, style and size for each collection. We are then able to negotiate bulk
material purchases with suppliers, which we believe enables us to obtain better pricing.

Our
merchandising and planning teams determine the appropriate level and type of merchandise for each store. Following receipt at our stores, the merchandising staff obtains daily sales
information and store-level inventory generated by our point of sale ("POS") system. Based upon this data, management makes decisions with respect to re-orders, store transfers and
markdowns.

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We
deliver to our stores a cohesive collection with focused assortments that encompass tops, bottoms, dresses and accessories, which allow our customers to purchase outfits and create a
full wardrobe.

Production, Sourcing and Distribution

Our in-house production team coordinates the sourcing of most merchandise purchases whether it is directly sourced from a
third party factory or purchased as finished goods from a third party vendor.

Our
direct sourcing merchandise involves the purchasing directly from third party domestic and overseas factories. Direct sourcing involves sourcing materials and arranging for the
manufacture of goods designed by Cache's design team, as opposed to purchasing finished goods from a third party vendor. Merchandise direct sourced through our in-house production team is
distributed to our stores via a third party distribution facility.

Merchandise
that is not direct sourced is purchased as finished goods through third party vendors. Merchandise purchased in this manner is usually drop shipped to our stores by the third
party vendors. During fiscal 2010, the Company purchased approximately 52% of our product through this channel.

Our
five largest vendors which consist of third party vendors and factories accounted for 23% of the dollar volume of our purchases and our largest vendor accounted for 10% of the dollar
volume of our purchases during fiscal 2010.

We
receive finished goods using one of two methods. Merchandise is either shipped to our third party distribution center, or it is drop shipped directly to our stores from third party
vendors. We also use a third party distribution center for merchandise replenishment which includes both, direct sourced merchandise and third party vendors' merchandise. This ensures that our stores,
which experience a rapid sell through of our products are adequately stocked.

During
fiscal 2010, we selected a new e-commerce platform and fulfillment center, which will provide an enhanced web-site that will enrich customer shopping
experience from mobile, e-commerce to social networking features. It will enhance our online promotions, merchandise delivery and customer service. The new web-site is expected
to be launched in mid 2011.

Store Operations

Store Design and Environment

Most of our stores range in size from approximately 1,500 to 2,500 square feet, with our typical store averaging approximately 2,000
square feet. We believe that our relatively smaller store size enables us to create a boutique-like atmosphere by providing a more intimate shopping experience and a higher level of
customer service than department stores. Most of our stores are open during the same hours as the malls in which they are located, typically seven days and six nights a week.

During
2010, we worked with our store design team to develop a new prototype store. The goal was to create a modern, feminine and inviting place for our customers to shop while
showcasing our merchandise in an appealing manner. Our new cash-wrap area combines both modern and traditional elements and our new fitting room design creates a more feminine and
glamorous environment for our customers. The new prototype includes fixtures that allows for flexibility in displaying merchandise, as well as ease of shopping. We believe our new design creates an
overall softer, warmer store with an environment that a woman feels comfortable in while enjoying her shopping experience. We will utilize this new prototype for future store openings, as well as for
major remodeling to existing stores.

We
generally remodel stores as leases come up for renewal. We remodeled 12 Cache stores in fiscal 2010, one store in fiscal 2009 and expect to remodel approximately five stores in fiscal
2011. Most store remodels take from six to eight weeks. During this period, we typically utilize temporary locations

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in
the mall near our existing locations so that customers can continue to shop for our merchandise. Two of the four stores opened in fiscal 2010 were built utilizing the new prototype.

Store Management and Training

We organize our stores into regions and districts, which are overseen by three regional vice presidents and 30 district managers. Each
of our district managers is typically responsible for eight to ten stores. We generally staff a majority of our stores with an average of one opening employee, two mid-day employees and
two closing employees.

We
seek to provide our customers with superior customer service. To enhance this part of our strategy, our employees receive in-store training, as well as career path
developmental assistance. In addition, our store managers receive both salaries and performance-based incentive bonuses. We pay sales associates and assistant managers on an hourly basis and offer
them performance incentives. From time to time, we offer additional incentives, such as sales contests, to both management and sales associates. Additionally, we place special emphasis on the
recruitment of fashion conscious and career oriented sales personnel. We train most new store managers in designated training stores and train most other new store sales personnel on the job.

Store Locations

As of January 1, 2011, we operated 282 stores located in 43 states, as well as Puerto Rico and the U.S. Virgin Islands.

The
following table indicates our stores by state as of January 1, 2011:

Alabama


6

Louisiana


4

Ohio


9Arizona


5

Maine


1

Oklahoma


2Arkansas


2

Maryland


5

Oregon


2California


30

Massachusetts


7

Pennsylvania


8Colorado


3

Michigan


6

Rhode Island


2Connecticut


4

Minnesota


3

South Carolina


5Delaware


1

Mississippi


1

Tennessee


7Florida


42

Missouri


5

Texas


22Georgia


9

Nebraska


1

Utah


1Hawaii


3

Nevada


8

Virginia


11Illinois


9

New Hampshire


3

Washington


4Indiana


3

New Jersey


14

West Virginia


1Iowa


1

New Mexico


1

Wisconsin


2Kansas


2

New York


12

Puerto Rico


1Kentucky


3

North Carolina


9

US Virgin Islands


2


The
following table indicates the number of stores opened and closed over the past five fiscal years ended January 1, 2011:

Fiscal Period

Stores Open at
Beginning of
Period

Stores Opened
During Period

Stores Closed
During Period

Stores Open at
End of Period

Total Square
FootageFY2006


306


34


44


296


600,000FY2007


296


10


9


297


601,000FY2008


297


13


14


296


598,000FY2009


296


4


14


286


576,000FY2010


286


4


8


282


571,000


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New Store Development

We continually review potential new locations for our stores. We locate our new stores primarily in upscale shopping malls. When
selecting a new mall site, we target high traffic locations with suitable demographics and favorable lease economics. When evaluating a new mall location, we also look at the principal and anchor
stores in the mall, location of our store within the mall and other specialty stores located in the mall.

We
currently operate five street locations and one outlet store.

Due
to current economic conditions, we do not anticipate opening any new Cache stores during fiscal 2011, unless opportunities become available.

Marketing and Promotion

Our marketing program currently consists of direct marketing through direct mail and email. Cache maintains a database of approximately
4.6 million names from customers that have provided their contact information. Based on this database, we send mailings during most months targeting various customer groups, in addition to
multiple promotional email notifications. Our systems allow us to review how customers respond to various offers and from the customers' response we are able to adjust future offerings.

Our
brand is also supported by visual merchandising, which consists of window displays, front table layouts and various in-store promotions. Visual merchandising is an
important component of our marketing and promotion strategy, since our mall locations provide us with significant foot traffic. We make decisions regarding store displays and signage at the corporate
level, ensuring a consistent appearance throughout all our stores. In addition, we encourage store management to become involved in community affairs, such as participating in local charity fashion
shows, to expand our brand recognition and meet potential customers.

Our
web-site,http://www.cache.com, allows customers to search for Cache store locations, purchase merchandise online, view
currently available styles and sign up for email notifications. Over the past three years, web-site sales have increased from approximately $7.3 million in fiscal 2008 to
approximately $8.9 million in fiscal 2010, after decreasing to $6.2 million in fiscal 2009.

In
fiscal 2011, we will launch a new enhanced web-site. The new web-site will provide the customers with a seamless shopping experience and the ability for us to
showcase our product in a more enticing, desirable manner as well as offering enhanced on-line promotions.

Competition

The market for women's sportswear, dresses and accessories is highly competitive. We compete primarily with specialty retailers of
women's apparel and department stores located in the same mall or a nearby location. We believe our target customers choose to purchase apparel based on the following
factors:



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Information Systems

We have historically invested in information systems to improve sales, gain efficiencies and reduce operating costs. Our information
systems integrate all major aspects of our business, including merchandise planning, purchasing, inventory control, distribution, sales and finance. Our POS system, which uses a wide area network
allows us to add various functionalities, including the ability to process debit card transactions, centralize credit authorizations, enhance labor scheduling, centralize our customer database, manage
our customer loyalty program, speed up customer transaction time and analyze real-time sales data.. During fiscal 2010, we selected a new e-commerce platform and fulfillment
center, which will provide an enhanced web-site that will enrich customer shopping experience from mobile, e-commerce to social network features. It will enhance our online
promotions, merchandise delivery and customer service. The new web-site is expected to be launched in mid 2011.

Trademarks and Service Marks

We are the owner in the United States of the "Cache" trademark and service mark. The marks are registered with the United States Patent
and Trademark Office. Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. Our rights to the aforementioned marks are a significant part of our
business. Accordingly, we intend to maintain these marks and the related registration. We are currently unaware of any material claims of infringement or other challenges to our right to use our marks
in the United States.

Employees

As of January 1, 2011, we had approximately 2,204 employees, of whom approximately 1,026 were full-time employees
and approximately 1,178 were part-time employees. As of January 1, 2011, we had approximately 2,029 store personnel and approximately 175 non-store personnel. None of
these employees are represented by a labor union. We consider our employee relations to be satisfactory.

Available Information

We make available on our web-site,http://www.cache.com, under "Investor
Relations," free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission ("SEC").

Our
Code of Business Conduct and Ethics, and Board of Directors' committee charters are also available on our web-site, under "Corporate Governance".

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ITEM 1A.    RISK FACTORS

Macroeconomic conditions have adversely impacted our business and results of operations and may continue to do so.

The retail sector is affected by macroeconomic factors, including changes in international, national, regional and local economic
conditions, employment levels and consumer spending patterns. Furthermore, because our customer traffic and sales volume are largely derived from the volume of consumer traffic in the malls in which
we operate, we are adversely affected by general declines in mall traffic. Since the slowdown that began in 2008, the overall economy, financial markets and the related reduction in consumer
confidence in the economy have negatively affected results of operations throughout large segments of our industry, including our segment. Accordingly, macroeconomic conditions have adversely affected
and continue to adversely affect our results of operations. Continued weakness in or a further worsening of the economy generally or in a number of our markets could adversely affect our financial
position and results of operations, cause us to slow our re-modeling of existing locations or cause us to increase store closings.

Our continued growth will depend on our ability to successfully open and operate new stores.

Our continued growth depends on our ability to open and operate new stores on a profitable basis. Opening new stores is dependent on a
variety of factors including our ability to:



During
fiscal 2011, we do not expect to open any new stores. As the economy improves, we intend to open new stores in future years and to remodel many of our existing stores as their
leases come up for renewal. Continued expansion could place demands on our operational, managerial and administrative resources, which could have a material adverse effect on our ability to manage our
business. As we open more stores, our resources may come under greater strain and may prove to be inadequate. If we are unable to open new stores or remodel our existing stores as planned, or if our
new stores are unsuccessful, it could have a negative impact on our financial performance. Even if we are able to open new stores, some of our newly opened stores may not be commercially successful,
possibly resulting in their closure at a significant cost to us or a material adverse effect on our financial condition or results of operations. During fiscal 2010, we closed eight stores and, to
date, during fiscal 2011, we closed two stores and expect to close another two stores, in the normal course of business.

Our expansion into new markets could adversely affect our financial condition and results of operations.

During fiscal 2011, we do not expect to open any new stores and during fiscal 2010 we opened four new stores. We may open new stores in
areas of the United States in which we currently have few or no stores. The expansion into new markets may present competitive, merchandising and administrative challenges that are different from
those currently encountered in our existing markets. Any of these challenges could adversely affect our business, financial condition and results of

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operations.
To the extent our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets.

Our ability to attract new customers to our stores depends heavily on the success of the shopping malls in which we are located.

All but a few of our existing stores are located in shopping malls. Sales at these stores are derived in large part from the volume of
consumer traffic in these malls. In addition, traffic in some of the malls in which we have stores has been adversely affected by store closures and bankruptcies by other tenants, including anchor or
other large tenants. We cannot control vacancy rates in the malls in which we have stores, continued popularity of malls as shopping destinations, the solvency of landlords and the level of
maintenance and upkeep that they perform or improvements that they make at the malls, development of new shopping malls or the availability or cost of appropriate locations within existing or new
shopping malls. A decrease in shopping mall traffic is likely to adversely affect our results of operations.

Our comparable store sales and quarterly results of operations are affected by many factors that we cannot control.

Our quarterly results of operations for our individual stores have fluctuated significantly in the past and will continue to fluctuate
in the future. Since the beginning of fiscal 2008, our quarterly comparable sales at Cache stores have ranged from an increase of 5% to a decrease of 23%. Our comparable store sales and quarterly
results of operations are affected by a variety of factors, most of which we cannot control, including:



Our success depends in part on the efforts of our management team.

Our success in managing our business and implementing our business and growth strategies depends on the abilities and experience of our
management team. If we were to lose the services of one or more members of this team, and in particular the services of Thomas Reinckens,
our Chairman and Chief Executive Officer, we may be unable to find a suitable replacement in a timely manner. This in turn could adversely affect our business, financial condition and results of
operations.

Our manufacturers may be unable to manufacture and deliver products in a timely manner or meet our quality standards, which could result in lost sales, cancellation charges
or excessive markdowns.

We direct source a large portion of our product directly from unaffiliated third party manufacturers. During fiscal 2010, we
direct-sourced approximately 48% of the dollar volume of our merchandise. We cannot guarantee that direct-sourcing will continue to result in cost savings. In addition, we may not be able to
effectively manage and cultivate direct relationships with manufacturers, which could result in additional costs and manufacturing delays. Furthermore, similar to

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most
other specialty retailers, we have short selling seasons for much of our inventory. Factors outside of our control, such as manufacturing or shipping delays or quality problems, could disrupt
merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns, all of which could have a material adverse effect on our business, financial condition and results of
operations.

We rely on a relatively small number of domestic vendors for a portion of our product, and our success depends in part on maintaining good relationships with these vendors.

During fiscal 2010, Cache purchased approximately 52% of the dollar volume of its product directly from third party vendors or agents
of which five vendors accounted for 23%. The terms of our relationships with our vendors generally are not contractual and do not assure adequate supply or pricing on a long-term basis. If
one or more of these vendors ceased to sell to us or significantly alter the terms of our relationship, we may be unable to obtain merchandise in a timely manner, in the desired styles, fabrics or
colors, or at the prices and volumes we wish to purchase. This could hurt our ability to respond to changing fashion trends and thus our sales and profitability. In addition, the continued increase in
our direct-sourcing of merchandise from international vendors could cause our existing domestic vendors to reduce or eliminate their sales to us.

Substantially all of the materials used to manufacture our merchandise are produced in foreign facilities. This subjects us to the risks of international trade and other
risks generally associated with doing business in foreign markets.

We and substantially all of our vendors utilize overseas production facilities. The failure of foreign manufacturers to ship materials
or products to us in a timely manner could result in our stores lacking needed inventory. Any event causing a disruption of imports, including financial or political instability, currency
fluctuations, terrorism or heightened security, trade restrictions in the form of tariffs or quotas or both, political or military conflict involving the United States, or the migration of
manufacturers, could negatively affect our business, financial condition or results of operations. These adverse impacts may include an increased cost to us, reductions in the supply of merchandise or
delays in our manufacturing lead time.

We rely on our manufacturers to use acceptable ethical business practices, and if they fail to do so, the Cache brand name could suffer reputational harm and our sales could
decline or our inventory supply could be interrupted.

We do not control our manufacturers or their labor and other business practices. If one of our manufacturers violates labor or other
laws or implements labor or other business practices that are generally regarded as unethical in the United States, our reputation could be damaged and the shipment of finished products to us could be
interrupted. Either of these events could have a material adverse effect on our revenues and, consequently, our results of operations.

We rely on third parties to distribute our merchandise. If these third parties do not adequately perform this function, our business would be disrupted.

The efficient operation of our business depends on the ability of the Company and its vendors to ship merchandise through third party
carriers, such as United Parcel Service, directly to our individual stores. These carriers typically employ personnel represented by labor unions and have experienced labor difficulties in the past.
Due to our reliance on these parties for our shipments, interruptions in shipments could adversely affect our business, financial condition and results of operations. Increases in fuel prices may also
increase our shipping costs, which could adversely affect our business, financial condition and results of operations.

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The raw materials used to manufacture our products and our distribution and labor costs are subject to availability constraints and price volatility, which could result in
increased costs.

The raw materials used to manufacture our products are subject to availability constraints and price volatility caused by high demand
for petroleum-based synthetic fabrics, weather, supply conditions, regulations, economic climate and other unpredictable factors. Increases in labor costs, especially in China, as well as a shortage
of labor in certain areas of China, may also impact our sourcing costs. In addition, our transportation costs are subject to price volatility caused by the price of oil, regulations, economic climate
and other unpredictable factors. Increases in demand for, or the price of, raw materials, distribution services and labor could have a material adverse effect on our business, financial condition and
results of operations.

Because our Cache brand is associated with all of our merchandise, our success depends heavily on the value associated with our brand. If the value associated with our brand
were to diminish, our sales could decrease, causing losses or lower profits.

Our success depends on our Cache brand and its value. The Cache brand could be adversely affected if our public image or reputation
were to be tarnished, which could result in a material adverse effect on our business, financial condition and results of operations.

We may be unable to protect our trademarks and other intellectual property rights.

We believe that our trademarks and service marks are important to our success and our competitive position due to their name
recognition with our customers. There can be no assurance that the actions we have taken to establish and protect our trademarks and service marks will be adequate to prevent imitation of our products
by others or to prevent others from seeking to block sales of our products as a violation of the trademarks, service marks and proprietary rights of others. Also, others may assert rights in, or
ownership of, our trademarks and other proprietary rights, and we may be unable to successfully resolve those types of conflicts to our satisfaction.

Any material disruption of our information systems could disrupt our business and adversely affect our results of operations.

Our information systems integrate all major aspects of our business, including merchandise planning, purchasing, inventory control,
distribution, sales and finance. Our POS
system, which uses a wide area network allows us to add various functionalities, including the ability to process debit card transactions, centralize credit authorizations, enhance labor scheduling,
centralize our customer database, manage our customer loyalty program, speed up customer transaction time and analyze real-time sales data. We are dependent on these information systems
for the efficient operation of our business, including our web-site, and to facilitate the enhancement of our marketing efforts.

We
may experience operational problems with our information systems as a result of system failures, viruses, computer "hackers" or other causes. Any material disruption or slowdown of
our systems, including a disruption or slowdown caused by any failure on our part to successfully maintain or perform additional upgrades to our systems, could cause information to be lost or delay
our ability to process and make use of that information in our business, which may adversely affect our results of operations. In addition, if future changes in technology cause our information
systems to become obsolete, or if our current information systems prove to be inadequate to support our growth, it could adversely affect our business and results of operations.

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Our marketing efforts rely upon the effective use of customer information. Restrictions on the availability or use of customer information could adversely affect our
marketing initiatives, which could adversely affect our business and results of operations.

We use customer information to market to our customers. Any limitations imposed on the use of such consumer data, whether imposed by
federal or state governments or business partners, could have an adverse effect on our future marketing activity. In addition, to the extent our security procedures and protection of customer
information prove to be insufficient or inadequate, we may become subject to litigation, which could expose us to liability and cause damage to our reputation or brand.

We are subject to numerous regulations that could adversely affect our operations. Changes in such regulations could impact the operation of our business through delayed
shipments of our goods, fines or penalties that could affect our profitability.

We are subject to customs, truth-in-advertising, truth-in-lending and other laws,
including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise, the use of proprietary
credit cards and the operation of retail stores and distribution facilities. Although we undertake to monitor changes in these laws, if these laws change without our knowledge, or are
violated by our employees, importers, buying agents, manufacturers or distributors, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the
controlling regulations, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our ability to respond rapidly to ever-changing fashion trends and customer demands.

Customer tastes and fashion trends change rapidly. Our success depends in large part on our ability to anticipate the fashion tastes of
our customers, to respond to changing fashion tastes and consumer demands, and to translate market trends into fashionable merchandise on a timely basis. If we are unable to anticipate, identify or
react to changing styles or trends, our sales may decline and we may be faced with excess inventories. If this occurs, we may be forced to rely on additional markdowns or promotional sales to dispose
of excess or slow moving inventory. This could also cause us to miss opportunities. Both of the foregoing could have a material adverse effect on our business, financial condition and results of
operations. In addition, if we misjudge fashion tastes and our customers come to believe that we are no longer able to offer fashions that appeal to them, our brand image may suffer.

We may be adversely impacted at any time by a significant number of competitors.

The women's apparel market is highly competitive, fragmented and characterized by low barriers to entry. We compete against a diverse
group of retailers, including traditional department stores, national and local specialty retail stores, internet-based retailers and mail order retailers. Many of our competitors, particularly
traditional department stores and national specialty retail stores, are larger and have greater resources to expend on marketing and advertising campaigns. In addition, many of these competitors are
already established in markets that we have not yet penetrated and have greater name recognition in general. We cannot assure you that we will continue to be successful in competing against existing
or future competitors. Our expansion into markets served by our competitors or entry of new competitors or expansion of existing competitors into our markets could have a material adverse effect on
our business, financial condition and results of operations.

In
addition, as a result of macroeconomic conditions, a substantial number of retailers have increased the frequency and duration of their discount sales and other promotions and have
increased the level of merchandise discounts. This has resulted and is expected to continue to result in intense

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competition.
Furthermore, in order to remain competitive, we have had to increase our use of discount sales, which has reduced our gross margins.

Our sales fluctuate on a seasonal basis and are sensitive to economic conditions, consumer spending patterns and other events and conditions.

Our net sales and net income are generally highest each year during our fourth fiscal quarter (October, November and December) and
lowest in our third fiscal quarter (July, August and September). Sales during any period cannot be used as an accurate indicator of our annual results. Any significant decrease in sales during the
fourth quarter in a given year would hurt our profitability. As a result of macroeconomic conditions, we experienced a significant decrease in sales and profitability during fiscal 2010.

Our
business is also sensitive to changes in macroeconomic conditions and consumer spending patterns, as discussed in the other Risk Factors contained herein. In addition, our business,
financial condition and results of operations may be adversely affected by the timing of holidays and other local, regional, national or international events and conditions, including energy prices,
climatological events such as hurricanes, strikes and other business disruptions, or the effects of war, terrorism or the threat of either of these events.

If new legislation restricting the importation or increasing the cost of textiles and apparel produced abroad is enacted, our business could be adversely affected.

Legislation that would restrict the importation or increase the cost of textiles and apparel produced abroad has been periodically
introduced in Congress. The enactment of new legislation or international trade regulation, or executive action affecting international textile or trade agreements, could adversely affect our
business. International trade agreements that can provide for tariffs and/or quotas can increase the cost and limit the amount of product that can be imported.

Our share price has fluctuated significantly and could continue to fluctuate significantly.

Between December 28, 2008 and January 1, 2011 (our fiscal years 2009 and 2010), the market price of our common stock has
ranged from $1.43 to $7.25 per share. The stock market has, from time to time and especially since the fourth quarter of fiscal 2008, experienced extreme price and volume fluctuations. The market
price for our common stock may change significantly in response to various factors, including:



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In the past, companies that have experienced volatility in the market price of their shares have been the subject of securities class action litigation. If we
become involved in a securities class action litigation in the future, it could result in substantial costs and diversion of our management's attention and resources, thus harming our business.

Provisions of our governing documents and Florida law could discourage acquisition proposals or delay a change in our control, and this may adversely affect the market price
of our common stock or deny our stockholders a chance to realize a premium on their shares.

Our articles of incorporation and by-laws contain anti-takeover provisions, including those listed below, that
could make it more difficult for a third party to acquire control of us, even if that change in control would be beneficial to our stockholders:



In
addition, provisions of Florida law and our stock option plans may also discourage, delay or prevent a change in control of our company or unsolicited acquisition proposals.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

All but a few of our 282 stores are located in shopping malls. The substantial majority of our stores contain between 1,500 and 2,500
square feet of space, with the typical store averaging 2,000 square feet. All of our stores are in leased facilities, and we typically negotiate our rental agreements based on our portfolio of store
locations with a particular landlord rather than on an individual basis. Rental terms usually include a fixed minimum rent plus a percentage rent based on sales in excess of a specified amount. In
addition, we generally are required to pay a charge for common area maintenance, utility consumption, promotional activities and/or advertising, insurance and real estate taxes. Many leases contain
fixed escalation clauses. Most leases contain leasehold improvement reimbursements from landlords and/or rent holidays. In recognizing landlord incentives and minimum rent expenses, the Company
amortizes the charges and incentives on a straight line basis over the lease term.

Our
leases expire at various dates through 2021. In most instances, we have renewal options at increased rents. The following table indicates the periods during which our leases expire.

Fiscal YearsPresent - 2013


912014 - 2016


1212017 - 2019


562020 - 2021


14Totals


282


Our
corporate office is a 20,000 square foot facility located at 1440 Broadway in New York City. We lease this space under a 10-year lease through 2014 at a rate of
approximately $543,000 per year. In addition, we also lease a 14,500 square foot facility, which houses our design, production, sourcing and

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Table of Contents

customer
service departments, located at 260 West 39th Street in New York City, which runs through 2012 at a rate of approximately $345,000 per year.

ITEM 3.    LEGAL PROCEEDINGS

On June 30, 2010, Chico's FAS, Inc. and White House--Black Market, Inc. (together referred to as "Chico's") filed
a lawsuit against the Company in the Supreme Court of the State of New York, County of New York. Chico's alleged in its complaint, among other things, that two former Chico's employees who are now
employed by Cache supplied the Company with confidential
information and trade secrets, which Cache benefited from. The Company does not believe that this case will have a material adverse effect on its financial condition and results of operations.

ITEM 4.    RESERVED

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Table of Contents

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Fiscal 2010

Fiscal 2009Fiscal period

High

Low

High

LowFirst Fiscal Quarter

$
6.00

$
4.01

$
3.02

$
1.43Second Fiscal Quarter

$
7.25

$
5.24

$
5.13

$
2.15Third Fiscal Quarter

$
5.94

$
4.01

$
5.65

$
3.20Fourth Fiscal Quarter

$
5.77

$
3.86

$
5.88

$
3.66


Plan Category

Number of
securities
to be
issued
upon
exercise of
outstanding
common stock

Weighted
average
exercise
price of
outstanding
common stock

Number of
securities remaining
available for the
future issuance
under equity
compensation plans
(excluding
securities
reflected in
column(a)(a)

(b)

(c)Equity compensation plans approved by security holdersStock Options


777,675

$
12.39


Equity compensation plans approved by security holdersRestricted Stock


284,655

$
5.11


Equity compensation plans not approved by security holders








Total


1,062,330

$
10.44


398,671


The
Company's two equity compensation plans have available a combined total of 398,671 shares of common stock for future issuances.

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The following Selected Consolidated Financial Data should be read in conjunction with the Company's Consolidated Financial Statements
and Notes thereto.

52
WEEKS
ENDED

53
WEEKS
ENDED

52
WEEKS
ENDED

52
WEEKS
ENDED

52
WEEKS
ENDEDJAN. 1,
2011

JAN. 2,
2010

DEC. 27,
2008

DEC. 29,
2007

DEC. 30,
2006(in thousands, except per share and operating data)STATEMENT OF INCOME DATA:Net sales

$
206,519

$
219,775

$
265,728

$
274,458

$
278,992
(5)Cost of sales


127,662


131,990


156,036


147,474


145,886Gross profit


78,857


87,785


109,692


126,984


133,106Store operating expenses


75,901


79,167


95,339


97,023


94,556General and administrative expenses


19,987


18,341


21,296


22,725


21,246Exit costs





(65
)

2,757
(7)

(78
)

5,677
(6)Impairment charges


10,066
(8)

2,744
(8)

2,137
(8)




Employee separation charge





1,987
(9)







Operating income (loss)


(27,097
)

(14,389
)

(11,837
)

7,314


11,627Other income, (net)(1)


26


32


463


2,601


2,523Income (loss) before income taxes


(27,071
)

(14,357
)

(11,374
)

9,915


14,150Income tax provision (benefit)


(4,639
)(10)

(5,663
)

(4,252
)

3,394


5,879Net income (loss)

$
(22,432
)
$
(8,694
)
$
(7,122
)
$
6,521

$
8,271Earnings per share:Basic earnings (loss) per share

$
(1.76
)
$
(0.68
)
$
(0.53
)
$
0.41

$
0.52Diluted earnings (loss) per share

$
(1.76
)
$
(0.68
)
$
(0.53
)
$
0.40

$
0.51Weighted average shares outstanding:Basic


12,779


12,795


13,329


15,966


15,849Diluted(2)


12,779


12,795


13,329


16,200


16,218Store data:Total number of stores openAt the end of period


282


286


296


297


296Cache/Cache Luxe


282


286


296


297


293Lillie Rubin














3Total average sales per square foot(3)

$
340

$
353

$
424

$
449

$
463Cache/Cache Luxe

$
340

$
353

$
424

$
449

$
467Lillie Rubin

$


$


$


$


$
253Sales DataTotal sales increase (decrease)


(6.0
)%

(17.3
)%

(3.2
)%

(1.6
)%

4
%Comparable stores: Cache/Cache Luxe(4)


(2.3
)%

(18.0
)%

(4.3
)%

(0.6
)%

5
%Comparable stores: Lillie Rubin(4)














(17
)%Total square footage (in thousands)


571


576


598


601


600


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Table of Contents



JAN. 1,
2011

JAN. 2,
2010

DEC. 27,
2008

DEC. 29,
2007

DEC. 30,
2006(in thousands, except per share and operating data)BALANCE SHEET AND OTHER DATA:Working capital

$
28,263

$
41,923

$
43,461

$
59,672

$
83,391Total assets

$
85,990

$
110,997

$
119,525

$
149,125

$
159,186Total short and long-term debt

$
1,837

$
2,833

$
4,402

$
5,934

$
Stockholders' equity

$
48,312

$
70,283

$
79,163

$
100,264

$
116,463Ratio of current assets to current liabilities


2.20:1


2.79:1


3.13:1


3.11:1


4.35:1Inventory turnover ratio


7.88:1


6.78:1


5.90:1


4.51:1


4.31:1Capital expenditures

$
3,448

$
1,976

$
10,673

$
12,094

$
12,250Depreciation and amortization

$
9,421

$
11,855

$
12,774

$
12,124

$
11,026Book value per share

$
3.78

$
5.51

$
6.07

$
6.86

$
7.16


(1)Other
income consists of interest income, interest expense and miscellaneous income.(2)Options
and unvested restricted common shares of 1,062,330, 893,336 and 732,675 were excluded from the computation of diluted earnings per share for fiscal
2010, 2009 and 2008, respectively, because of the net loss incurred by the Company. Diluted weighted average shares for the fiscal years ended December 29, 2007 and December 30, 2006
include 234,000 and 369,000, respectively, due to the potential exercise of stock options that were outstanding and exercisable during those years.(3)Average
sales per square foot are calculated by dividing net sales by the weighted average store square footage available.(4)Comparable
store sales data is calculated based on the net sales of stores open at least 12 full months at the beginning of the period for which the data
are presented.(5)Includes
recognition of $2.5 million of breakage income for previously issued gift cards and merchandise credits.(6)Includes
a charge of $5.7 million for the exit of the Lillie Rubin business.(7)Includes
a charge of $2.8 million for the closure of several Cache and Cache Luxe stores.(8)Consists
of impairment charges of approximately $974,000 for 15 underperforming stores, $1.9 million for 23 underperforming stores and
$1.1 million for 12 underperforming stores for fiscal 2010, 2009 and 2008, respectively. In addition, includes impairment charges of approximately $9.1 million and $1.0 million
against the carrying value of the Company's goodwill, for its AVD reporting unit, for fiscal 2010 and 2008, respectively. Includes an impairment charge of approximately $891,000 against the carrying
value of the Company's intangible assets associated with its wholesale divisionMary L. for fiscal 2009.(9)Charges
recorded in connection with separation agreements entered into with two of its then executive officers.(10)Includes
a $5.7 million non-cash tax charge, related to a valuation allowance against a portion of the deferred tax assets.


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Table of Contents

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a nationwide, mall-based specialty retailer of lifestyle sportswear and dresses targeting style-conscious women. Our
merchandise offerings extend from elegant eveningwear to sophisticated casual and daytime sportswear, which encompasses a variety of tops, bottoms, dresses and accessories, all of which are sold under
our Cache brand. We believe the appeal of our merchandise is enhanced through the intimate boutique-like environment we offer to our customers. This environment is achieved through a high
level of customer service
combined with our smaller store format, which averages approximately 2,000 square feet. As of January 1, 2011, we operated 282 stores, primarily situated in central locations in high traffic,
upscale malls, in 43 states, Puerto Rico and the U.S. Virgin Islands.

We
target women between the ages of 25 and 45 through our differentiated merchandising mix. Our brand appeals to a woman who has a youthful attitude, is self-confident and
fashion-conscious. Our sportswear embodies a mix of lifestyle separates for both day and evening. Our stores carry a range of diverse merchandise, which includes dresses for daytime and evening. We
believe that we continue to be an important dress resource and destination for our target customers. Our accessories complement the seasonal themes and palettes of our sportswear and dresses.

For
the fiscal year ended January 1, 2011, sportswear accounted for 57.9%, dresses for 33.3% and accessories for 8.8% of Cache's net sales. Cache's price points generally range
from $35 to $280 for sportswear, $75 to $420 for dresses and $5 to $100 for accessories.

Management Overview

The Company continued to face a challenging retail environment in fiscal 2010, as the economic landscape remained unsettled and
consumers remained cautious. Our business continued to be negatively affected, which resulted in decreased sales for the Company in fiscal 2010. We were disappointed in our operating results, as the
macroeconomic environment impacted our results for fiscal 2010.

We
added key executives to the organization, in late 2009 and early 2010, within the design, merchandising and production areas. With these strategic changes to our organization, we
intend to improve both our merchandise and overall performance, while placing Cache in a more competitive position with other specialty retailers.

During
the fourth quarter of fiscal 2010, the Company recorded a pre-tax impairment charge of approximately $9.1 million against the remaining carrying value of
goodwill for its AVD reporting unit, coupled with an impairment charge of approximately $974,000 for 15 underperforming stores. See Notes 6 and 10 to the consolidated financial statements
included herein for additional details.

On
April 22, 2010, the Company amended its one year credit facility with Bank of America (the "Bank"). Under this facility, the Company may direct the Bank to issue letters of
credit up to a total of $2.5 million. Any outstanding letters of credit under this facility are collateralized by a security interest in various certificates of deposit held by the Company and
its subsidiaries with the Bank, amounting to
a total of $2.5 million. This one year credit facility will expire on May 1, 2011. The Company is currently reviewing its future requirements for a credit facility and plans to initiate
discussion with its bankers to renew this credit line or negotiate a new credit facility.

During
2010, the Company worked with its store design team to develop a new prototype store. The goal was to create a modern, feminine and inviting place for our customers to shop, while
showcasing our merchandise in an appealing manner. Our new cash-wrap area combines both modern

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and
traditional elements and our new fitting room design creates a more feminine and glamorous environment for our customers. The new prototype includes fixtures that allow for flexibility in
displaying merchandise, as well as ease of shopping. We believe our new design creates an overall softer, warmer store environment that a woman feels comfortable in while enjoying her shopping
experience. We will utilize this new prototype for future store openings, as well as for major remodeling to existing stores.

We
currently do not anticipate opening any new Cache stores in fiscal 2011 and plan to remodel approximately five stores. During fiscal 2010, we closed eight stores and, to date, during
fiscal 2011, we closed two stores and expect to close another two stores, in the normal course of business.

First Quarter Outlook.We believe that our merchandising and design strategies, which were implemented during the past year, are
beginning to
positively impact our performance and will be reflected in the first quarter results. We expect our first quarter fiscal 2011 comparable store sales to increase approximately 7%, following a 6.8%
decline in the first quarter of fiscal 2010. At the same time, we are expecting an increase in gross profit primarily due to higher sales and a decrease in markdowns. We expect to report a net loss in
the range of $0.07 to $0.09 per diluted share compared to a net loss of $0.32 per diluted share in the first quarter of fiscal 2010.

We
use a number of key indicators of financial condition and operating performance to evaluate the performance of our business, some of which are set forth in the following table:

52 Weeks Ended

53 Weeks Ended

52 Weeks EndedJanuary 1, 2011

January 2, 2010

December 27, 2008Operating ResultsTotal store count, at end of period


282


286


296Net sales decrease


(6.0
)%

(17.3
)%

(3.2
)%Comparable store sales decrease


(2.3
)%

(18.0
)%

(4.3
)%Net sales per square foot

$
340

$
353

$
424Total square footage (in thousands)


571


576


598


Net sales.Net sales consist of sales from comparable stores and non-comparable stores. A store is not included in comparable store
sales
until the first day of the fiscal month following the twelfth full month of sales. Non-comparable store sales include sales generated at new stores prior to the period when they are
considered comparable stores and sales generated from stores that we have since closed. Comparable stores sales percentages shown in the chart above are calculated based upon the number of weeks in
the respective fiscal year.

The
Company's co-branded customer credit card program, which was introduced during fiscal 2007, entitles the Company to receive from the issuing bank a
non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the
life of the contract. During fiscal 2010, 2009 and 2008, the Company received $780,000, $1.1 million and $1.4 million, respectively, in connection with activated credit cards. The amount
of fee income recorded in connection with activated credit cards in fiscal 2010, 2009 and 2008 was $678,000, $456,000 and $218,000, respectively.

The
Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other
businesses. Cache has determined that since it has not incurred any significant or recurring costs in relation to the co-branded credit card program the sales royalties earned in
connection to the agreement will be recorded under net sales. The fees that are incurred by the Company are cardholder incentives, which are funded from the fees paid by the issuing bank and Visa
U.S.A Inc. The amount of sales royalty income recorded was

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$373,000
in fiscal 2010, as compared to $328,000 and $248,000 in fiscal 2009 and fiscal 2008, respectively.

Shipping and handling.Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment.
Costs incurred
for shipping and handling are included in cost of sales.

Cost of sales.Cost of sales includes the cost of merchandise, costs incurred for shipping and handling, payroll for our buying,
merchandising,
design, production and sourcing personnel and store occupancy costs.

Store operating expenses.Store operating expenses include payroll, payroll taxes, health benefits,
insurance, credit card processing fees, depreciation, licenses and taxes, marketing and advertising expenses, as well as other store level expenses.

General and administrative expenses.General and administrative expenses include district and regional manager payroll, other corporate
personnel
payroll and employee benefits, employment taxes, insurance, legal and other professional fees, as well as other corporate level expenses. Corporate level expenses are primarily attributable to our
corporate headquarters in New York.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our
financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could
be material to the financial statements.

Our
accounting policies are more fully described in Note 1 to the consolidated financial statements, located elsewhere in this document. We have identified certain critical
accounting policies and estimates which are described below.

Inventories.Our finished goods inventories at our retail stores are valued at the lower of cost or market using the retail inventory
method. Under
the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of
inventories. RIM is an averaging method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the
lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including,
among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We take markdowns due to changes in
fashion and style, based on the following factors: (i) supply on hand, (ii) historical experience and (iii) our expectations as to future sales. We do not anticipate any
significant change in our markdown strategy that would cause a significant change in our earnings. We believe that our RIM provides an inventory valuation, which results in a carrying value at the
lower of cost or market. Inventories other than finished goods at retail stores, called production inventory, primarily consists of piece goods, trim and work-in-process. It is
the Company's policy to value the production inventory, which makes up approximately 20% of Company's total inventory, at lower of cost or market value using
first-in-first-out valuation
method. The Company reviews the inventory for factors such as age, obsolescence, potential use, or other factors that may indicate a decline in its value. The Company records a reserve against the
cost of the production inventory to account for any decline in its value.

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Finite long-lived assets.The Company's judgment regarding the existence of impairment indicators is based on market and operational
performance. We assess the impairment of long-lived assets, primarily fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable and
exceeds the fair market value. Factors we consider important which could trigger an impairment review include the following:



The
Company evaluates finite-lived assets in accordance with "Impairment or Disposal of Long-Lived Assets" under Topic 360
"Property, Plant and Equipment" of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC"). Finite-lived assets are
evaluated for recoverability in accordance with Topic 360 of the FASB ASC whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for
recoverability, the Company estimates the future cash flows expected to result from the use and eventual disposition of the asset. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized. Various
factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from
the current estimates. The Company evaluated its finite-lived assets during fiscal 2010, 2009 and 2008 and as a result, recorded an impairment charge of $974,000 for 15 underperforming stores,
$1.9 million for 23 underperforming stores and $1.1 million for 12 underperforming stores, respectively.

Goodwill and Intangible Assets.The Company evaluates its goodwill and intangible assets in accordance with
"IntangiblesGoodwill and Other",Topic 350 of the FASB ASC. This guidance requires ratable amortization of goodwill be replaced with
periodic tests of the goodwill's impairment. The Company performs impairment testing, which considers the Company's fair value to determine whether an impairment charge related to the carrying value
of the Company's recorded goodwill and other intangible assets, associated with its AVD reporting unit, is necessary. This is reevaluated annually during the fourth quarter, or more frequently if
necessary. The Company considers many factors in evaluating whether the carrying value of the recorded goodwill will be recoverable. Factors used to make this determination primarily include declines
in stock price and the market capitalization in relation to the book value of the Company, discounted projected cash flows of the reporting unit and valuation of companies comparable to the reporting
unit. As a result of this testing, an impairment charge of $9.1 million was recorded against the remaining carrying value of goodwill during fiscal 2010. Comparatively, during fiscal 2009, the
Company did not incur an impairment charge against the carrying value of goodwill. An impairment charge of $891,000 was recorded against the carrying value of intangible assets associated with its
wholesale divisionMary L., during the fourth quarter of fiscal 2009, related to the discontinuance of Mary L. In addition, pursuant to the employee separation agreements entered into with
two of the Company's then officers, the Company recorded a pre-tax charge of $204,000 during the third fiscal quarter of 2009 for the remaining net book value of the
non-compete agreements contained in their employment agreements. An impairment charge of $1.0 million was recorded against the carrying value of goodwill during the fourth quarter
of fiscal 2008.

Self Insurance.We are self-insured for losses and liabilities related primarily to employee health and welfare claims up to certain
thresholds. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance

24

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industry
and based on Company experience. Adjustments to earnings resulting from changes in historical loss trends have been insignificant for fiscal 2010, 2009 and 2008. Further, we do not anticipate
any significant change in loss trends, settlements or other costs that would cause a significant change in our earnings. We maintain stop loss insurance coverage which covers us for benefits paid in
excess of limits as defined in the plan.

Gift Cards, Gift Certificates and Credits.The Company sells gift cards and gift certificates ("Gift Cards") and issues credits to its
customers when
merchandise is returned ("Merchandise Credit"), which do not expire. The Company recognizes sales from Gift Cards when they are redeemed by the customer and income when the likelihood of the Gift Card
and Merchandise Credit being redeemed by the customer is remote ("Gift Card breakage"), since the Company has determined that it does not have a legal obligation to remit the unredeemed value to the
relevant jurisdiction as abandoned property. The Company determines Gift Card breakage income based upon historical redemption patterns and the remaining unredeemed percentage at the end of our
historical data of 3.5 years. Historical redemptions of Merchandise Credits ranged from 64% in the first quarter to 0.03% in the fourteenth quarter subsequent to the issue date, resulting in an
average of approximately 95% redeemed or 5% unredeemed Merchandise Credits over the historical data of 3.5 years. We have determined that redemption would be remote based on the fact that, by
the fourteenth quarter since issue date, the redemption rate approximated 0%, indicating that the probability of such cards being redeemed is remote. As such, we have recorded breakage income based
upon this 5%, which is reviewed on a quarterly basis for propriety. Breakage income represents the balance of Gift Cards and Merchandise Credit, for which the Company believes the likelihood of
redemption by the customer, is remote. At that time, the Company will recognize breakage income for those Gift Cards and Merchandise Credit.

The
Company recorded breakage income of $196,000, $229,000 and $287,000 during fiscal year ended 2010, 2009 and 2008, respectively.

Revenue Recognition.Sales are recognized at the "point of sale," which occurs when merchandise is sold in an
"over-the-counter" transaction or upon receipt by a customer. Sales of merchandise via our web-site are recognized at the expected time of delivery to the customer.
Our customers have the right to return merchandise. Sales are reported net of actual and estimated returns. We maintain a reserve for potential product returns and record, as a reduction to sales, a
provision for estimated product returns, which is determined based on historical experience. Charges/(credits) to earnings resulting from revisions to estimates on our sales return provision were
approximately $77,000, ($80,000) and ($202,000) for fiscal 2010, 2009 and 2008, respectively. Amounts billed to customers for shipping and handling fees are included in net sales at the time of
shipment. Costs incurred at our stores for shipping and handling is included in cost of sales. The Company records revenues net of applicable sales tax.

The
Company's co-branded customer credit card program, which was introduced during fiscal 2007, entitles the Company to receive from the issuing bank a
non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the
life of the contract. During fiscal 2010, 2009 and 2008, the Company received $780,000, $1.1 million and $1.4 million, respectively, in connection with activated credit cards. The amount
of fee income recorded in connection with activated credit cards in fiscal 2010, 2009 and 2008 was $678,000, $456,000 and $218,000, respectively.

The
Company also offers its credit card holders a program whereby points can be earned on net purchases made with the co-branded credit card. Five reward points are awarded
for each dollar spent at Cache and one reward point is awarded for each dollar spent at non-Cache businesses. Cardholders whose credit card account is not delinquent, in default or closed
will be automatically eligible to receive

25

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a
$25 Cache gift card upon accrual of 2,500 reward points. The issuing bank bears the cost of the reward program and is responsible for the administration and management of the program.

The
Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other
businesses. Cache has determined that since it has not incurred any significant or recurring costs in relation to the co-branded credit card program the sales royalties earned in
connection to the agreement will be recorded under net sales. The fees that are incurred by the Company are cardholder incentives, which are funded from the fees paid by the issuing bank and Visa
U.S.A Inc. The amount of sales royalty income recorded was $373,000 in fiscal 2010, as compared to $328,000 and $248,000 in fiscal 2009 and fiscal 2008, respectively.

Income Taxes.The Company accounts for income taxes in accordance with "Income Taxes",
Topic 740 of the FASB ASC. This statement requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and
tax bases of assets and liabilities, using applicable tax rates for the years in which the differences are expected to reverse. When tax contingencies become probable, a liability for the contingent
amount is estimated based upon the Company's best estimation of the potential exposures associated with the timing and amount of deductions, as well as various tax filing positions. As of
January 1, 2011, the Company had recorded a
$271,000 reserve, net of federal benefit for potential tax contingencies. Comparatively, the Company had recorded reserves of $301,000 and $331,000, net of federal benefit for potential tax
contingencies, for fiscal periods ended January 2, 2010 and December 27, 2008, respectively.

During
fiscal 2010, 2009 and 2008, the Company generated federal net operating losses of approximately $16.6 million, $9.0 million and $9.2 million, respectively. At
January 1, 2011, the Company had a Federal net operating loss ("NOL") carry-forward of $16.6 million available, for carry-forward for the next 20 years, through
2030. The losses generated in both fiscal 2009 and 2008 were carried back to offset taxable income generated in fiscal 2006 and 2005.

In
assessing the realization of our deferred tax assets, we consider all available evidence to determine whether it is more likely than not that some portion or all of the net deferred
tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, during the periods in which those temporary differences become
realizable. We consider the scheduled reversal of deferred tax assets (including the impact of available carry-back and carry-forward periods), and projected taxable income in assessing
the realization of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company's current or previous losses are given more
weight than its projected future performance. Consequently, based on our evaluation of all available evidence, in particular our recent operating losses, we established a federal valuation allowance
of $5.1 million at January 1, 2011. For state income tax purposes, the Company has established a valuation allowance in the amount of $68,000 in fiscal 2009, primarily to reserve for the
possible non-utilization of state NOL carry-forwards, which may not be realized in future periods before the NOLs expire. The Company increased the state valuation allowance at
January 1, 2011 to $650,000. The Company's state NOLs expire from 2013 through 2030.

The
Company accounts for Uncertainty in Income Taxes in accordance with Topic 740 of the FASB ASC, which prescribes a comprehensive model of how a company should recognize, measure,
present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The provision also states that a tax benefit from an uncertain
tax position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax
benefit that has greater than

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a
50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.

The
cumulative effect of this adoption did not result in any adjustment in the Company's liability for unrecognized income tax benefits.

Balance at January 2, 2010

$
435,000Additions based on tax positions related to the current year


Additions for tax positions for prior years


55,000Reductions for tax positions for prior years due to lapse of applicable statute of limitations


(79,000
)Settlements


Balance at January 1, 2011

$
411,000


Included
in the above ending balance are tax positions of $271,000, which, if recognized, would favorably affect the effective tax rate.

The
Company's continuing practice is to include estimated interest and penalties, if any, in computing the amount that is recognized within income tax expense relating to uncertain
income tax positions. As of January 1, 2011, the Company had accrued $151,000 of interest and penalties related to uncertain tax positions, which is included in the $411,000 tax contingency
noted above.

Although
the Company believes that it has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company's accrued position.
Accordingly, the Company's provisions on federal, state and local tax-related matters to be recorded in the future may change, as revised estimates are made or the underlying matters are
settled or otherwise resolved. As of January 1, 2011, the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease
within the next twelve months.

The
Company and certain of its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and local jurisdictions.

The
Company had previously reached agreement with the IRS and closed the audit of fiscal year 2005, with no change to the tax return. The Internal Revenue Service is currently examining
the carry-back claims (Form 1139) for the losses incurred in fiscal 2009 and 2008, which were carried back against taxable income recorded in fiscal 2007 and 2006. The examination
is under the auspices of the Joint Committee on Taxation due to the size of the tax refund. The Company does not expect that any adjustments shall be made to the tax refunds received.

As
for state and local income taxes, with few exceptions, the Company is subject to state and local income tax examinations by taxing authorities for years after 2005.

Stock-based compensation.Stock-based compensation expense for all stock-based awards program, including grants of stock options, is
recorded in
accordance with "CompensationStock Compensation", Topic 718 of the FASB ASC. The grant date fair value for stock options is calculated
using the Black-Scholes option valuation model. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding
prior to exercise, the associated volatility and the expected dividends. All employee stock options were granted at or above the grant date market price. Judgment is required in estimating the amount
of share-based awards expected to be forfeited prior to vesting. In accordance with the stated guidance, if actual forfeitures differ significantly from these estimates, share-based compensation
expense could be materially impacted. The Company recognized $461,000, $400,000 and $299,000 in share-based compensation expense during fiscal 2010, 2009 and 2008, respectively.

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Results of Operations

The following table sets forth our operating results, expressed as a percentage of net sales:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1, 2011

January 2, 2010

December 27, 2008Operating ResultsNet sales


100.0
%

100.0
%

100.0
%Cost of sales


61.8


60.1


58.7Gross profit


38.2


39.9


41.3Store operating expenses


36.8


36.0


35.9General and administrative expenses


9.7


8.3


8.0Exit costs


0.0


0.0


1.0Impairment charges


4.9


1.2


0.8Employee separation charge


0.0


0.9


0.0Operating loss


(13.2
)

(6.5
)

(4.4
)Other income (net)


0.0


0.0


0.2Loss before income taxes


(13.2
)

(6.5
)

(4.2
)Income tax benefit


(2.2
)

(2.6
)

(1.6
)Net loss


(11.0
)%

(3.9
)%

(2.6
)%


52 Weeks Ended January 1, 2011 (Fiscal 2010) Compared to 53 Weeks Ended January 2, 2010 (Fiscal 2009)

Net sales.Net sales decreased to $206.5 million from $219.8 million, a decrease of $13.3 million, or 6.0%, below the
prior
fiscal year. This reflected $4.6 million of decreased net sales, as a result of a 2.3% decrease in comparable store sales for the fifty-two week period. Fiscal 2009 net sales
included a fifty-third week, which represented $4.7 million in net sales. Net sales for our non-comparable stores decreased $3.2 million as compared to fiscal 2009. Included
in fiscal 2009 net sales were $1.1 million from our Mary L. division, which the Company discontinued during the first quarter of fiscal 2010. These are the primary factors that resulted in the
decrease in net sales during fiscal 2010. The decrease in sales also reflected continuing macroeconomic uncertainty and a shift in consumer spending patterns that favored lower priced or discounted
merchandise. The decrease in net sales during fiscal 2010 reflected a 2.5% decrease in average dollars per transaction offset by a small increase of 0.3% in the number of sales transactions.

Gross profit.Gross profit decreased to $78.9 million from $87.8 million, a decrease of $8.9 million, or 10.1%, as
compared to
the prior fiscal year. Fiscal 2009 gross profit for the fifty-third week was approximately $2.7 million. Therefore, excluding the fifty-third week from fiscal 2009 results, the gross profit for
fiscal 2010 would have decreased approximately $6.2 million or 7.2%. The decrease in fiscal 2010 was principally due to lower net sales, as described above and to a lesser extent, an increase
in markdowns as a percent of sales and an increase in operational costs related to our design, production and sourcing departments. As a percentage of net sales, gross profit decreased to 38.2% from
39.9%, as compared to the prior year period.

Store operating expenses.Store operating expenses decreased to $75.9 million from $79.2 million, a decrease of
$3.3 million, or
4.2%, below the prior fiscal year. As a percentage of net sales, store operating expenses increased to 36.8% from 36.0%, primarily due to the decrease in net sales. Store operating expenses decreased
primarily due to reductions in payroll ($2.0 million), store property and real estate taxes ($707,000) and depreciation expense ($1.9 million), which was offset by an increase in

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advertising
expense ($1.3 million). Payroll expenses decreased in fiscal 2010, as a result of a reduction in store level employees and hours of store coverage. The decrease in store property
and real estate taxes were primarily due to a decrease in the number of stores in operation during fiscal 2010, as compared to fiscal 2009. Depreciation expense decreased as a result of certain assets
being fully depreciated prior to fiscal 2010, coupled with an impairment charge of $1.9 million for 23 underperforming stores during the fourth quarter of 2009. An increase in
advertising expense was primarily due to an increase in spending for direct mail and costs associated with printed materials. Fiscal 2009 store expenses for the fifty-third week were approximately
$1.1 million. Therefore, excluding the fifty-third week from fiscal 2009, store operating expenses for fiscal 2010 would have decreased approximately $2.2 million, or 2.8%.

General and administrative expenses.General and administrative expenses increased to $20.0 million from $18.3 million, an
increase of
$1.7 million or 9.3%, over the prior fiscal year. As a percentage of net sales, general and administrative expenses increased to 9.7% from 8.3%. The increase in general and administrative
expense was primarily due to an increase in legal fees primarily associated with the Chico's lawsuit; see Item 3 herein for additional details. Fiscal 2009 general and administrative expenses
for the fifty-third week were approximately $431,000. Therefore, excluding the fifty-third week from fiscal 2009 results, general and administrative expenses for fiscal 2010 would have increased
approximately $2.1 million, or 11.6%.

Impairment charges.The Company recorded a pre-tax impairment charge of approximately $9.1 million ($7.5 million after tax
or $0.59 per diluted share) against the remaining carrying value of the Company's goodwill associated with its AVD reporting unit and a pre-tax impairment charge of approximately $974,000
associated with 15 underperforming stores ($806,000 after tax or $0.06 per diluted share) during the fourth quarter of fiscal 2010. Comparatively, a pre-tax impairment charge of
$1.9 million ($1.1 million after tax or $0.09 per diluted share) associated with 23 underperforming stores was recorded during fiscal 2009. In addition, the Company also recorded a
pre-tax impairment charge of approximately $891,000 ($540,000 after tax or $0.04 per diluted share) against the carrying value of its intangible assets associated with its wholesale
divisionMary L. during fiscal 2009.

Other income/expense.Other income decreased to $26,000 from $32,000, a decrease of $6,000, or 18.8%, as compared to last year. This
decrease was due
to a reduction in interest income of $75,000, primarily caused by lower average cash balances during fiscal 2010 as well as lower interest rates in fiscal 2010.

Income taxes.During fiscal 2010, income tax benefit decreased to $4.6 million from $5.7 million a decrease of
$1.1 million or
19.3%, as compared to the same period last year. The income tax benefit was attributable to the operating loss incurred by the Company during fiscal 2010, as discussed above. During fiscal 2010, we
evaluated our assumptions regarding the recoverability of our deferred tax assets. Based on all available evidence we determined that the recoverability of our deferred tax assets was limited.
Accordingly, in fiscal 2010 we recognized a non-cash provision of $5.7 million to increase the valuation allowance against our deferred tax assets. As a result of recording the
increase in the valuation allowance, the Company's effective income tax rate decreased to 17.2% in fiscal 2010, from 39.4% in fiscal 2009.

Net income (loss).As a result of the factors discussed above, net loss of $22.4 million was recorded
during fiscal 2010 as compared to a net loss of $8.7 million in the same period last year, an increase of $13.7 million.

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Table of Contents

53 Weeks Ended January 2, 2010 (Fiscal 2009) Compared to 52 Weeks Ended December 27, 2008 (Fiscal 2008)

Net sales.Net sales decreased to $219.8 million from $265.7 million, a decrease of $45.9 million, or 17.3%, below the
prior
fiscal year. This reflected $46.1 million of decreased net sales, as a result of an 18.0% decrease in comparable store sales, a decrease of $3.5 million of net sales from our wholesale
division, partially offset by an increase of $3.4 million from our non-comparable store sales. The decrease in sales was primarily due to ongoing macroeconomic events, 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 2009 reflected a 4.6% decrease in the number of sales transactions coupled with a 14.0% decrease in average dollars per transaction, which we believe primarily resulted from
macroeconomic conditions as well.

Gross profit.Gross profit decreased to $87.8 million from $109.7 million, a decrease of $21.9 million, or 20.0%, 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 39.9% from
41.3%. This decrease as a percentage of net sales was primarily driven by deleveraging of store occupancy costs, resulting from lower sales; an increase in markdowns (as a percentage of net sales) and
to a lesser extent, an increase in operational costs related to our design, production and sourcing departments. This decrease was partially offset by an increase in cost savings from a new shipping
initiative to stores, which was implemented during the fourth quarter of fiscal 2008. The increase in markdowns was due to the significant deterioration in the United States economic environment.

Store operating expenses.Store operating expenses decreased to $79.2 million from $95.3 million, a decrease of
$16.2 million,
or 17.0%, below the prior fiscal year. As a percentage of net sales, store operating expenses increased to 36.0% from 35.9%. Store operating expenses decreased primarily due to the Company's
initiatives to reduce costs. Due to these initiatives, the Company achieved reductions principally in payroll ($6.3 million) and marketing ($3.8 million) expenses. Payroll expenses
decreased primarily due to lower headcount and a reduction in hours worked by store employees. The decline in advertising expense was primarily due to a reduction in spending for direct mail and
production costs, related to printed materials. Group and liability insurance ($1.7 million) expense decreased due to changes in the Company's medical plan, coupled with a reduction in premiums
for liability insurance resulting from renegotiated contracts. Depreciation expense ($1.6 million) decreased as a result of certain assets being fully depreciated prior to fiscal 2009, the
write-off of the remaining net book value of 16 underperforming stores, as indicated below, under "Exit costs" and also due to the Company's decision to reduce capital expenditures in
fiscal 2009. In addition, credit card fees ($1.2 million) were lower due to a decrease in sales coupled with renegotiated contracts. The Company also had reductions in sales supplies ($541,000)
and repair and maintenance expense ($469,000), due to the Company's cost savings initiatives.

General and administrative expenses.General and administrative expenses decreased to $18.3 million from $21.3 million, a
decrease of
$3.0 million or 13.9%, below the prior fiscal year. As a percentage of net sales, general and administrative expenses increased to 8.3% from 8.0%. The reduction in general and administrative
expenses was primarily due to the Company's initiatives to reduce costs. Decreases in general and administrative expenses were primarily in professional fees ($764,000) and travel expense ($679,000).
Professional fees were reduced due to reduced legal activity in fiscal 2009 and travel expense reduced due to a reduction in travel by corporate and regional management. Shipping expense ($598,000)
decreased due to the discontinuation of outsourced shipping services for our wholesale products, which were shipped through the Company's primary carrier, coupled with decreased volume of wholesale
products. Payroll expense ($252,000) decreased principally

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due
to a reduction of base salaries paid to several of the Company's officers and a reduction in average headcount during fiscal 2009.

Exit costs.During fiscal 2009, the Company reversed approximately $65,000 of severance and lease termination costs recorded during
fiscal 2008. This
reversal was primarily due to the Company's decision to keep open one of the 16 stores that the Company had planned to close. Of the remaining 15 stores, 14 were closed prior to January 2,
2010, and one subsequent to that date. This amount was net of severance and other costs for discontinuing its wholesale divisionMary L., which was determined during the fourth quarter of
fiscal 2009. 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.
Included in the store exit costs was 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. Of the 16 underperforming stores, the Company closed eight during fiscal 2009 and six during fiscal 2008.

Impairment charges.The Company recorded a pre-tax impairment charge of approximately $1.9 million associated with 23
underperforming stores ($1.1 million after tax or $0.09 per diluted share) during fiscal 2009 and a pre-tax impairment charge of $1.1 million ($715,000 after tax or $0.05 per
diluted share) associated with 12 underperforming stores during fiscal 2008.

In
addition, the Company also recorded a pre-tax impairment charge of approximately $891,000 ($540,000 after tax or $0.04 per diluted share) against the carrying value of its
intangible assets associated with its wholesale divisionMary L. during fiscal 2009 and a pre-tax impairment charge of approximately $1.0 million ($624,000 after tax or
$0.05 per diluted share) against the carrying value of its goodwill for its AVD reporting unit during fiscal 2008.

Employee separation charge.During fiscal 2009, the Company recorded a pre-tax employee separation charge of approximately
$2.0 million ($1.2 million after tax or $0.09 per diluted share) in connection with separation agreements entered into with two of its then executive officers. The $2.0 million
charge also included a charge of $204,000 for the remaining net book value of the non-compete agreements contained in their employment agreements with the Company, which were terminated
pursuant to the separation agreements. See Note 11 to the consolidated financial statements included herein for additional information.

Other income/expense.Other income decreased to $32,000 from $463,000, a decrease of $431,000, or 93.1%, as compared to last year. This
decrease was
due to a reduction in interest income of $488,000, primarily caused by lower interest rates in fiscal 2009.

Income taxes.During fiscal 2009, income tax benefit increased to $5.7 million from $4.3 million an increase of
$1.4 million or
33.2%, as compared to the same period last year. The income tax benefit was attributable to the operating loss incurred by the Company during fiscal 2009, as discussed above. The effective rate
increased to 39.4% in fiscal 2009 from 37.4% in fiscal 2008.

Net income (loss).As a result of the factors discussed above, net loss of $8.7 million was recorded during fiscal 2009 as
compared to a net
loss of $7.1 million in the same period last year, an increase of $1.6 million.

Quarterly Results and Seasonality

We experience seasonal and quarterly fluctuations in our net sales and operating income. Our quarterly results of operations may
fluctuate significantly as a result of a variety of factors, including the timing of new store openings, fashion trends and shifts in timing of certain holidays. Our business is subject to seasonal
influences, characterized in years other than fiscal 2010 by highest sales during our

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fourth
fiscal quarter (October, November and December) and lowest sales during our third fiscal quarter (July, August and September).

The
following table includes our unaudited quarterly results of operations data for each of the eight quarters during the two-year period ended January 1, 2011. We
derived this data from our unaudited quarterly consolidated financial statements. We believe that we have prepared this information on the same basis as our audited consolidated financial statements
and that we have included all necessary adjustments, consisting only of normal recurring adjustments, to present fairly the selected quarterly information when read in conjunction with our audited
annual consolidated financial statements and the notes to those statements included elsewhere in this document. The operating results for any particular quarter are not necessarily indicative of the
operating results for any future period.

13 Weeks Ended

13 Weeks Ended

14 Weeks
EndedApril 3,
2010

July 3,
2010

Oct. 2,
2010

Jan. 1,
2011

Mar. 28,
2009

June 27,
2009

Sept. 26,
2009

Jan. 2,
2010(Unaudited)(Dollars in thousands)Operating ResultsNet sales

$
48,550

$
56,575

$
45,524

$
55,870

$
53,006

$
56,866

$
44,941

$
64,962Gross profit


16,715


24,933


15,902


21,307


21,795


25,230


14,214


26,546Operating income (loss)


(6,618
)

1,444


(8,090
)

(13,833)
(1)

(2,529
)

1,318


(10,854)
(2)

(2,326)
(1)(2)Net income (loss)

$
(4,081
)
$
897

$
(5,027
)
$
(14,221)
(3)
$
(1,595
)
$
845

$
(6,783
)
$
(1,161
)As a Percentage of Net SalesNet sales


100.0
%

100.0
%

100.0
%

100.0
%

100.0
%

100.0
%

100.0
%

100.0
%Gross profit


34.4
%

44.1
%

34.9
%

38.1
%

41.1
%

44.4
%

31.6
%

40.9
%Operating income (loss)


(13.6
)%

2.6
%

(17.8
)%

(24.8
)%

(4.7
)%

2.3
%

(24.2
)%

(3.6
)%Net income (loss)


(8.4
)%

1.6
%

(11.0
)%

(25.5
)%

(3.0
)%

1.5
%

(15.1
)%

(1.8
)%Selected Operating DataNumber of stores open at end of period


285


284


281


282


294


291


289


286Comparable store sales increase/(decrease)


(6.8
)%

5.1
%

(0.2
)%

(6.4
)%

(20.7
)%

(23.0
)%

(21.7
)%

(7.1
)%


(1)Consists
of impairment charges of approximately $974,000 for 15 underperforming stores and $1.9 million for 23 underperforming stores, for fiscal
2010 and 2009, respectively. In addition, includes impairment charges of approximately $9.1 million against the carrying value of the Company's goodwill, for its AVD reporting unit and $891,000
against the carrying value of the Company's intangible assets associated with its wholesale divisionMary L., for fiscal 2010 and 2009, respectively.(2)Consists
of charges recorded in connection with separation agreements entered into with two of its then executive officers for a net total of approximately
$2.0 million.(3)During
the fourth quarter of fiscal 2010, we recorded a $5.7 million non-cash tax charge related to a valuation allowance against net
deferred tax assets.


32

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Table of Contents

Liquidity and Capital Resources

Our cash requirements are primarily for the construction of new stores and inventory for new stores, as well as the remodeling of
existing stores. We have historically satisfied our cash requirements principally through cash flow from operations.

As
of January 1, 2011, we had working capital of $28.3 million, which included cash and marketable securities of $28.0 million. The cash and marketable securities at
January 1, 2011 included certificates of deposit of $2.5 million, which have been placed by the Company as collateral against a one year credit facility.

The
following table sets forth our cash flows for the period indicated:

52 Weeks Ended

53 Weeks Ended

52 Weeks EndedJanuary 1, 2011

January 2, 2010

December 27, 2008Net cash provided by (used in) operating activities

$
(4,625,000
)
$
11,158,000

$
6,395,000Net cash provided by (used in) investing activities


4,737,000


(8,322,000
)

7,061,000Net cash used in financing activities


(1,019,000
)

(2,155,000
)

(15,864,000
)Net increase (decrease) in cash and cash equivalents

$
(907,000
)
$
681,000

$
(2,408,000
)


During
fiscal 2010, $4.6 million of cash used in operating activities was primarily due to the operating loss incurred during fiscal 2010, deferred income taxes of
$4.7 million and amortization of deferred rent of $2.5 million. These decreases were offset by an increase in impairment charges of $10.1 million, which consisted of
$9.1 million for the remaining carrying value of goodwill and $974,000 for assets related to 15 underperforming stores, depreciation and amortization charge of $9.4 million, decrease in
receivables and income tax receivables of $4.0 million, primarily due to $3.3 million collected for income tax receivable recorded in fiscal 2009 and decrease in inventories of $769,000
due to Company's efforts to better align inventory to the decreased sales volumes at stores.

During
fiscal 2009, $11.2 million in cash provided by operating activities was primarily due to depreciation and amortization of $11.9 million, an impairment charge of
$2.7 million against the carrying value of the Company's intangible assets and assets related to 23 underperforming stores, write-off of the non-compete agreement in
connection with employee separation charge of $204,000 for separation agreements with two of its former executive officers, decrease in income tax receivable of $3.0 million and
$5.7 million due to decrease in inventories, which are offset by amortization of deferred rent of $2.1 million, deferred taxes of $2.6 million and net loss of $8.7 million.
Inventories decreased due to Company's efforts to better align inventory to the decreased sales volumes at stores. Income tax receivable decreased due to receipt of $3.0 million from federal
and state governments. These decreases were offset by an increase in prepaid expenses and other current assets of $3.3 million, principally due to prepayment of January 2010 rent for the
Company's stores.

During
fiscal 2008, $6.4 million in cash provided by operating activities was primarily due to depreciation and amortization of $12.8 million, a write-down of
equipment and leasehold improvements, net of deferred rent of $1.6 million for 16 underperforming stores, impairment charge of $2.1 million for goodwill and assets related to 12 stores
and amortization of deferred rent for $2.0 million. The following also contributed to the $6.4 million generated in cash from operating activities; a decrease in inventories of
$8.2 million, due to the Company's conscious efforts to not maintain excess inventory due to the current economic crisis, offset by increases in receivables of $4.0 million and decreases
in accounts payable of $4.1 million. The increase in receivables was primarily due to an income tax receivable of $5.9 million, due to the Company's fiscal 2008 net loss, coupled with
estimated tax payments made during fiscal 2008 and 2007.

Investing
activities generated $4.7 million during fiscal 2010, used $8.3 million during fiscal 2009 and generated $7.1 million during fiscal 2008. Cash provided by
investing activities during fiscal 2010

33

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Table of Contents

was
due to the net maturities of marketable securities, which generated approximately $9.1 million of cash flows as a result of the Company's investments. The purchase of equipment and
leasehold improvements of approximately $3.4 million for new and remodeled stores, coupled with an increase in restricted certificates of deposit of $1.0 million offset the cash
generated from the Company's investments. Our capital requirements depend primarily on the number of new stores we open, the number of existing stores we remodel and the timing of these expenditures.
Projected capital expenditures for fiscal 2011 to fund remodelings are approximately $1 to $2 million.

Based
on our experience with new store openings, we estimate that the average net investment to open new stores is approximately $225,000 to $375,000, which includes new store opening
expenses and initial inventory, net of landlord contributions. We estimate that the average net investment to remodel an existing store is approximately $200,000 to $300,000, net of landlord
contributions.

Cash
used by financing activities during fiscal 2010, 2009 and 2008 was $1.0 million, $2.2 million and $15.9 million, respectively. The usage of cash by financing
activities during fiscal 2010 and 2009 was
primarily for the repayment of the Company's note payable of $1.0 million and $1.6 million, respectively. Cash usage during fiscal 2008 was principally for the repurchase of our common
stock in the amount of $15.0 million.

On
April 22, 2010, the Company amended its one year credit facility with Bank of America (the "Bank"). Under this facility, the Company may direct the Bank to issue letters of
credit up to a total of $2.5 million. Any outstanding letters of credit under this facility are collateralized by a security interest in various certificates of deposit held by the Company and
its subsidiaries with the Bank amounting to a total of $2.5 million. This one year credit facility will expire on May 1, 2011. The Company is currently reviewing its future requirements
for a credit facility and plans to initiate discussion with its bankers to renew this credit line or negotiate a new credit facility.

The
Company had outstanding letters of credit of approximately $1.5 million and $660,000 at January 1, 2011 and January 2, 2010, respectively.

We
believe that cash flow from operations and our current available cash will be sufficient to meet our working capital needs for at least the next 12 months. If our cash flow
from operations should decline significantly or if we should accelerate our store expansion or remodeling program, it may be necessary for us to seek additional sources of capital in the future.

Contractual Obligations and Commercial Commitments

The following tables summarize our minimum contractual obligations and commercial commitments as of January 1, 2011:

Payments Due in PeriodTotal

Within
1 Year

2 - 3
Years

4 - 5
Years

After
5 Years(In thousands)Contractual ObligationsEmployment contracts

$
1,446

$
1,000

$
446

$


$
Purchase obligations


32,556


32,556








Operating leases(1)


113,344


24,922


42,613


26,783


19,026Maturities of note payable including interest


1,888


1,563


325





Total

$
149,234

$
60,041

$
43,384

$
26,783

$
19,026


34

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Table of Contents



Payments Due in PeriodTotal

Within
1 Year

2 - 3
Years

4 - 5
Years

After
5 Years(In thousands)Commercial CommitmentsLetters of credit(2)

$
1,533

$
1,533

$


$


$
Liability for unrecognized income tax benefits


411


411








Total

$
1,944

$
1,944

$


$


$



(1)The
operating leases included in the table above do not include contingent rent based upon sales volume, which represented approximately less than 1% of
minimum rent expense in fiscal 2010, or other occupancy costs such as promotional funds, common area maintenance and heating, ventilation and air conditioning charges, which represented approximately
46.5% of net minimum rent expense in fiscal 2010.(2)We
issue letters of credit primarily for the importation of merchandise inventories and as security deposit for our corporate office.


In
February 2009, Cache entered into a new employment agreement with the Company's current Chairman and Chief Executive OfficerThomas E. Reinckens. The agreement commenced
on February 24, 2009 for a term of three years expiring on February 2012. The previous agreement expired in February 2009.

In
October 2009, Cache entered into an employment agreement with Rabia Farhang, the Company's new Executive Vice President and General Merchandise Manager. The agreement is for a term of
three years, expiring in November 2012.

Off-Balance Sheet Arrangements

On September 23, 2009, the Company entered into a separation agreement with two of its then executive officers. Pursuant to one
of these separation agreements, a former executive may receive contingent payments of up to $500,000 in the aggregate, based on the achievement by the Company over the next 4 years of certain
net income targets set forth in the agreement. For the fiscal year ended January 1, 2011, no accrual was recorded for this earn-out provision. Other than the operating lease
commitments set forth in the table above and the aforementioned statement regarding the earn-out provision, we are not a party to any material off-balance sheet financing
arrangements.

Recent Accounting Developments

See the section "Recent Accounting Developments" included in Note 1 in the Notes to the Consolidated Financial Statements for a
discussion of recent accounting developments and their impact on our consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk relates primarily to changes in interest rates. The interest rate risk involves the short-term investment
of excess cash in short-term, investment-grade interest-bearing securities. These investments are included in cash and equivalents, marketable securities, and certificates of
depositrestricted on our balance sheet. If there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our
cash flows and results of operations.

35

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Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's unaudited selected quarterly financial data is incorporated herein by reference to Note 17 to the Company's
consolidated financial statements contained herein. The Company's consolidated financial statements and the report of the independent registered public accounting firm are listed at Item 15 and
are included in this Form 10-K on pages F-1 through F-31.

ITEM 9.    CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

(1)Disclosure Controls and ProceduresThe Company maintains a system of disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed
to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In
connection with the preparation of this Annual Report on Form 10-K, as of January 1, 2011, an evaluation was performed under the supervision and with the
participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act).

Based
on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of January 1, 2010.

(2)Management's Annual Report on Internal Control over Financial ReportingManagement is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). A system of internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes
in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

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

Under
the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of the effectiveness of our internal control over financial
reporting as of January 1, 2011 using the criteria set forth byInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that our internal control over financial reporting was effective as of January 1,
2011.

36

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Table of Contents

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

(3)Change in Internal Control Over Financial ReportingDuring the fourth fiscal quarter of our year ended
January 1, 2011, there were no changes in the Company's internal control over financial reporting that has materially affected, or is likely to materially affect, the Company's internal control
over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

37

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Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The following information appearing in the Company's 2011 Proxy Statement is incorporated herein by
reference:



The
Company has filed, as exhibits to this Annual Report on Form 10-K for the year ended January 1, 2011, the certifications of its Chief Executive Officer and
Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2004.

Item 11.    Executive Compensation

Information appearing under the following headings of the Company's 2011 Proxy Statement is incorporated herein by reference: "Election
of Directors" and "Executive Compensation."

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

Information appearing in the Company's 2011 Proxy Statement, under the headings "Executive Compensation" and "Principal Shareholders
and Share Ownership by Certain Beneficial Owners and Management" is incorporated herein by reference.

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

Information appearing in the Company's 2011 Proxy Statement, under the headings "Election of Directors," "Corporate Governance" and
"Certain Relationships and Related Party Transactions" is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services

Information regarding fees paid to the Company's independent registered public accounting firm and approval of services by our audit
committee, appearing in the Company's 2011 Proxy Statement under the heading "Ratification of the Appointment of Mayer Hoffman McCann CPAs as Independent Registered Public Accounting Firm," is
incorporated herein by reference.

38

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Table of Contents

PART IV

ITEM 15.    EXHIBITS and FINANCIAL STATEMENT SCHEDULE

(a)

The following documents are filed as part of this Annual Report on Form 10-K:(1)

The financial statements listed in the "Index To The Consolidated Financial Statements" on page F-1.(2)

The financial statement schedule is included on page F-31. Other schedules may be omitted because they are not applicable or the required information is presented in the financial statements or notes
thereto.(3)

Exhibits. The exhibit index is included below. A Stockholder may obtain a copy of any of the exhibits included in the Annual Report on Form 10-K upon payment of a fee to cover the reasonable expenses
of furnishing such exhibits, by written request to Cache, Inc., at 1440 Broadway, 5th Floor, New York, New York 10018, Attention: Chief Financial Officer.


3.1

Articles of Incorporation of the Company and all amendments thereto(1)3.2

Bylaws of the Company(2)10.1

Lease, dated July 28, 2003, between the Company, as Tenant, and New 1440 Broadway Partners, LLC, as Landlord, for the Company's offices at 1440 Broadway, New York, New York(6)10.2

2000 Stock Option Plan of the Company(3)(10)10.3

Form of Option Agreement relating to Options issued under the 2000 Stock Option Plan(4)(10)10.4

2003 Stock Option Plan of the Company(5)(10)10.5

Form of Option Agreement relating to Options issued under the 2003 Stock Option Plan(6)(10)10.6

2008 Stock Option Plan of Company(7)(10)10.7

Employment Agreement, dated February 24, 2009, between the Company and Thomas E. Reinckens(8)(10)10.8

Employment Agreement, dated October 21, 2009, between Cache, Inc. and Rabia Farhang.(9)(10)12.1

Statements re: Computation of Ratios23.1

Consent of Mayer Hoffman McCann CPAs (The New York Practice of Mayer Hoffman McCann P.C.)31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)Incorporated
by reference to the Company's Current Report on Form 8-K, dated September 15, 1993.(2)Incorporated
by reference to the Company's Registration Statement on Form S-18, dated December 29, 1980.


39

---



Table of Contents

(3)Incorporated
by reference to the Company's Definitive Proxy Statement filed on September 18, 2001.(4)Incorporated
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001.(5)Incorporated
by reference to the Company's Definitive Proxy Statement filed on October 6, 2003.(6)Incorporated
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2003.(7)Incorporated
by reference to the Company's Current Report on Form 8-K, dated July 11, 2008.(8)Incorporated
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2008.(9)Incorporated
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2010.(10)Exhibits 10.2
through 10.8 are management contracts or compensatory plans or arrangements, which are required to be filed as an exhibit pursuant to
Item 15(b) of this Annual Report on Form 10-K.


40

---





Table of Contents

Signatures

Pursuant to the requirement 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.

CACHE, INC.Date: April 1, 2011

(Registrant)By:

/s/ THOMAS E. REINCKENS Thomas E. Reinckens Chairman of the Board and
Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Name

Title

Date/s/ THOMAS E. REINCKENS Thomas E. Reinckens

Chairman of the Board and Chief Executive Officer

April 1, 2011/s/ MARGARET FEENEY Margaret Feeney

Executive Vice President (Chief Financial Officer and Principal Accounting Officer)

April 1, 2011/s/ GENE G. GAGE Gene G. Gage

Director

April 1, 2011/s/ ARTHUR S. MINTZ Arthur S. Mintz

Director

April 1, 2011/s/ ANDREW M. SAUL Andrew M. Saul

Director

April 1, 2011/s/ MORTON J. SCHRADER Morton J. Schrader

Director

April 1, 2011


41

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Table of Contents

CACHE, INC. AND SUBSIDIARIES  CONSOLIDATED FINANCIAL STATEMENTS  FISCAL YEARS ENDED JANUARY 1, 2011,  JANUARY 2, 2010,  AND  DECEMBER 27, 2008

CACHE, INC. AND SUBSIDIARIES  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



INDEX

PAGEReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Stockholders' Equity


F-5Consolidated Statements of Cash Flows


F-6Notes to Consolidated Financial Statements


F-7Valuation and Qualifying Accounts


F-31


F-1

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Cache, Inc.
New York, New York

We
have audited the accompanying consolidated balance sheets of Cache, Inc. and subsidiaries as of January 1, 2011 and January 2, 2010, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended January 1, 2011. Our audits also included the financial statement
schedule listed in the Index at Item 15 for each of the years in the three-year period ended January 1, 2011. 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 on the financial statement schedule based on our
audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall 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 Cache, Inc. as of January 1,
2011 and January 2, 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended January 1, 2011 in conformity with
accounting principles generally accepted in the United States of America. 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.

/s/
Mayer Hoffman McCann CPAs

(The
New York Practice of Mayer Hoffman McCann P.C.)

New
York, New York
April 1, 2011

F-2

---





Table of Contents

CACHE, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

January 1,
2011

January 2,
2010ASSETSCURRENT ASSETSCash and equivalents (Note 1)

$
4,609,000

$
5,516,000Marketable securities (Note 2)


20,923,000


29,999,000Certificates of depositrestricted (Note 8)


2,500,000


1,500,000Receivables, net (Note 3)


2,855,000


3,411,000Income tax receivable (Note 3)


50,000


3,438,000Inventories, net (Note 4)


15,789,000


16,599,000Prepaid expenses and other current assets (Note 14)


5,029,000


4,943,000Total Current Assets


51,755,000


65,406,000EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net(Notes 5 and 10)


24,753,000


31,713,000GOODWILL(Note 6)





9,092,000INTANGIBLE ASSETS, net(Note 6)


102,000


102,000OTHER ASSETS(Note 14)


9,380,000


4,684,000Total Assets

$
85,990,000

$
110,997,000LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable

$
8,273,000

$
7,624,000Note payable (Note 6)


1,518,000


1,408,000Accrued compensation


2,551,000


2,668,000Accrued liabilities (Notes 7, 9 and 11)


11,150,000


11,783,000Total Current Liabilities


23,492,000


23,483,000NOTE PAYABLE(Note 6)


319,000


1,425,000OTHER LIABILITIES(Note 12)


13,867,000


15,806,000COMMITMENTS AND CONTINGENCIES(Note 13)STOCKHOLDERS' EQUITYCommon stock, par value $.01; authorized, 40,000,000 shares; issued 16,481,710 and 16,433,373 shares (Note 15)


165,000


164,000Additional paid-in capital


48,015,000


47,555,000Retained earnings


39,927,000


62,359,000Treasury stock, 3,682,199 shares, at cost (Note 15)


(39,795,000
)

(39,795,000
)Total Stockholders' Equity


48,312,000


70,283,000Total Liabilities and Stockholders' Equity

$
85,990,000

$
110,997,000


The
accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

F-3

---





Table of Contents

CACHE, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

52 Weeks
Ended52 Weeks
Ended

53 Weeks
EndedDecember 27, 2008January 1, 2011

January 2, 2010NET SALES

$
206,519,000

$
219,775,000

$
265,728,000COST OF SALES, including buying and occupancy


127,662,000


131,990,000


156,036,000GROSS PROFIT


78,857,000


87,785,000


109,692,000EXPENSESStore operating expenses


75,901,000


79,167,000


95,339,000General and administrative expenses


19,987,000


18,341,000


21,296,000Exit costs (Note 9)





(65,000
)

2,757,000Impairment charges (Notes 6 and 10)


10,066,000


2,744,000


2,137,000Employee separation charge (Note 11)





1,987,000


TOTAL EXPENSES


105,954,000


102,174,000


121,529,000OPERATING LOSS


(27,097,000
)

(14,389,000
)

(11,837,000
)OTHER INCOME (EXPENSE)Interest expense


(117,000
)

(186,000
)

(243,000
)Interest income


143,000


218,000


706,000TOTAL OTHER INCOME


26,000


32,000


463,000LOSS BEFORE INCOME TAXES


(27,071,000
)

(14,357,000
)

(11,374,000
)INCOME TAX BENEFIT(Note 14)


(4,639,000
)

(5,663,000
)

(4,252,000
)NET LOSS

$
(22,432,000
)
$
(8,694,000
)
$
(7,122,000
)BASIC LOSS PER SHARE

$
(1.76
)
$
(0.68
)
$
(0.53
)DILUTED LOSS PER SHARE

$
(1.76
)
$
(0.68
)
$
(0.53
)BASIC WEIGHTED AVERAGE SHARES OUTSTANDING


12,779,000


12,795,000


13,329,000DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING


12,779,000


12,795,000


13,329,000


The
accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

F-4

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Table of Contents

CACHE, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock





Treasury StockAdditional
Paid-In
Capital

Retained
EarningsShares

Amount

Shares

Amount

TotalBalance at December 29, 2007


16,319,358

$
163,000

$
46,136,000

$
78,175,000


1,695,032

$
(24,210,000
)
$
100,264,000Net loss











(7,122,000
)







(7,122,000
)Tax benefit from stock option exercises








160,000











160,000Issuance of common stock


90,678


1,000


560,000











561,000Stock based compensation








299,000











299,000Repurchase of common stock














1,676,968


(14,999,000
)

(14,999,000
)Balance at December 27, 2008


16,410,036


164,000


47,155,000


71,053,000


3,372,000


(39,209,000
)

79,163,000Net loss











(8,694,000
)







(8,694,000
)Issuance of common stock


23,337

















Stock based compensation








400,000











400,000Repurchase of common stock














310,199


(586,000
)

(586,000
)Balance at January 2, 2010


16,433,373


164,000


47,555,000


62,359,000


3,682,199


(39,795,000
)

70,283,000Net loss











(22,432,000
)







(22,432,000
)Issuance of common stock


48,337


1,000


91,000











92,000Stock based compensation








369,000











369,000Balance at January 1, 2011


16,481,710

$
165,000

$
48,015,000

$
39,927,000


3,682,199

$
(39,795,000
)
$
48,312,000


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

F-5

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Table of Contents

CACHE, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1, 2011

January 2, 2010

December 27, 2008Cash flows From Operating Activities:Net loss

$
(22,432,000
)
$
(8,694,000
)
$
(7,122,000
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


9,421,000


11,855,000


12,774,000Impairment charges


10,066,000


2,744,000


2,137,000Write down of equipment and leasehold improvements, net of deferred rent








1,570,000Employee separation chargewrite-off of non-compete agreements





204,000


Provision for sales allowances and doubtful accounts


(53,000
)

(62,000
)

(123,000
)Deferred income taxes


(4,724,000
)

(2,595,000
)

(1,474,000
)Excess tax benefit from stock-based compensation








(160,000
)Amortization of deferred rent


(2,503,000
)

(2,116,000
)

(1,996,000
)Amortization of deferred income for co-branded credit card


(678,000
)

(456,000
)

(218,000
)Gift card breakage


(196,000
)

(229,000
)

(287,000
)Stock-based compensation


461,000


400,000


299,000Non-cash exit costs





(65,000
)

Non-cash interest expense on note payable


23,000





54,000Gain from insurance proceeds


(98,000
)




Proceeds from insurance recovery


139,000





Change in assets and liabilities:Decrease (increase) in receivables and income tax receivable


3,997,000


2,982,000


(4,019,000
)Decrease in inventories


769,000


5,660,000


8,226,000Increase in prepaid expenses and other current assets


(58,000
)

(3,313,000
)

(169,000
)Increase (decrease) in accounts payable


649,000


1,249,000


(4,135,000
)Increase in accrued liabilities, accrued compensation and other liabilities


592,000


3,594,000


1,038,000Net cash provided by (used in) operating activities


(4,625,000
)

11,158,000


6,395,000Cash Flows From Investing Activities:Purchase of marketable securities


(23,383,000
)

(42,954,000
)

(42,118,000
)Maturities of marketable securities


32,459,000


38,108,000


59,852,000Certificates of depositrestricted


(1,000,000
)

(1,500,000
)

Purchase of equipment and leasehold improvements


(3,448,000
)

(1,976,000
)

(10,673,000
)Proceeds from insurance recovery


109,000





Net cash provided by (used in) investing activities


4,737,000


(8,322,000
)

7,061,000Cash Flows From Financing Activities:Proceeds from the issuance of common stock








561,000Excess tax benefit from stock-based compensation








160,000Repayment of note payable


(1,019,000
)

(1,569,000
)

(1,586,000
)Repurchase of common stock





(586,000
)

(14,999,000
)Net cash used in financing activities


(1,019,000
)

(2,155,000
)

(15,864,000
)Net increase (decrease) in cash and equivalents


(907,000
)

681,000


(2,408,000
)Cash and equivalents, at beginning of period


5,516,000


4,835,000


7,243,000Cash and equivalents, at end of period

$
4,609,000

$
5,516,000

$
4,835,000


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

F-6

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Table of Contents

CACHE, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Cache, Inc. (together with its subsidiaries, the "Company") operates 282 women's apparel specialty stores, as of
January 1, 2011. The Company specializes in the sale of high fashion women's apparel and accessories in the better to expensive price range.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and use 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. Actual results could differ from those estimates.

The
most significant estimates made by management include those made in the areas of inventory; impairment of long lived assets and goodwill; income taxes; self insurance reserves;
stock-based compensation, gift card breakage, sales returns and allowances and income tax uncertainties. Management periodically evaluates estimates used in the preparation of the consolidated
financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based on such periodic evaluations.

Fiscal Reporting Period

The Company reports its annual results of operations based on fiscal periods comprised of 52 or 53 weeks, which is in accordance
with industry practice. Results for fiscal 2010 include 52 weeks, as compared to 53 weeks for fiscal 2009 and 52 weeks for fiscal 2008.

Fair Value of Financial Instruments

The carrying amounts of certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximate their
estimated fair values due to their short-term nature. The Company's note payable includes imputed interest at 5% as the fair market value of this note is not readily determinable because
comparable instruments do not exist. The 5% imputed interest represented the Company's average return on its investment portfolio, at the inception of the note.

Cash and Equivalents

The Company considers all highly liquid investments that mature within three months or less when purchased to be cash equivalents.

F-7

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Marketable Securities

Marketable securities, at January 1, 2011 and January 2, 2010, primarily consist of short-term United States
Treasury bills and notes. The Company classifies its short-term investments as held-to-maturity. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the securities until maturity. Because the Company's held-to-maturity securities mature within one year of
the purchase date, the securities are classified as short-term marketable securities. Held-to-maturity debt securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts and such carrying values approximate fair value. A decline in the market value of any held-to-maturity security below
cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. No
impairment has occurred for the fiscal periods presented herein. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity investments, as
an adjustment to yield using the effective interest method. Interest income is recognized when earned. The fair value of our marketable securities totaled approximately $20.9 million and
$30.0 million, as of January 1, 2011 and January 2, 2010, respectively.

Allowance for Doubtful Accounts

The allowance for doubtful accounts, which is regularly reviewed, is an estimate of the amount of probable credit losses in the
existing accounts receivable. The allowance is determined based on historical write-off experience and the current retailer environment. Balances over 90 days past due and over a
specified amount are reviewed individually for
collectability; other balances are considered on an aggregate basis considering the aging of balances. Account balances are written off against the allowance when it is probable the receivable will
not be recovered. There is no off-balance sheet credit exposure related to the Company's customers. Management believes that the risk associated with trade accounts receivable is
adequately provided for in the allowance for doubtful accounts. During the 52 week period ended January 1, 2011, the Company recorded reserves of approximately $44,000, utilized $77,000
and reversed $20,000 of reserve balance due to the discontinuance of the Company's wholesale divisionMary L. The Company reserved $53,000 for such items as of January 2, 2010. This
amount is included as part of the sales allowance reserve, which is provided in supplemental schedules on page F-31.

Inventories

Our finished goods inventories at our retail stores are valued at the lower of cost or market using the retail inventory method. Under
the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of
inventories. RIM is an averaging method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the
lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including,
among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We take markdowns due to changes in
fashion and style, based on the following factors: (i) supply on hand, (ii) historical experience and (iii) our expectations as to future sales. We do not anticipate any
significant change in our markdown strategy that would cause a significant change in our earnings. We believe that our RIM provides an

F-8

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

inventory
valuation, which results in a carrying value at the lower of cost or market. Inventories other than finished goods at retail stores, called production inventory, primarily consists of piece
goods, trim and work-in-process. It is the Company's policy to value the production inventory, which makes up approximately 20% of Company's total inventory, at lower of cost
or market value using first-in-first-out valuation method. The Company reviews the inventory for factors such as age, obsolescence, potential use, or other factors
that may indicate a decline in its value. The Company records a reserve against the cost of the production inventory to account for any decline in its value.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets, which generally range from three to 10 years. For income tax purposes, accelerated methods are generally used. Leasehold
improvements are amortized over the shorter of their useful life or lease term.

The
Company evaluates finite-lived assets in accordance with "Impairment or Disposal of Long-Lived Assets" under Topic 360
"Property, Plant and Equipment" of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC"). Finite-lived assets are
evaluated for recoverability in accordance with Topic 360 of the FASB ASC whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for
recoverability, the Company estimates the future cash flows expected to result from the use and eventual disposition of the asset. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized. Various
factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from
the current estimates. The Company evaluated its finite-lived assets during fiscal 2010, 2009 and 2008 and as a result, recorded an impairment charge of $974,000 for 15 underperforming stores (See
Note 10), $1.9 million for 23 underperforming stores and $1.1 million for 12 underperforming stores, respectively.

Goodwill and Intangible Assets

The Company evaluates its Goodwill and Intangible assets in accordance with "IntangiblesGoodwill
and Other",Topic 350 of the FASB ASC. This guidance requires ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment. The Company
performs impairment testing, which considers the Company's fair value to determine whether an impairment charge related to the carrying value of the Company's recorded goodwill and other intangible
assets, associated with its AVD reporting unit, is necessary. This is reevaluated annually during the fourth quarter, or more frequently if necessary. The Company considers many factors in evaluating
whether the carrying value of the recorded goodwill will be recoverable. Factors used to determine this primarily include declines in stock price and the market capitalization in relation to the book
value of the Company, discounted projected cash flows of the reporting unit and valuation of companies comparable to the reporting unit. As a result of this testing, an impairment charge of
$9.1 million was recorded against the remaining carrying value of goodwill during fiscal 2010. Comparatively, during fiscal 2009, the Company did not incur an impairment charge against the
carrying value of goodwill. However, an impairment charge of $891,000 was recorded against the carrying value of intangible assets associated with its wholesale divisionMary L., during
the fourth quarter of fiscal 2009, related to the

F-9

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

discontinuance
of Mary L. In addition, pursuant to the employee separation agreements entered into with two of the Company's then officers (See Note 11), the Company recorded a
pre-tax charge of $204,000 during the third fiscal quarter of 2009 for the remaining net book value of the non-compete agreements contained in their employment agreements. An
impairment charge of $1.0 million was recorded against the carrying value of goodwill during the fourth quarter of fiscal 2008.

Self Insurance

We are self-insured for losses and liabilities related primarily to employee health and welfare claims, up to certain
thresholds. Losses are accrued based upon our estimates of the aggregate liability for claims incurred, using certain actuarial assumptions followed in the insurance industry and based on Company
experience. Adjustments to earnings resulting from changes in historical loss trends have been insignificant for fiscal 2010, 2009 and 2008. Further, we do not anticipate any significant change in
loss trends, settlements or other costs that would cause a significant change in our earnings. We maintain stop loss insurance coverage, which covers us for benefits paid in excess of limits as
defined in the plan.

Gift Cards, Gift Certificates and Credits

The Company sells gift cards and gift certificates ("Gift Cards") and issues credits to its customers when merchandise is returned
("Merchandise Credits"), which do not expire. The Company recognizes sales from Gift Cards when they are redeemed by the customer and income when the likelihood of the Gift Card and Merchandise Credit
being redeemed by the customer is remote ("Gift Card breakage"), since the Company has determined that it does not have a legal obligation to remit the unredeemed value to the relevant jurisdiction as
abandoned property. The Company determines Gift Card breakage income based upon historical redemption patterns and the remaining unredeemed percentage at the end of our historical data of
3.5 years. Historical redemptions of Merchandise Credits ranged from 64% in the first quarter to 0.03% in the fourteenth quarter subsequent to the issue date, resulting in an average of
approximately 95% redeemed or 5% unredeemed Merchandise Credits over the historical data of 3.5 years. We have determined that redemption would be remote based on the fact that, by the
fourteenth quarter since issue date, the redemption rate approximated 0%, indicating that the probability of such cards being redeemed is remote. As such, we have recorded breakage income based upon
this 5%, which is reviewed on a quarterly basis for propriety. Breakage income represents the balance of Gift Cards and Merchandise Credits, for which the Company believes the likelihood of redemption
by the customer, is remote. At that time, the Company will recognize breakage income for those Gift Cards and Merchandise Credits.

The
Company recorded breakage income of $196,000, $229,000 and $287,000 during fiscal year ended 2010, 2009 and 2008, respectively.

Revenue Recognition

Sales are recognized at the "point of sale," which occurs when merchandise is sold in an "over-the-counter"
transaction or upon receipt by a customer. Sales of merchandise via our web-site are recognized at the expected time of delivery to the customer. Our customers have the right to return
merchandise. Sales are reported net of actual and estimated returns. We maintain a reserve for potential product returns and record, as a reduction to sales, a provision for estimated product returns,

F-10

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

which
is determined based on historical experience. Charges/(credits) to earnings resulting from revisions to estimates on our sales return provision were approximately $77,000, ($80,000) and
($202,000) for fiscal 2010, 2009 and 2008, respectively. Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment. Costs incurred at our stores for
shipping and handling is included in cost of sales. The Company records revenues net of applicable sales tax.

The
Company's co-branded customer credit card program, which was introduced during fiscal 2007, entitles the Company to receive from the issuing bank a
non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the
life of the contract. During fiscal 2010, 2009 and 2008, the Company received $780,000, $1.1 million and $1.4 million, respectively, in connection with activated credit cards. The amount
of fee income recorded in connection with activated credit cards in fiscal 2010, 2009 and 2008 was $678,000, $456,000 and $218,000, respectively.

The
Company also offers its credit card holders a program, whereby points can be earned on net purchases made with the co-branded credit card. Five reward points are awarded
for each dollar spent at Cache and one reward point is awarded for each dollar spent at non-Cache businesses. Cardholders whose credit card account is not delinquent, in default or closed
will be automatically eligible to receive a $25 Cache gift card upon accrual of 2,500 reward points. The issuing bank bears the cost of the reward program and is responsible for the administration and
management of the program.

The
Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other
businesses. Cache has determined that since it has not incurred any significant or recurring costs in relation to the co-branded credit card program, the sales royalties earned in
connection to the agreement will be recorded under net sales. The fees that are incurred by the Company are cardholder incentives, which are funded from the fees paid by the issuing bank and Visa
U.S.A Inc. The amount of sales royalty income recorded was $373,000 in fiscal 2010, as compared to $328,000 and $248,000 in fiscal 2009 and fiscal 2008, respectively.

Seasonality.We experience seasonal and quarterly fluctuations in net sales and operating income. Quarterly results of operations may
fluctuate
significantly as a result of a variety of factors, including macroeconomics conditions, the timing of new store openings, fashion trends and shifts in timing of certain holidays. Our business is
subject to seasonal influences, characterized in years other than fiscal 2010 by highest sales during the fourth quarter (October, November and December) and lowest sales during the third quarter
(July, August and September).

Operating Leases

The Company leases retail stores and office space under operating leases. Most leases contain construction allowance reimbursements by
landlords, rent holidays, rent escalation clauses and/or contingent rent provisions. The Company recognizes the related rental expense on a
straight-line basis over the lease term and records the difference between the amounts charged to expense and the rent paid as a deferred rent liability.

To
account for construction allowance reimbursements from landlords and rent holidays, the Company records a deferred rent liability included in other long-term liabilities
on the consolidated

F-11

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

balance
sheets and amortizes the deferred rent over the lease term, as a reduction to rent expense on the consolidated statements of operations. For leases containing rent escalation clauses, the
Company records minimum rent expense on a straight-line basis over the lease term on the consolidated statement of operations. The lease term used for lease evaluation includes option
periods only in instances in which the exercise of the option period can be reasonably assured and failure to exercise such options would result in an economic penalty.

Advertising costs

Costs associated with advertising are charged to store operating expense, when the advertising first takes place. The Company spent
$8.2 million, $6.9 million and $10.7 million on advertising costs in fiscal 2010, 2009, and 2008, respectively.

Pre-Opening Store Expenses

Expenses associated with the opening of new stores are expensed as incurred.

Cache 401(K) Savings Plan

Employees are eligible to participate in the Company's 401(k) plan if they have been employed by the Company for one year, have reached
age 21 and work at least 1,000 hours annually. Generally, employees can defer up to 25% of their gross wages up to the maximum limit
allowable under the Internal Revenue Code. The Company can make a discretionary matching contribution for the employee. Employer contributions to the plan for fiscal 2010, 2009 and 2008 were $32,000,
$156,000 and $420,000, respectively. The Company reduced its discretionary matching contribution during fiscal 2009, as part of its cost savings initiative.

Income Taxes

The Company accounts for income taxes in accordance with "Income Taxes" Topic 740 of the FASB ASC. This statement requires the Company
to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, using applicable tax rates for the
years in which the differences are expected to reverse. When tax contingencies become probable, a liability for the contingent amount is estimated based upon the Company's best estimation of the
potential exposures associated with the timing and amount of deductions, as well as various tax filing positions (See Note 14).

Stock-Based Compensation

Stock-based compensation expense for all stock-based awards program, including grants of stock options, is recorded in accordance with
"CompensationStock Compensation", Topic 718 of the FASB ASC. The grant date fair value for stock options is calculated using the
Black-Scholes option valuation model. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to
exercise, the associated volatility and the expected dividends. All employee stock options were granted at or above the grant date market price. Judgment is required in estimating the amount of
share-based awards expected to be

F-12

---



Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

forfeited
prior to vesting. In accordance with the stated guidance, if actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted (See
Note 15). The Company recognized $461,000, $400,000 and $299,000 in stock-based compensation expense during fiscal 2010, 2009 and 2008, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share also includes the dilutive effect of potential common shares (dilutive stock options and unvested restricted common shares) outstanding during the period.

Comprehensive Income

The Company reports comprehensive income in accordance with"Comprehensive Income",
Topic 220 of the FASB ASC. This guidance provides standards for the reporting and display of comprehensive income. Components of comprehensive income could include net income, foreign currency
translation adjustments and gains or losses associated with investments available for sale. There was no difference between net income and comprehensive income for any of the periods presented.

Segment Reporting

Topic 280 "Segment Reporting", of the FASB ASC establishes standards for reporting
information about a company's operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company operates in a
single operating segmentthe operation of specialty retail stores. Revenues from external customers are derived from merchandise sales and we do not rely on any major customers as a source
of revenue.

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1, 2011

January 2, 2010

December 27, 2008Sportswear


57.9
%

57.3
%

60.7
%Dresses


33.3


32.8


30.4Accessories


8.8


9.9


8.9Total


100.0
%

100.0
%

100.0
%


Concentration

The Company has five major suppliers, which accounted for approximately 23% of our purchases during fiscal 2010, and our largest
supplier accounted for 10% of our purchases during fiscal 2010. The loss of any of these suppliers could adversely affect the Company's operations.

F-13

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Developments

In April 2010, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-13, CompensationStock Compensation (Topic 718)
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades,which clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entity's equity shares trades should not be considered to contain a condition that is not a market, performance or service condition. ASU 2010-13 is effective
for fiscal years beginning on or after December 15, 2010, early adoption is permitted. The Company does not expect the adoption of ASU 2010-18 to have a material impact on its
consolidated financial statements.

In
January 2010, FASB issued ASU 2010-06,Improving Disclosures about FairValue Measurements, which provides amendments to
subtopic 820-10 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate
information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements. Additionally, ASU 2010-06 provides amendments to subtopic 820-10
that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques. ASU 2010-06 is effective for financial statements issued for interim and annual
periods ending after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements,
which are effective for interim and annual periods ending after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company's consolidated financial
statements.

Supplemental Statements of Cash Flow Information

The Company accrued $117,000, $180,000 and $243,000 for interest expense on a note payable and paid $94,000, $234,000 and $263,000
during fiscal 2010, 2009 and 2008, respectively. During fiscal 2010, 2009 and 2008, the Company paid $125,000, $253,000 and $1.9 million in income taxes, respectively. In addition, during
fiscal 2010, 2009 and 2008, the Company accrued equipment and leasehold improvements of $330,000, $234,000 and $216,000, respectively.

NOTE 2. FAIR VALUE MEASUREMENT

In accordance with "Fair Value Measurements and Disclosures", Topic 820 of the FASB ASC, which defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Topic 820 of the FASB ASC establishes a fair
value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:



F-14

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. FAIR VALUE MEASUREMENT (Continued)



"Financial Instruments", Topic 825 of the FASB ASC, provides entities the option to measure many financial instruments and certain other
items at fair value. Entities that choose the fair value option will recognize unrealized gains and losses on items for which the fair value option was elected in earnings at each subsequent reporting
date. The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with Topic 825 of the FASB ASC.

The
fair value of our marketable securities, which was determined based upon Level 1 inputs, totaled $20.9 million and $30.0 million as of January 1, 2011 and
January 2, 2010, respectively. For the fiscal periods ended January 1, 2011 and January 2, 2010, the aggregate amount of marketable securities (maturing greater than
90 days and less than one year) totaled approximately $20.9 million and $30.0 million, respectively. The Company noted small variances between the book value and fair value due to
the remaining unamortized premiums. As a result, no impairment has occurred for the fiscal periods presented herein. Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity investments. Interest income is recognized when earned.

NOTE 3. RECEIVABLES

January 1,
2011

January 2,
2010Construction allowances

$
370,000

$
507,000Third party credit cards


1,664,000


2,142,000Accounts receivable, net





62,000Other


821,000


700,000$
2,855,000

$
3,411,000


Accounts
receivable, net includes sales from the wholesale divisionMary L., which the Company discontinued during the fourth quarter of fiscal 2009.

At
January 1, 2011, the Company recorded an income tax receivable of $50,000, which resulted from a previous estimated tax payment, which will be refunded in early 2011. During
fiscal 2009, the Company recorded an income tax receivable of $3.4 million, which resulted from estimated tax payments of $266,000 made during fiscal 2009 and 2008 combined with estimated
refunds of $3.3 million, generated as a result of the carry back on the net loss incurred during the current fiscal year. An income tax receivable of $5.9 million was recorded during
fiscal 2008 due to overpayments on the estimated tax payments combined with a refund, generated as a result of the carry back on the net loss incurred during fiscal 2008.

F-15

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. INVENTORIES

January 1,
2011

January 2,
2010Raw materials

$
1,347,000

$
1,253,000Work in process


1,831,000


1,160,000Finished goods


12,611,000


14,186,000$
15,789,000

$
16,599,000


NOTE 5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

January 1,
2011

January 2,
2010Leasehold improvements

$
51,074,000

$
51,861,000Furniture, fixtures, and equipment


34,585,000


33,913,00085,659,000


85,774,000Less: accumulated depreciation and amortization


(60,906,000
)

(54,061,000
)$
24,753,000

$
31,713,000


Store
operating and general and administrative expenses include depreciation and amortization expense of $9.4 million, $11.7 million and $12.6 million for the fiscal
years ended 2010, 2009 and 2008, respectively. The Company recorded an impairment charge during fiscal 2010 and 2009 on its long lived assets; see Note 10 herein for additional details.

NOTE 6. ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.

On July 3, 2007, the Company, through a wholly-owned subsidiary which was created in connection with the acquisition, acquired certain assets of Adrienne Victoria
Designs, Inc. ("AVD"), our largest vendor, at that time. Under the terms of the agreement, the Company made cash payments totaling $5.7 million, including transaction costs. In addition,
the Company issued a note payable of $7.0 million ($6.3 million net of imputed interest of 5%) to be paid over 5 years. The Company acquired certain assets of AVD, a design,
sourcing and manufacturing company, in order to increase operating efficiencies and increase shareholder value. The acquisition was accounted for in the third quarter of fiscal 2007, using the
purchase method in accordance with "Business Combinations", Topic 805 of the FASB ASC. Accordingly, the assets acquired were recorded at their fair
values and operating results were included in our financial statements from the date of acquisition.

During
fiscal 2007, the Company completed its valuation of the assets acquired and calculated the value of goodwill and intangible assets to be approximately $11.5 million.
Goodwill was recognized as the excess of the purchase price paid over the fair market value of the net assets acquired. The excess payment, which resulted in goodwill, was due to the Company
purchasing the talent, experience and organization of a sourcing and production team, which it did not have prior to the acquisition. Consequently, due to the acquisition, Cache has positioned itself
to increase its gross margin. The total goodwill recorded is expected to be deducted for tax purposes over the applicable period.

During
the period ended December 29, 2007, the Company recorded a note payable related to the acquisition of certain assets of Adrienne Victoria Designs, Inc. The
$6.3 million note is payable to the

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC. (Continued)

principals
of Adrienne Victoria Designs, Inc, which will be paid over five years, has an imputed five percent interest rate. The note maturities are payable in quarterly installments ranging from
$163,000 to $475,000. As of January 1, 2011, the amounts due on the note payable are as follows:

Fiscal years ending:2011

$
1,518,0002012


319,000Total

$
1,837,000




In accordance with "IntangiblesGoodwill and Other",Topic 350 of the FASB
ASC, the Company's goodwill and its intangible assets are reviewed annually for impairment or more frequently, if impairment indicators arise. This annual valuation process, which is performed during
the fourth quarter of each year, resulted in an impairment charge of $9.1 million against the remaining carrying value of the Company's goodwill during fiscal 2010. Comparatively, no impairment
charge was recorded against the carrying value of the Company's goodwill in fiscal 2009. However, an impairment charge of $891,000 was recorded against the carrying value of intangible assets
associated with its wholesale divisionMary L. during the fourth quarter of fiscal 2009. An impairment charge of $1.0 million was recorded against the carrying value of the
Company's goodwill during the fourth quarter of fiscal 2008. During the third quarter of fiscal 2009, the Company recorded a charge of $204,000 for the remaining net book value of its definite-lived
intangible assetNon-Compete agreements. This charge resulted from an employee separation agreement that the Company entered into with two of its former executive officers
during fiscal 2009. As a result of these charges during fiscal 2009, the Company's recorded net intangible assets as of January 2, 2010 were reduced to $102,000. The carrying amount of net
intangible assets as of January 1, 2011 did not change from the prior fiscal year end balance of $102,000.

General
and administrative expenses include amortization expense of $107,000 and $119,000, for the fiscal years ended 2009 and 2008, respectively, in connection with the Company's net
intangible assets. No such expense was recorded during fiscal 2010.

F-17

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. ACCRUED LIABILITIES

January 1,
2011

January 2,
2010Gift cards, merchandise credit cards and other customer deposits and credits

$
4,114,000

$
3,817,000Taxes, including income taxes


3,047,000


2,807,000Operating expenses


1,830,000


2,007,000Employee separation settlement (Note 11)





1,375,000Deferred income


769,000


568,000Group insurance


513,000


481,000Sales return reserve


547,000


470,000Leasehold additions


330,000


234,000Exit costs (Note 9)





24,000$
11,150,000

$
11,783,000


Leasehold
additions generally represent a liability to general contractors for a final 10% payable on construction contracts for store construction or renovations.

NOTE 8. BANK DEBT

On April 22, 2010, the Company amended its credit facility with Bank of America (the "Bank") for another year to allow the Company to issue letters up to $2.5 million which
was collateralized by granting to the Bank a security interest in various certificates of deposit held by the Company and its subsidiaries with the Bank amounting to a total of $2.5 million.
This one year credit facility will expire on May 1, 2011. The Company is currently reviewing its future requirements for a credit facility and plans to initiate discussion with its bankers to
renew this credit line or negotiate a new credit facility.

Any
certificates of deposit collateralized against this line of credit are reported as restricted funds. Based on the expiry dates of the letters of credits issued, the restricted cash
has been reported as either Current or Non-Current. When the expiry date is within one year of the reporting period end date then the certificates of deposit are reported as Current, and
when the expiry date is beyond one year the certificates of deposit are reported as Non-Current.

The
Company had outstanding letters of credit of approximately $1.5 million and $660,000 at January 1, 2011 and January 2, 2010, respectively.

F-18

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. EXIT COSTS

The following table identifies the activity during fiscal 2010 related to exit costs previously recorded for underperforming stores and the discontinuation of the Company's wholesale
divisionMary L.:

Liability
Balance
Beginning of Year

Fiscal 2010
activity

Liability
Balance
End of PeriodSeverance

$
40,000

$
(40,000
)
$
Lease termination costs


24,000


(24,000
)

$
64,000

$
(64,000
)
$



NOTE 10. IMPAIRMENT CHARGE

In accordance with "Impairment or Disposal of Long-Lived Assets" under Topic 360 "Property, Plant and
Equipment" of the FASB ASC, impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. An impairment loss is
recognized only if the carrying amount of a long-lived asset is not recoverable and
exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. That assessment is based on the carrying amount of the asset at the date it is tested for recoverability, whether in use or under development. An impairment loss is measured
as the amount by which the carrying amount of long-lived assets exceeds its fair value.

Due
to the inability of the Company to assess the fair market value of the Company's assets in its retail stores, as these assets are not traded in an active market, the Company
determined its fair market value by computing the net present value of future cash flows by discounting those future cash flows using a risk free interest rate from a 10 year treasury note. To
analyze stores for impairment, the Company compared the undiscounted future cash flows against the carrying value of the long lived assets, as of January 1, 2011, for each store and as a
result, identified 15 stores where the sum of undiscounted future cash flows were less than the corresponding carrying amounts. The Company then compared the net present value of future cash flows for
these 15 stores against the carrying amount of the long lived assets and as a result of the excess carrying value over the computed net present value, the Company recorded an impairment charge of
approximately $974,000 for the 15 underperforming stores identified. As a result of this impairment charge, which was recorded during the fourth quarter of fiscal 2010, the Company also adjusted the
cost basis of the long lived assets at the affected stores in accordance with the stated guidance mentioned above. Comparatively, the Company recorded an impairment charge of $1.9 million for
23 underperforming stores and $1.1 million for 12 underperforming stores in fiscal 2009 and 2008, respectively.

NOTE 11. EMPLOYEE SEPARATION CHARGE

During fiscal 2009, the Company entered into separation agreements with two of its then executive officers. Subsequently, during the fourth quarter of fiscal 2009, the Company entered
into amended agreements, whereby, the Company agreed to make early settlement payments to both of its former executives. Additionally, one of the former executives agreed to reduced settlement
payments from the original separation agreement. As a result of these amended separation agreements, the Company recorded a pre-tax charge of $2.0 million for the fiscal year ended
January 2, 2010. This charge

F-19

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. EMPLOYEE SEPARATION CHARGE (Continued)

consisted
of settlement costs of approximately $1.8 million, which included a charge of $23,000 for the vested portion of stock-awards that the Company purchased back from these former
executives, and a charge of $204,000 for the remaining net book value of the non-compete agreements contained in their employment agreements (See Note 6). The charge of $204,000 was
due to the Company releasing these former executives from the non-compete clause contained in the employment agreements. For the fiscal year ended January 2, 2010, the Company had
$1.4 million of separation settlement due to one of the former executives recorded under accrued liabilities (See Note 7), which was subsequently paid during fiscal 2010.

Pursuant
to one of these separation agreements, a former executive may receive contingent payments of up to $500,000 in the aggregate, based on the achievement by the Company of certain
annual net income targets set forth in the agreement through fiscal 2013. For the fiscal year ended January 1, 2011, no accrual was recorded for this earn-out provision.

NOTE 12. OTHER LIABILITIES

The Company's other liabilities are comprised of the following:

January 1,
2011

January 2,
2010Deferred rent

$
12,073,000

$
13,913,000Deferred incomeco-branded credit card program


1,794,000


1,893,000$
13,867,000

$
15,806,000


NOTE 13. COMMITMENTS AND CONTINGENCIES

Leases

At January 1, 2011, the Company was obligated under operating leases for the corporate office, as well as another location that
houses our design, production and customer service departments and various store locations expiring at various times through 2021. The terms of the leases generally provide for the payment of minimum
annual rentals, contingent rentals based on a percentage of sales in excess of a stipulated amount, and a portion of promotional funds, common area
maintenance and heating, ventilation and air conditioning charges. Most leases contain leasehold improvement reimbursements from landlords and/or rent holidays. In recognizing landlord incentives and
minimum rent expenses, the Company amortizes the charges and incentives on a straight line basis over the lease term.

Store
rental expense related to these leases, included in cost of sales, consisted of the following:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1,
2011

January 2,
2010

December 27,
2008Net minimum rentals

$
22,796,000

$
23,647,000

$
24,726,000Contingent rentals and other occupancy costs


10,628,000


11,296,000


11,640,000$
33,424,000

$
34,943,000

$
36,366,000


F-20

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Rent
expense for our corporate office and our facility, which houses our design, production, sourcing and customer service departments, amounted to approximately $1.0 million for
fiscal 2010 and 2009 and $973,000 for fiscal 2008.

Future
minimum payments under non-cancelable operating leases consisted of the following at January 1, 2011:

Fiscal years ending:2011

$
24,922,0002012


23,084,0002013


19,529,0002014


15,488,0002015


11,295,000Thereafter


19,026,000Total future minimum lease payments

$
113,344,000


The
operating leases included in the table above does not include contingent rent based upon sales volume, which represented approximately less than 1% of minimum rent expense in fiscal
2010, or other occupancy costs such as promotional funds, common area maintenance and heating, ventilation and air conditioning charges, which represented approximately 46.5% of net minimum rent
expense in fiscal 2010.

Other Commitments

The following tables summarize our other commitments as of January 1, 2011:

Payments Due in PeriodTotal

2011

2012

2013

2014

2015

Thereafter(in thousands)Other ObligationsEmployment Contracts

$
1,446

$
1,000

$
446

$


$


$


$
Purchase Obligations


32,556


32,556














Letters of credit


1,533


1,533














Total

$
35,535

$
35,089

$
446

$


$


$


$



We
issue letters of credit primarily for the importation of merchandise inventories and as security deposit for our corporate office. The Company does not have any
off-balance sheet financing arrangements.

In
February 2009, Cache entered into a new employment agreement with the Company's current Chairman and Chief Executive OfficerThomas E. Reinckens. The agreement commenced
on February 24, 2009 for a term of three years expiring on February 2012. The previous agreement expired in February 2009.

In
October 2009, Cache entered into an employment agreement with Rabia Farhang, the Company's new Executive Vice President and General Merchandise Manager. The agreement is for a term of
three years, expiring in November 2012.

F-21

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Contingencies

On June 30, 2010, Chico's FAS, Inc. and White House--Black Market, Inc. (together referred to as "Chico's") filed
a lawsuit against the Company in the Supreme Court of the State of New York, County of New York. Chico's alleged in its complaint, among other things, that two former Chico's employees who are now
employed by Cache supplied the Company with confidential information and trade secrets, which Cache benefited from. The Company does not believe that this case will have a material adverse effect on
its financial condition and results of operations.

As
indicated in Note 11, on September 23, 2009, the Company entered into a separation agreement with two of its then executive officers. Pursuant to one of these separation
agreements, a former executive may receive contingent payments of up to $500,000 in the aggregate, based on the achievement by the Company of certain annual net income targets set forth in the
agreement through fiscal 2013. For the fiscal year ended January 1, 2011, no accrual was recorded for this earn-out provision.

The
Company is exposed to a number of asserted and unasserted potential claims. Management does not believe it is reasonably possible that resolution of these matters will result in a
material loss. The Company had no guarantees, subleases or assigned lease obligations as of January 1, 2011 and January 2, 2010.

NOTE 14. INCOME TAXES

The provision (benefit) for income taxes includes:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1,
2011

January 2,
2010

December 27,
2008Current:Federal

$
16,000

$
(3,148,000
)
$
(3,412,000
)State


69,000


80,000


634,00085,000


(3,068,000
)

(2,778,000
)Deferred:Federal


(4,105,000
)

(1,934,000
)

(898,000
)State


(619,000
)

(661,000
)

(576,000
)(4,724,000
)

(2,595,000
)

(1,474,000
)Provision (benefit) for income taxes

$
(4,639,000
)
$
(5,663,000
)
$
(4,252,000
)


F-22

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. INCOME TAXES (Continued)

The
Company's effective tax rate, as a percent of income before income taxes, differs from the statutory federal tax rates as follows:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1,
2011

January 2,
2010

December 27,
2008Federal statutory tax rate


34.0
%

34.0
%

34.0
%Federal benefit on NOL carry back over 34%


0.0
%

1.3
%

0.7
%State and local income taxes, net of federal tax benefit


4.2
%

4.5
%

1.2
%Valuation allowance


(20.9
)%

(0.5
)%

Other net, primarily permanent differences


(0.1
)%

0.1
%

1.5
%Provision for income taxes


17.2
%

39.4
%

37.4
%


The
major components of the Company's net deferred tax assets (liabilities) at January 1, 2011 and January 2, 2010 are as follows:

Current

January 1,
2011

January 2,
2010Group insurance

$
197,000

$
184,000Sales return reserve


209,000


179,000Inventory


480,000


354,000Prepaid expenses


(392,000
)

(437,000
)494,000


280,000Valuation allowance


(218,000
)

(4,000
)Total Current

$
276,000

$
276,000




Non-Current

January 1,
2011

January 2,
2010Federal and State tax net operating loss carry-forwards

$
7,385,000

$
919,000Deferred rent


1,416,000


1,419,000Deferred construction allowances


(5,580,000
)

(4,615,000
)Other (principally depreciation expense)


11,298,000


6,620,00014,519,000


4,343,000Valuation allowance


(5,516,000
)

(64,000
)Total Non-current

$
9,003,000

$
4,279,000


During
fiscal 2010, 2009 and 2008, the Company generated federal net operating losses of approximately $16.6 million, $9.0 million and $9.2 million, respectively. At
January 1, 2011, the Company had a Federal net operating loss ("NOL") carry-forward of $16.6 million available, for carry-forward for the next 20 years, through
2030. The losses generated in both fiscal 2009 and 2008 were carried back to offset taxable income generated in fiscal 2006 and 2005.

F-23

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. INCOME TAXES (Continued)

In
assessing the realization of our deferred tax assets, we consider all available evidence to determine whether it is more likely than not that some portion or all of the net deferred
tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, during the periods in which those temporary differences become
realizable. We consider the scheduled reversal of deferred tax assets (including the impact of available carry-back and carry-forward periods), and projected taxable income in assessing
the realization of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company's current or previous losses are given more
weight than its projected future performance. Consequently, based on our evaluation of all available evidence, in particular our recent operating losses, we established a federal valuation allowance
of $5.1 million at January 1, 2011. For state income tax purposes, the Company has established a valuation allowance in the amount of $68,000 in fiscal 2009, primarily to reserve for the
possible non-utilization of state NOL carry-forwards, which may not be realized in future periods before the NOLs expire. The Company increased the state valuation allowance at
January 1, 2011 to $650,000. The Company's state NOLs expire from 2013 through 2030.

The
Current portion of deferred tax assets and liabilities are included in prepaid expenses and other current assets, while the Non-current portion of deferred tax assets and
liabilities are included in other assets on the Company's accompanying consolidated balance sheets.

The
Company accounts for Uncertainty in Income Taxes in accordance with Topic 740 of the FASB ASC which prescribes a comprehensive model of how a company should recognize, measure,
present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The provision also states that a tax benefit from an uncertain
tax position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax
benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.

The
cumulative effect of this adoption did not result in any adjustment in the Company's liability for unrecognized income tax benefits.

Balance at January 2, 2010

$
435,000Additions based on tax positions related to the current year


Additions for tax positions for prior years


55,000Reductions for tax positions for prior years due to lapse of applicable statute of limitations


(79,000
)Settlements


Balance at January 1, 2011

$
411,000


As
of January 1, 2011, the Company had recorded a $271,000 reserve, net of federal benefit for potential tax contingencies which, if recognized, would favorably affect the
effective income tax rate. Comparatively, the Company had recorded reserves of $301,000 and $331,000, net of federal benefit for potential tax contingencies, for fiscal periods ended January 2,
2010 and December 27, 2008, respectively.

The
Company's continuing practice is to include estimated interest and penalties, if any, in computing the amount that is recognized within income tax expense relating to uncertain
income tax

F-24

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. INCOME TAXES (Continued)

positions.
As of January 1, 2011, the Company had accrued $151,000 of interest and penalties related to uncertain tax positions, which is included in the $411,000 tax contingency noted above.

Although
the Company believes that it has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company's accrued position.
Accordingly, the Company's provisions on federal, state and local tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are
settled or otherwise resolved. As of January 1, 2011, the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease
within the next twelve months.

The
Company and certain of its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions.

The
Company had previously reached agreement with the IRS and closed the audit of fiscal year 2005, with no change to the tax return. The Internal Revenue Service is currently examining
the carry-back claims (Form 1139) for the losses incurred in fiscal 2009 and 2008, which were carried back against taxable income recorded in fiscal 2007 and 2006. The examination
is under the auspices of the Joint Committee on Taxation due to the size of the tax refund. The Company does not expect that any adjustments shall be made to the tax refunds received.

As
for state and local income taxes, with few exceptions, the Company is subject to state and local income tax examinations by taxing authorities for years after 2005.

NOTE 15. STOCK BASED COMPENSATION

Stock-based compensation expense for all stock-based award programs, including grants of stock options and restricted stock awards, is recorded in accordance with
"CompensationStock Compensation", Topic 718 of the FASB ASC. Stock-based compensation expense, which is calculated net of estimated
forfeitures, is computed using the grant date fair-value method on a straight-line basis over the requisite service period for all stock awards that vest during the period. The
grant date fair value for stock options is calculated using the Black-Scholes option valuation model. Determining the fair value of options at the
grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. All employee stock
options were granted at or above the grant date market price. Stock-based compensation expense is reported under general and administrative expenses on the accompanying consolidated statements of
operations.

The
Company's 2008 Plan provides for the granting of various forms of awards, which has a maximum of 800,000 shares of common stock available. The shares available for issuance under the
2008 Stock Option and Performance Incentive Plan are comprised of the following: (i) unissued shares of Common Stock previously available for issuance under the Company's 2003 Stock Option and
Performance Incentive Plan, which were never granted or issued and are being carried forward into the Company's 2008 Stock Option and Performance Incentive Plan, and (ii) additional shares of
Common Stock not previously available for issuance under incentive compensation plans. As of January 1, 2011, there were a total of 398,671 shares available for future grants under the 2008
stock option plan. All of the Company's prior stock option plans have expired as to the ability to grant new options.

F-25

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. STOCK BASED COMPENSATION (Continued)

The
2008 plan is intended to replace the Company's 2003 Stock Option and Performance Incentive Plan (the "2003 Plan"). The Company ceased making grants under the 2003 Plan upon Board
approval of the 2008 Plan.

Awards
granted under the plan have a ten-year term and may be incentive stock options, non-qualified stock options or restricted shares. The awards are granted at
an exercise price equal to the fair market value on the date of grant and generally vest over a three or four year period. The granted awards generally become exercisable at the maximum rate of
approximately 33% per annum, to the extent the Company's earning plan, as approved by the Compensation and Plan Administration Committee is achieved. The price is payable in cash at the time of the
exercise or, at the discretion of the Administrators, through the delivery of shares of Common Stock or the Company's withholding of shares otherwise deliverable to the employee, or a combination
thereof. We recognize compensation expense ratably over the vesting period, net of estimated forfeitures. As of January 1, 2011, there was approximately $1.2 million of total
unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the incentive plan. This cost is expected to be recognized over a remaining
weighted-average vesting period of 2.11 years. No stock options were exercised during the 52-week period ended January 1, 2011 and as such, no intrinsic value was computed.
Restricted stock of 28,337 shares vested during fiscal 2010.

In
accordance with Topic 718 of the FASB ASC, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions
below for grants in the respective periods:

2010
Grants

2009
Grants

2008
GrantsExpected dividend rate

$
0.00

$
0.00

$
0.00Expected volatility


59.5 - 59.6
%

59.4
%

36.1
%Risk free interest rate


1.5
%

1.3
%

2.6
%Expected lives (years)


3.0


3.0


4.0


The
fair value of options granted during fiscal years ended January 1, 2011, January 2, 2010 and December 27, 2008 were $1.79, $1.94 and $3.14, respectively.

F-26

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. STOCK BASED COMPENSATION (Continued)

The following table summarizes all stock option transactions for the three fiscal years ended January 1, 2011:

Weighted
Average Shares

Weighted
Average
Exercise PriceShares under options as of December 29, 2007


1,232,103

$
12.51Options granted in 2008


15,000


9.81Options exercised in 2008


(90,678
)

6.19Options canceled in 2008


(423,750
)

12.94Shares under options as of December 27, 2008


732,675


12.98Options granted in 2009


20,000


4.79Options exercised in 2009





Options canceled in 2009





Shares under options as of January 2, 2010


752,675


12.76Options granted in 2010


40,000


4.39Options exercised in 2010





Options canceled in 2010


(15,000
)

9.81Shares under option as of January 1, 2011


777,675

$
12.39




Options Exercisable at:

Number
of Shares

Weighted
Average
Exercise PriceDecember 27, 2008


503,425

$
12.69January 2, 2010


562,675

$
12.67January 1, 2011


569,342

$
12.58


Significant
option groups outstanding at January 1, 2011 and related weighted average price and life information follows:

Grant Date

Options
Outstanding

Options
Exercisable

Exercise
Price

Remaining
Life (Years)2/22/10


10,000


0

$
4.70


101/12/10


30,000


0


4.29


1011/16/09


20,000


6,667


4.79


97/5/07


100,000


0


14.40


76/19/07


55,000


0


14.34


78/30/05


25,000


25,000


16.40


55/3/05


70,000


70,000


11.53


45/2/05


10,000


10,000


11.61


44/25/05


5,000


5,000


11.00


41/22/04


52,500


52,500


15.17


37/22/03


389,175


389,175


12.65


310/2/01


11,000


11,000

$
2.13


1


F-27

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. STOCK BASED COMPENSATION (Continued)

A
summary of the changes in stock options outstanding during the 52-week period ended January 1, 2011 is presented below:

Total Outstanding

Currently ExercisableNumber
of Options

Average
Price(1)

Average
Life(2)

Aggregate
Intrinsic
Value(3)

Number
of Options

Average
Price(1)

Average
Life(2)

Aggregate
Intrinsic
Value(3)January 2, 2010


752,675

$
12.76


4.99

$
26,840


562,675

$
12.67


4.02

$
26,840Granted


40,000


4.39








Vested














6,667


4.79Canceled/forfeited


(15,000
)

9.81








Exercised














January 1, 2011


777,675

$
12.39


4.19

$
29,910


569,342

$
12.58


3.09

$
25,410


(1)Weighted-average
exercise price.(2)Weighted-average
contractual life remaining in years.(3)The
aggregate intrinsic values in the table above are based on the Company's closing stock price as of the last business day of the periods ended
January 1, 2011 and January 2, 2010, which was $4.44 and $4.57, respectively.


The
following table summarizes all restricted stock transactions for the fiscal years ended January 1, 2011:

Weighted
Average Shares

Weighted
Average
Grant-Date
Fair ValueNonvested as of January 2, 2010


140,661

$
3.81Granted in 2010


214,000


5.52Vested in 2010


(28,337
)

3.92Cancelled in 2010


(41,669
)

3.65Nonvested as of January 1, 2011


284,655

$
5.11


During
fiscal 2010, the Company granted 214,000 shares of restricted stock awards to employees who hold various positions within the Company. Two-thirds of these restricted
stock awards contingently vest over a three year period, based on the Company meeting performance goals, and one-third vest equally on an annual basis over the requisite service period.
The total grant-date fair value of restricted stock that vested as of January 1, 2011 was approximately $111,000. During fiscal 2010, the Company had a non-cash
transaction from the issuance of 20,000 shares of the Company's common stock to its board members. As a result of this issuance, approximately $92,000 was recorded under share-based compensation based
on the closing price on the date of issuance. Topic 718"CompensationStock Compensation", of the FASB ASC, requires that cash
flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised ("excess tax benefits") be classified as financing cash flows. No excess tax benefits
were recorded during fiscal 2010

F-28

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. STOCK BASED COMPENSATION (Continued)

and
2009. For the 52-week period ended December 27, 2008 there was $160,000 of excess tax benefits realized from the exercise of stock options.

As
of January 1, 2011, there was approximately $1.2 million of future compensation cost related to nonvested share-based compensation awards granted under the stock option
plan. That cost is expected to be recognized over a weighted average period of 2.11 years. The total fair value of shares that vested during the fiscal year ended January 1, 2011 was
$461,000. The following table represents the share-based compensation expense to be recognized in future periods as of January 1, 2011:

Fiscal years ending:

Compensation
Expense on
Non-Vested Awards2011

$
511,0002012


320,0002013


257,0002014


157,000$
1,245,000




On January 8, 2009, the Board of Directors authorized the repurchase of an additional 1,000,000 shares, bringing the total
authorization to 4,500,000 shares. During fiscal 2009, the Company repurchased, in the open market, 310,199 shares at a cost of $586,000 or $1.89 per share. For the fiscal year ended,
January 2, 2010, the Company had cumulatively repurchased a total of 3,682,199 shares at a cost of approximately $40 million or $10.81 per share. During fiscal 2010, the Company did not
repurchase any additional shares.

NOTE 16. EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

52 Weeks
Ended

53 Weeks
Ended

52 Weeks
EndedJanuary 1,
2011

January 2,
2010

December 27,
2008Net loss

$
(22,432,000
)
$
(8,694,000
)
$
(7,122,000
)Net loss per sharebasic

$
(1.76
)
$
(0.68
)
$
(0.53
)Net loss per sharediluted

$
(1.76
)
$
(0.68
)
$
(0.53
)Weighted average common shares outstanding


12,779,000


12,795,000


13,329,000Dilutive effect of stock options








Weighted average common and potentially dilutive common shares


12,779,000


12,795,000


13,329,000


Options
and unvested restricted common shares of 1,062,330, 893,336 and 732,675 were excluded from the computation of diluted earnings per share for fiscal 2010, 2009 and 2008,
respectively, because of the net loss incurred by the Company.

F-29

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Table of Contents

CACHE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter(In thousands, except per share data)52 weeks ended January 1, 2011Net sales

$
48,550

$
56,575

$
45,524

$
55,870Gross profit


16,715


24,933


15,902


21,307Income (loss) before income tax provision (benefit)


(6,609
)

1,453


(8,085
)

(13,830)
(1)Income tax provision (benefit)


(2,528
)

556


(3,058
)

391
(2)Net income (loss)

$
(4,081
)
$
897

$
(5,027
)
$
(14,221
)Basic and diluted earnings (loss) per share:Basic earnings (loss) per share:

$
(0.32
)
$
0.07

$
(0.39
)
$
(1.11
)Diluted earnings (loss) per share:

$
(0.32
)
$
0.07

$
(0.39
)
$
(1.11
)53 weeks ended January 2, 2010Net sales

$
53,006

$
56,866

$
44,941

$
64,962Gross profit


21,795


25,230


14,214


26,546Income (loss) before income tax provision (benefit)


(2,513
)

1,331


(10,850)
(3)

(2,325)
(1)(3)Income tax provision (benefit)


(918
)

486


(4,067
)

(1,164
)Net income (loss)

$
(1,595
)
$
845

$
(6,783
)
$
(1,161
)Basic and diluted earnings (loss) per share:Basic earnings (loss) per share:

$
(0.12
)
$
0.07

$
(0.53
)
$
(0.09
)Diluted earnings (loss) per share:

$
(0.12
)
$
0.07

$
(0.53
)
$
(0.09
)


(1)Includes
impairment charges of approximately $974,000 for 15 underperforming stores and $1.9 million for 23 underperforming stores for fiscal 2010
and 2009, respectively. In addition, includes impairment charges of approximately $9.1 million against the carrying value of the Company's goodwill, for its AVD reporting unit and $891,000
against the carrying value of the Company's intangible assets associated with its wholesale divisionMary L., for fiscal 2010 and 2009, respectively.(2)During
the fourth quarter of fiscal 2010, we recorded a $5.7 million non-cash tax charge related to a valuation allowance against net
deferred tax assets.(3)Includes
total net charges of approximately $2.0 million in connection with separation agreements entered into with two of its then executive
officers during the third and fourth quarter of fiscal 2009.


Per
share amounts are calculated independently for each quarter. The sum of the quarters may not equal the full year per share amounts.

F-30

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Table of Contents

SCHEDULE II  Cache, Inc and Subsidiaries  Valuation and Qualifying Accounts

AdditionsSales Return Reserve

Balance at
Beg. of
Period

Charge to
Costs and
Expenses

Other
Accounts

Deductions

Balance at
End of
Period52 Weeks Ended January 1, 2011

$
470,000

$
77,000
(1)
$


$


$
547,00053 Weeks Ended January 2, 2010

$
550,000

$


$


$
80,000
(1)
$
470,00052 Weeks Ended December 27, 2008

$
752,000

$


$


$
202,000
(1)
$
550,000




AdditionsReserve for Sales Allowances and Doubtful Accounts

Balance at
Beg. of
Period

Charge to
Costs and
Expenses

Other
Accounts

Deductions

Balance at
End of
Period52 Weeks ended January 1, 2011

$
53,000

$
44,000

$


$
97,000

$
53 Weeks ended January 2, 2010

$
111,000

$
652,000

$
12,000

$
722,000

$
53,00052 Weeks ended December 27, 2008

$
234,000

$
1,473,000

$


$
1,596,000

$
111,000




AdditionsDeferred Tax Valuation Allowance

Balance at
Beg. of
Period

Charge to
Costs and
Expenses

Other
Accounts

Deductions

Balance at
End of
Period52 Weeks ended January 1, 2011

$
68,000

$
5,666,000

$


$


$
5,734,00053 Weeks ended January 2, 2010

$


$
68,000

$


$


$
68,00052 Weeks ended December 27, 2008

$


$


$


$


$



(1)Represents
net change of reserves recorded and utilized during the year.


F-31

---