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As filed with the Securities and Exchange Commission on December 13, 2001

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-K



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| | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| | --- | ------------------------------------------------------------------------------------ | 

FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2001



| | [   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| | ----- | ---------------------------------------------------------------------------------------- | 



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COMMISSION FILE NUMBER 0-27677



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CHARLOTTE RUSSE HOLDING, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 33-0724325                          
|(State or Other Jurisdiction
of Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

4645 MORENA BOULEVARD, SAN DIEGO, CA 92117
(Address, including Zip Code, of Registrants Principal Executive Offices)

(858) 587-1500
(Registrants Telephone Number, Including Area Code)



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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Each Class)



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

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 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. [   ]



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TABLE OF CONTENTS



|                                           |                                                                                               |                                                 |  |  |  |  |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                    
|                                           | ITEM 1. BUSINESS                                                                             
|                                           | ITEM 2. PROPERTIES                                                                           
|                                           | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                   
|                                           | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                           | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                           | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                           | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                           | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                           | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                  
|                                           | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                           | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                           | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                           | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                                   
|                                           | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           |                                                                                               | CONSOLIDATED BALANCE SHEETS                    
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME              
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                                           |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                                           |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|EXHIBIT INDEX                             
|Exhibit 10.19                             
|Exhibit 10.20                             
|Exhibit 10.21                             
|Exhibit 10.22                             
|Exhibit 10.23                             
|Exhibit 10.24                             
|Exhibit 23.1                              



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The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $143,619,000 as of December 11, 2001 based upon
the closing sale price per share of the registrants common stock of $18.20 as
reported on the Nasdaq National Market® (Nasdaq) 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 December 11,
2001, 20,848,567 shares of common stock, $0.01 per share par value, of the
registrant were outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive Proxy
Statement for the 2002 Annual Meeting of Shareholders, to be filed with the
Commission within 120 days after the end of the registrants fiscal year
covered by this Form 10-K.



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The stylized and non-stylized Charlotte Russe® trademarks and the
Charlottes Room trademark referred to in this Form 10-K are federally
registered in the United States, and the Heart, Moon, Star Dingbat and certain product-related
Charlottes Room trademarks referred to in this Form 10-K are subject to
pending applications for registration. These trademarks are the property of
Charlotte Russe Holding, Inc. or its subsidiaries. The Rampage® trademark
referred to in this Form 10-K is federally registered in the United States and
is used by Charlotte Russe under a license agreement with Rampage Clothing
Company. The use of the Rampage trademark by other parties, including other
apparel manufacturers and retailers, should not be attributed to our business.
All other trademarks or trade names referred to in this Form 10-K are the
property of their respective owners.



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PART I




ITEM 1. BUSINESS

We are a rapidly growing, mall-based specialty retailer of fashionable,
value-priced apparel and accessories targeting young women between the ages of
15 and 35. We have two distinct, established store concepts, Charlotte Russe
and Rampage, and we are currently developing an additional store concept,
Charlottes Room. As of September 29, 2001, we operated a total of 188 stores
throughout 26 states and Puerto Rico. Through our fashion content, merchandise
mix, exciting store layout and design, and striking merchandise presentation,
we project fashion attitudes that appeal to customers across age and
socioeconomic boundaries. Our Charlotte Russe stores offer fashionable,
affordable apparel and accessories that have been tested and accepted by the
marketplace, thus appealing to women who prefer established fashion trends. Our
Rampage stores feature emerging fashion trends and thus appeal to women who
have a flair for making fashion statements and who want to create a
cutting-edge look.

Our Charlotte Russe and Rampage stores are located predominantly in
high-visibility, center court mall locations in spaces that average
approximately 7,300 square feet. These stores, which are generally twice as
large as those of most of our competitors, are designed to create an
environment that is exciting to shop and accentuates the fashion, breadth and
value of our merchandise selection. Our Charlottes Room stores feature
accessories, gifts and home décor items for fashion-driven 11 to 17 year olds.
These stores average 3,200 square feet and are designed to create an ageless,
playful shopping environment.

Our broad assortment of merchandise is centered around styles that are
affordable, feminine and reflect the latest fashion trends. Our breadth of
merchandise enables our customers to assemble coordinated and complete outfits
that satisfy many of their lifestyle needs. Both our Charlotte Russe and
Rampage store concepts offer merchandise at value-oriented prices, generally
20% to 30% less than prices for comparable items offered by most of our direct
mall-based competitors. Over 80% of our Charlotte Russe merchandise is sold
under the Charlotte Russe label and over 90% of our Rampage merchandise is sold
under our proprietary Heart, Moon, Star Dingbat label. The remainder of our merchandise at these stores
consists of nationally-recognized brands popular with our customers.

We intend to become a leading national specialty retailer.

We intend to become a leading national specialty retailer of affordable
fashion-forward apparel and accessories to youthful-minded women. We intend to
achieve this objective by continuing to pursue an aggressive store opening
campaign of our proven concepts, Charlotte Russe and Rampage, broadening the
test of our Charlottes Room concept and introducing a national marketing
campaign for our Charlotte Russe brand.

Since our acquisition in September 1996, we have conducted an accelerated
store opening program and have more than quintupled our store base. As of
September 29, 2001, we operated 188 stores throughout 26 states and Puerto
Rico. Based on our successful track record, favorable demographic trends and a
solid infrastructure, we believe we are positioned for continued growth over
the next several years. We plan to continue to open new Charlotte Russe and
Rampage stores at a rapid rate, with at least 55 new Charlotte Russe and
Rampage stores planned for fiscal year 2002, for which we have already
completed our site selection and evaluation process. We expect to open these
new stores in existing markets as well as in markets in which we currently do
not have a presence. We have expanded our test of the Charlottes Room concept
to eight stores during fiscal 2001, and we plan to add two additional stores in
fiscal 2002.

We have historically relied on exciting in-store graphics and window
displays to convey our fashion-forward orientation. We intend to leverage these
successful marketing efforts to promote brand awareness on a national level.
Specifically, in fiscal 2001 we launched a national print marketing campaign to
further enhance the value of our Charlotte Russe brand.



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Our business strategy differentiates us from our competitors.

The elements of our business strategy combine to create a merchandise
assortment that appeals to consumers from a broad range of socioeconomic,
demographic and cultural profiles and that differentiates us from our
competitors. We believe this broad consumer appeal, coupled with our superior
new store cash returns on investment, creates a highly portable store concept
and a significant opportunity for growth. The principal elements of our
business strategy include the following:

Offer Consistent Value Pricing.We offer a broad assortment of
fashionable, quality merchandise at prices generally 20% to 30% below most of
our direct mall-based competitors. We employ this value-pricing strategy across
both of our established store concepts, with an average sales price for apparel
items at our Charlotte Russe and Rampage stores of approximately $18.00 and
$28.00. Because our prices are affordable and our merchandise quality is
comparable to higher priced specialty retailers and department stores, we
create a strong perception of value that has enabled us to build a broad and
loyal base of customers.

Maintain Distinct Brand Images.We have created focused and differentiated
brand images based on fashion attitude, value pricing and quality. These images
are consistently communicated through all aspects of our business, including
merchandise assortments, in-store visual merchandising and marketing materials.
We also enhance brand recognition by offering over 80% of our Charlotte Russe
merchandise under the Charlotte Russe label and over 90% of our Rampage
merchandise under our proprietary Heart, Moon, Star Dingbat label. We believe that both of our
established brands provide opportunities for expansion of our current
merchandise categories and entry into new product categories. We intend to
develop the Charlottes Room brand and any additional proprietary brands with
distinct images so that they can be expanded in the same manner.

Target a Highly Desirable Market.Our Charlotte Russe and Rampage stores
target women between the ages of 15 and 35, a broad and large group that is
expected to grow over the next ten years. While our target customer base is
expected to grow, a core group of our target market, the teenage and early
twenties population, is expected to grow at a rate faster than that of the
overall United States population according to the United States Census Bureau.
We believe that an increase in minimum wage and easier access to credit cards
will continue to contribute to substantial growth in the buying power of our
target market.

Offer Broad, Exciting Merchandise Assortment.Our merchandising strategy
is founded on offering a broad assortment of apparel and accessories that
conveys a consistent fashion attitude. Our merchandise includes ready-to-wear
apparel such as knit and woven tops, dresses, shorts, pants and skirts, as well
as accessories such as shoes, handbags and jewelry that enable our customers to
create distinct ensembles complemented by color coordinated and fashion-forward
items. Our merchandise assortment is voguish enough to attract teenage
customers and yet stylish enough to retain those women as they mature into
young adults. We maintain a fresh and exciting shopping environment by
frequently introducing new merchandise into our stores and by regularly
updating our merchandise displays. In addition, our stores provide a
comfortable and spacious environment that accentuates the breadth of our
merchandise offerings.

Capitalize on Strong Store Economics.Based on our experience with store
openings for our two established concepts, we estimate that the average net
investment to open these new stores is approximately $450,000, which includes
capital expenditures, net of landlord contributions, and initial inventory, net
of payables. During their first year of operations, our stores opened during
fiscal years 1997 through 2000 generated average net sales of approximately
$1.8 million and store-level operating cash flow in excess of $400,000, or
approximately 22.0% of net sales. Accordingly, these stores generated an
average cash return on investment of approximately 90% in their first year of
operations. There can be no assurance that our new stores will obtain these
levels in the future, especially given the weak retailing trends during the
second half of fiscal year 2001.

Leverage Highly Experienced Management Team.We believe our senior
management team combines a unique blend of experience with the company and
other national growth retailers. Following our acquisition in September 1996,
Mr. Zeichner recruited eight members of our highly experienced management team,
who have participated in the successful national expansion of retailers such as
Contempo Casuals, Guess? and Price Club. As a group, these officers currently
have an average of over 20 years of retail experience. These new managers



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complemented our core group of buying and operations managers who had
participated in the evolution and growth of the Charlotte Russe concept and who
currently have an average of over 19 years of retail experience with us. The
successful integration of these distinct skill sets has produced a unique
corporate culture that leverages the talents of each group. During August 2001,
we established the Chief Operating Officer position with the hiring of Mark
Hoffman, a specialty retail executive with experience at Pacific Sunwear,
Claires and Ann Taylor. We believe our management is positioned to capitalize
on the strong economics of the Charlotte Russe and Rampage concepts and to
successfully execute our national expansion program.

Actively Manage Inventory.The cornerstone of our merchandising strategy
is our test-and-reorder philosophy. This strategy allows us to minimize our
inventory risk by ordering small quantities of fashion merchandise to test
customer acceptance before placing larger purchase commitments. Our
test-and-reorder strategy is successful in large part because we deal primarily
with domestic vendors, which in our experience has generally resulted in short
lead times of three to six weeks. These short lead times, together with our
ability to monitor store sales on a daily basis, permit us to quickly react to
sell-through trends and fashion preferences. We have one of the highest
inventory turn rates in the industry and we believe that our approach to
managing our merchandise mix has contributed to strong gross margins and
lower-than-average markdown rates.

Our target customers are young, fashion-conscious women.

We target young, fashion-conscious women. Our Charlotte Russe customer is
a woman who desires understandable trends at substantial value. She is a hip
teenager seeking the current fashion trends, as well as the fashionable working
woman looking for career dressing. Regardless of her age, the Charlotte Russe
customer is feminine and body conscious. Our Rampage stores cater to women with
definitive fashion sense who set rather than follow trends. Our Rampage
customer is hip, eclectic, body conscious and tapped into pop culture. She
wants her look to be cutting-edge, while recognizing the value of competitive
pricing. Our Charlottes Room customer is a fashion-driven 11 to 17 year old or
a hip cross-over customer. She wants gifts and accessories to satisfy her
ever-changing lifestyle wants and needs.

We offer established fashion and cutting-edge merchandise.

Charlotte Russe.Our Charlotte Russe stores provide an exciting,
fashionable assortment of merchandise that complements virtually every facet of
our customers lifestyle. Our merchandise reflects established fashion trends
and includes a broad offering of ready-to-wear apparel, including knit and
woven tops, dresses, shorts, pants and skirts, as well as seasonal items such
as prom dresses and outerwear. This product assortment allows us to be
fashionable enough to attract teenage customers and yet stylish enough to
retain customers as they become young working women. We believe Charlotte Russe
stores offer a higher percentage of dresses as compared to other specialty
retailers to better meet our customers broad lifestyle needs for casual,
social, career and special occasion wear. Our typical dresses range in price
from $19.99 to $60.00, although prices can be as high as $80.00 to $120.00 for
special occasion dresses. By offering a product mix that reflects a more mature
stage of the fashion cycle, our Charlotte Russe stores are able to learn from
the experience of our Rampage stores with emerging trends in order to more
quickly identify fashion that has a broad market appeal. Charlotte Russe stores
also offer a broad assortment of accessories, such as lingerie, shoes, jewelry,
handbags and cosmetics. Our expansive accessories category enables us to offer
the convenience of one-stop shopping to our customers, enabling them to
complement their ready-to-wear clothing with color coordinated items and
fashion-forward accessories. Over 80% of the merchandise sold in these stores
carries the Charlotte Russe label. Our average sales price for apparel items is
$18.00, and the average sales price for all of our merchandise, including
accessories, is $14.00.

Rampage.Our Rampage stores offer essentially the same breadth of
ready-to-wear apparel as our Charlotte Russe stores, but the merchandise
reflects emerging trends and therefore a more cutting-edge look. There is also
less emphasis on the career customer in our Rampage stores. The retail prices
for our typical dresses range from $39.00 to $69.00, although prices can be
higher for special occasion dresses. Over 90% of the Rampage merchandise is
offered under our proprietary Heart, Moon, Star Dingbat label. We work with our vendors to design a
majority of the merchandise that is carried in our Rampage stores. We also have
established a standard fit for all of our apparel to ensure consistent



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sizing among our merchandise. Our Rampage stores also offer specialty
accessories that complement our higher-end merchandise. By offering the latest
in emerging fashions, our Rampage stores are able to command price points that
are higher than those of Charlotte Russe, but still below those of our
competitors. The average sales price for apparel items in our Rampage stores is
$28.00, and the average sales price for all of our merchandise, including
accessories, is $23.00.

Charlottes Room.In addition to our apparel retail concepts, we are also
developing and testing our Charlottes Room concept, which targets 11 to 17
year-olds. We offer a breadth of products that enable this customer to
complement her fashionable appearance with fashion-forward accessories, as well
as create a fresh and playful bedroom atmosphere expressive of her distinct
personality. We carry a wide assortment of gifts and accessories, as well as a
limited assortment of novelty apparel and sleepwear items.

Our visual merchandising strengthens our brand name and creates an exciting
shopping environment.

Our merchandising presentation for our retail apparel concepts
communicates a clear fashion point-of-view to our customers and encourages the
purchase of coordinated outfits. Our visual merchandising team for the
Charlotte Russe and Rampage stores also makes use of mannequins in store
windows as well as on the selling floor to enhance our merchandise
presentation.

Within our Charlotte Russe stores, we seek to create an inviting
environment for our broad product offerings. We generally group our apparel
merchandise by color and fashion trend and we typically present accessories as
in-store boutiques. While shopping the store, our customer will observe that
our merchandise extends to her various lifestyle needs, including casual, club
and career wear, as well as lingerie, shoes and accessories. We believe that
presenting apparel merchandise by color and fashion trend, when accompanied
with boutiques of various accessories, creates an attractive atmosphere for our
customers and that the breadth and depth of our product offerings makes us a
destination location for their shopping needs.

At our Rampage stores, we employ an equally effective visual merchandising
strategy in order to capture the interest of our customers. Our Rampage
merchandise is generally grouped by color and fashion trend to keep the stores
vibrant, hip and visually stimulating. Our stores are larger than most of our
competitors, and we take advantage of our store size by providing an expansive
and diverse offering of merchandise. Our store window displays and in-store
graphics accentuate the fashion, quality and cutting-edge style of our
merchandise.

As with our other concepts, we intend to build brand awareness for
Charlottes Room from the inside out. Our unique store design uses blue, white
and silver tones to create an ageless, playful environment. We reinforce our
in-store atmosphere by incorporating the design into seasonal promotional
programs, signage and window displays. We expect to leverage the experience and
talent of our visual merchandising team to continue to refine our merchandising
strategy for Charlottes Room.

We order primarily from domestic sources and utilize a test-and-reorder
strategy.

All of our inventory is purchased from third party vendors. The
cornerstone of our merchandising strategy is our test-and-reorder philosophy.
This strategy allows us to manage our inventory risk by testing small
quantities of fashion merchandise in our stores before placing larger purchase
commitments. Our experienced buying staff uses sophisticated information
systems to track the weekly sell-through of each merchandise item by
classification, style, color and size, and then places appropriate reorders for
popular merchandise. Accordingly, our test-and-reorder strategy enables us to
quickly react to sell-through trends and fashion preferences.

Our test-and-reorder strategy is successful in large part because we deal
with domestic vendors, which has generally resulted in short lead times of
three to six weeks. Accordingly, we have established relationships with over
650 vendors to meet our ongoing fashion and inventory needs. We believe that we
generally are able to obtain attractive pricing and other terms from vendors
because of their desire to be associated with the Charlotte Russe and Rampage
images and the rapid consumer feedback provided by our test-and-reorder
philosophy. We maintain a buying office in the CaliforniaMart in Los Angeles,
the primary apparel center in southern California, to facilitate



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constant dialogue and feedback between our buying staff and our vendors.
During the fiscal year ended September 29, 2001, our top five vendors accounted
for approximately 10.7% of our total purchases and no single vendor accounted
for more than 2.4% of our total purchases.

We manage our inventory through merchandise planning and allocation.

Our merchandise planning and allocation team works closely with our
general merchandise manager, merchants and store personnel to meet the
requirements of individual stores for appropriate merchandise in sufficient
quantities. This team is also responsible for managing inventory levels,
allocating merchandise to stores and replenishing inventory based upon
information generated by our management information systems. Our planning
department allocates merchandise for new store openings based on estimated
units per square foot, and all new stores are fully stocked prior to opening.
Our inventory control systems monitor current inventory levels at each store
and for our operations as a whole. If necessary, we shift slow moving inventory
to other stores for sell-through prior to instituting corporate-wide markdowns.
We also monitor recent selling history within each store by merchandise
classification, style, color and size.

We distribute merchandise through our modern San Diego facility.

The timely and efficient distribution of merchandise to our stores is
critical to the success of our test-and-reorder strategy. We process all of our
merchandise through our modern 125,000 square foot distribution center in San
Diego, California, which we built and took possession of in April 1998. Our
distribution facility employs an automated system for sorting apparel by store
and facilitating packaging for display in our stores. We estimate that
approximately 50% of our apparel merchandise is currently pre-ticketed by our
vendors, and we expect that this percentage will continue to increase over the
next fiscal year. This pre-ticketing by vendors allows us to ship merchandise
more quickly, reduces labor costs and enhances inventory management. Our
merchandise is generally shipped to stores within 24 hours of receipt at the
distribution center for delivery on common carrier within one to five business
days. Our merchandise is available for sale in our stores the same day it is
received and, accordingly, the time period from receipt of goods at our
distribution center to display in our stores is typically less than seven days.
Each store generally receives three to five merchandise shipments per week.

In order to support the logistical requirements of our rapidly expanding
store base, we intend to add distribution capacity with the opening of a
265,000 square foot facility in Ontario (California) during the third quarter
of fiscal year 2002. In addition to an automated system for sorting apparel,
this facility will also incorporate automated processing for accessories.
Successful operation of this second facility is expected to increase the total
distribution capabilities to at least 600 stores and should be sufficient to
accommodate our expected store growth through the next several years.

We have stores throughout the United States.

As of September 29, 2001, we operated 146 Charlotte Russe stores, 34
Rampage stores and 8 Charlottes Room stores throughout 26 states and Puerto
Rico. The number of our stores located in each state is shown in the following
map according to the state or territory in which that store is located.



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(MAP)

The following table highlights the number of stores, by geographic region,
opened in each of the last five fiscal years:

|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |    |  
|--------------------------------- | ------------------------- |  | ---------- | -- | --------- |  | --------- | - | --------- |  | ----- | -- | ----- |  | -- | -- |  |  | -- | -- |  |  | --- | -- | -
|                                  |                           |  | California |    | Southwest |  | Southeast |   | Northeast |  | Other |    | Total
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |      
|Store count at September 27, 1996 |                           |  | 26         |    |           |  | 9         |   |           |  |      |    |       |  |   |    |  |  |   |    |  |  | 35  |   
|Fiscal 1997                       |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  | Stores opened             |  |            | 3  |           |  |           | 1 |           |  |       | 2  |       |  |    | 0  |  |  |    | 1  |  |  |     | 7  |  
|                                  | Stores closed             |  |            | (1 | )         |  |           | 0 |           |  |       | 0  |       |  |    | 0  |  |  |    | 0  |  |  |     | (1 | )
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  |                           |  | 28         |    |           |  | 10        |   |           |  | 2     |    |       |  | 0  |    |  |  | 1  |    |  |  | 41  |   
|Fiscal 1998                       |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  | Stores acquired (Rampage) |  |            | 7  |           |  |           | 2 |           |  |       | 3  |       |  |    | 4  |  |  |    | 0  |  |  |     | 16 |  
|                                  | Stores opened             |  |            | 4  |           |  |           | 4 |           |  |       | 9  |       |  |    | 0  |  |  |    | 0  |  |  |     | 17 |  
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  |                           |  | 39         |    |           |  | 16        |   |           |  | 14    |    |       |  | 4  |    |  |  | 1  |    |  |  | 74  |   
|Fiscal 1999                       |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  | Stores opened             |  |            | 1  |           |  |           | 3 |           |  |       | 9  |       |  |    | 5  |  |  |    | 4  |  |  |     | 22 |  
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  |                           |  | 40         |    |           |  | 19        |   |           |  | 23    |    |       |  | 9  |    |  |  | 5  |    |  |  | 96  |   
|Fiscal 2000                       |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  | Stores opened             |  |            | 4  |           |  |           | 9 |           |  |       | 6  |       |  |    | 14 |  |  |    | 7  |  |  |     | 40 |  
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  |                           |  | 44         |    |           |  | 28        |   |           |  | 29    |    |       |  | 23 |    |  |  | 12 |    |  |  | 136 |   
|Fiscal 2001                       |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|                                  | Stores opened             |  |            | 7  |           |  |           | 8 |           |  |       | 8  |       |  |    | 13 |  |  |    | 18 |  |  |     | 54 |  
|                                  | Stores closed             |  |            | (1 | )         |  |           | 0 |           |  |       | (1 | )     |  |    | 0  |  |  |    | 0  |  |  |     | (2 | )
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   
|Store count at end of fiscal 2001 |                           |  | 50         |    |           |  | 36        |   |           |  | 36    |    |       |  | 36 |    |  |  | 30 |    |  |  | 188 |   
|                                  |                           |  |            |    |           |  |           |   |           |  |       |    |       |  |    |    |  |  |    |    |  |  |     |   



6



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We seek to locate our stores in large, commanding spaces in high traffic areas
of strong regional malls.

Our stores provide a comfortable and spacious shopping environment that
accentuates the breadth of our merchandise offering. To distinguish our stores,
we also seek prominent center court locations with distinctive architectural
features, such as high angled ceilings, which our store designers and visual
merchandisers can use to create striking displays, facades and entrances. We
believe that specialized store design features, including finished ceilings,
classic lighting and detailed features, help create a differentiated store
environment unique to young women apparel retailers in the mall. We have
historically been able to locate and profitably operate our stores in a variety
of malls catering to different socioeconomic, demographic and cultural
profiles. Our Charlotte Russe and Rampage stores, which average approximately
7,300 square feet, are generally twice the size of those of most of our
mall-based competitors. Our Charlottes Room stores currently average
approximately 3,200 square feet.

We engage an independent real estate consultant to initially identify
favorable store locations in existing or new markets. This consultant currently
does not advise any other operators within the womens apparel industry. Our
site selection criteria includes:



| |  |  | a careful assessment of mall traffic;                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | The performance of other retailers within the mall and in particular those serving our target customers;
|
| |  |  | The proposed location within the mall;                                                                  
|
| |  |  | population and demographic characteristics of the area; and                                             
|
| |  |  | projected profitability and cash return on investment.                                                  

Immediately after site approval, we simultaneously negotiate lease terms
and begin planning the store layout and design. We typically open a new store
within three months after lease execution and delivery of space. We also
continually evaluate our stores to assess the need for remodeling or the timing
of possible closure based on economic factors.

Store Operations

Our store operations are currently organized into a Western region with
eleven districts, an Eastern region with eight districts and a Southeastern
region with seven districts. Each region is managed by a regional manager and
each district is managed by a district manager. Each district manager is
responsible for an average of seven stores. Individual store personnel
generally consists of a store manager, one or two assistant managers and seven
to ten sales associates, the number of which generally increases during our
peak selling seasons. Our store managers are responsible primarily for customer
service training and hiring store level staff. Merchandise selections,
inventory management and visual merchandising strategies for each store are
determined at the corporate level. Our regional, district, and store managers
receive a base compensation plus incentive compensation based on sales goals.

Our commitment to customer satisfaction and service is an integral part of
building customer loyalty. We strive to hire enthusiastic sales personnel and
provide them with extensive training to create a sales staff with a strong
fashion sense, a focus on customer service and a willingness to assist
customers with assembling, accessorizing and coordinating outfits.

Our standard training program for store managers includes an initial three
week session at a store managed by one of our approved training managers, as
well as frequent regional and district meetings. In addition, our training
manual provides practical information and skill development for all store level
positions. We develop new store managers by promoting from within and
selectively hiring from other retail organizations. In anticipation of our
continued store expansion, we will continue to increase the number of people in
our store manager training program as appropriate to support our proposed
expansion strategy.



7



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We continually invest in and upgrade our information technology systems.

We are committed to investing in and continually upgrading our information
technology systems, as we believe those systems are critical to implementing
our expansion strategy in an efficient manner and to maintaining a competitive
industry position. Our information technology systems address, among others
things, our stock keeping unit and classification inventory tracking, purchase
order management, merchandise distribution, automated ticket making, general
ledger, sales audit, accounts payable, fixed asset management, payroll,
integrated financials and point-of-sale information. Our buying, allocation and
distribution functions are supported by an ICM merchandising system that is
tailored for Charlotte Russe and we utilize a Lawson Software package for our
financial reporting and human resource functions. As part of our program to
evaluate and update our systems, certain enhancements are expected to be
pursued during fiscal year 2002, including the potential acquisition of
software to support the merchandise planning and allocation functions. We
believe our current systems, as they may be enhanced in the future, are
adequate to meet future expansion plans over the next several years.

Our sales are updated daily in the merchandise reporting system by polling
sales information from each stores point-of-sale terminal. Our point-of-sale
system consists of registers providing price look-up, time and attendance,
supply ordering, bill of lading tracking and automated charge card processing.
We believe these features improve transaction accuracy, increase speed of
checkout time and overall store efficiency and enable us to track the
productivity of individual sales associates. Through automated nightly two-way
electronic communication with each store, we upload sales information, payroll
hours and messages to our host system and download new merchandise pricing,
price changes for existing merchandise, carton receipts and system maintenance
tasks to the point-of-sale devices. Based upon the evaluation of information
obtained through daily polling, our planning department implements
merchandising decisions regarding inventory levels, reorders, price changes and
allocation of merchandise to stores.

We lease all of our properties.

We operated 188 stores throughout 26 states and Puerto Rico as of
September 29, 2001. We currently lease all of our store locations. Most leases
have an initial term of at least ten years and do not contain options to extend
the lease. Our leases, however, often allow for termination by us after three
years if sales at that site do not exceed specified levels, although in many
instances we are required to pay back a portion of any landlord allowances
received. We lease space containing approximately 125,000 square feet for our
executive offices and distribution center in San Diego, California. This lease
is for a term of twelve years and is scheduled to expire on August 31, 2009. We
believe the distribution capacity of the San Diego facility and the Ontario
(California) facility scheduled to open during the third quarter of fiscal year
2002 should be sufficient to accommodate our expected store growth through the
next several years. We also lease approximately 7,600 square feet at the
CaliforniaMart in Los Angeles. This lease expires April 30, 2005.

We compete with other retailers primarily on the basis of timeliness of
fashions, breadth of merchandise, brand recognition, pricing and quality.

We currently compete against a diverse group of retailers, including
national and local specialty retail stores, regional retail chains, traditional
retail department stores and, to a lesser extent, mass merchandisers. The
primary competitors of Charlotte Russe are Express, Contempo Casuals, Wet Seal
and Forever 21. The primary competitors of Rampage are bebe and Arden B. Our
competitors sell a broad assortment of apparel and accessories that are similar
and often identical to those we sell. Furthermore, our competitors may at times
sell their merchandise at prices lower than what we charge for comparable
merchandise. We believe that the principal bases upon which we compete in our
industry are timeliness of fashions, breadth of merchandise, brand recognition,
pricing and quality. We believe that we have a significant competitive
advantage over our competitors because of our exciting shopping environment.
Our stores are generally twice as large as most of our mall-based competitors
and provide a feminine look that is exciting to shop and accentuates the value
and breadth of our merchandise selection. We also believe that we have a
competitive advantage because of high consumer recognition and acceptance of
our brands, our
strong presence in major shopping malls throughout the United States, our
relationship with our vendors and the experience



8



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of our management. The retail and apparel industries, however, are highly
competitive and characterized by relatively low barriers to entry.

Our intellectual property is important to our success.

We believe that our trademarks are important to our success. Our Charlotte
Russe trademarks and Charlottes Room trademark are registered with the United
States Patent and Trademark Office. In addition, we have applications pending
with the United States Patent and Trademark Office for our Heart, Moon, Star Dingbat and certain
product-related Charlottes Room trademarks.

In connection with the acquisition of our Rampage stores in September
1997, we acquired the exclusive right within the United States to use the
Rampage trademark on exterior and interior signage identifying our Rampage
stores, as well as the non-exclusive right within the United States to use the
Rampage trademark for promotional and advertising materials. The right to
market merchandise under the Rampage trademark was retained by Rampage Clothing
Company and, accordingly, we do not have the right to use the Rampage trademark
on our merchandise. Further, nothing in our license agreement prohibits the
sale of merchandise bearing the Rampage trademark by other parties or the
licensing of the Rampage trademark to other parties. In fact, Rampage Clothing
Company has licensed the trademark to other parties. If the product quality or
activities of the Rampage Clothing Company or these other parties negatively
impact our business reputation, we have the right to rename our Rampage stores
and terminate the license agreement upon thirty (30) days written notice.
Furthermore, over 90% of the merchandise in our Rampage stores is sold under
our proprietary Heart, Moon, Star Dingbat label, and only a nominal amount is sold under the Rampage
brand name. We pay a royalty under the license agreement equal to the greater
of a stated dollar amount or a percentage of net sales during the fiscal year
at stores operating under the Rampage name. The license agreement has an
initial term of four years with an automatic option to renew for another four
years. We may also extend the license for ten additional four-year periods. We
may exercise each of these extension periods, however, only if our net sales
under the license for the last fiscal year of the then current four-year
extension period exceed by 10% our net sales for the fiscal year ending
immediately prior to the beginning of such extension period.

We consider the relationship with our employees to be good.

As of September 29, 2001, we employed 1,308 full-time and 2,504 part-time
employees. Of our full-time employees, 186 were employed at our corporate
offices, 155 were employed at our distribution center and 967 were employed at
our store locations. The number of part-time employees fluctuates depending on
our seasonal needs. None of our employees are represented by a labor union, and
we consider the relationship with our employees to be good.




ITEM 2. PROPERTIES

We operated 188 stores throughout 26 states and Puerto Rico as of
September 29, 2001. We currently lease all of our store locations. Most leases
have an initial term of at least ten years and do not contain options to extend
the lease. Our leases, however, often allow for termination by us after three
years if sales at that site do not exceed specified levels, although in many
instances we are required to pay back a portion of any landlord allowances
received. We lease space containing approximately 125,000 square feet for our
executive offices and distribution center in San Diego, California. This lease
is for a term of twelve years and is scheduled to expire on August 31, 2009. We
believe the distribution capacity of the San Diego facility and the Ontario
(California) facility scheduled to open during the third quarter of fiscal year
2002 should be sufficient to accommodate our expected store growth through the
next several years. We also lease approximately 7,600 square feet at the
CaliforniaMart in Los Angeles. This lease expires April 30, 2005.

The number of our stores located in each state is shown in the following
store list according to the state or territory in which such store is located.
All locations below are Charlotte Russe stores unless otherwise indicated.



9



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|Arizona (11)
     Arizona Mills (Tempe)
     Arrowhead Center (Glendale)
     Fashion Square (Scottsdale)
     Fiesta Mall (Mesa)(+)
     Metro Center (Phoenix)
     Paradise Valley Mall (Phoenix)(+)
     Park Place (Tucson)
     Tucson Mall
 California (50)
     Fresno Fashion Fair
     Galleria at Roseville
     Great Mall of the Bay Area (Milpitas)
     La Cumbre Plaza (Santa Barbara)*
     Los Angeles
          Beverly Center*
          Brea Mall(+)
          Del Amo Fashion Center (Torrance)(+)
          Fox Hills Mall (Culver City)
          Glendale Galleria
          Laguna Hills Mall
          Lakewood Fashion Center
          Main Place (Santa Ana)
          Mission Viejo*
          Montclair Plaza
          Montebello Town Center
          Moreno Valley Mall
          Northridge Fashion Center
          Ontario Mills
          Plaza at West Covina
          Santa Anita Fashion Park
          Sherman Oaks*
          South Coast Plaza (Costa Mesa)*
          Thousand Oaks Center
          Topanga Plaza (Canoga Park)
          Westminster Mall
          Westside Pavillion*
     New Park Mall (Newark)
     San Diego
          Chula Vista Center
          Fashion Valley Center
          Grossmont Center (La Mesa)
          Mission Valley(+)
          North County Fair (Escondido) |  | California (continued)
     San Diego (continued)
          Parkway Plaza (El Cajon)
          Plaza Bonita (National City)
          Plaza Camino Real (Carlsbad)
          University Towne Center
     Santa Rosa Plaza
     Serramonte Center (Daly City)
     Sun Valley (Concord)
     Temecula Promenade
     Valley Fair (San Jose)*(+)
     Valley Plaza (Bakersfield)
 Colorado (1)
     Flatiron Crossing (Broomfield)
 Connecticut (3)
     Crystal Mall (Waterford)
     Danbury Fair*
     Meriden Square
 Florida (24)
     Altamonte Springs
     Aventura Mall*
     Boca Raton*
     Broward Mall (Plantation)
     Citrus Park Center (Tampa)
     Coral Square
     Countryside Mall (Clearwater)
     Dadeland Mall (Miami)*
     Dolphin Mall (Miami)
     Edison Mall (Fort Meyers)
     Florida Mall (Orlando)
     Indian River (Vero Beach)
     Melbourne Square
     Orange Park Mall
     Orlando Fashion Square
     Oviedo Marketplace
     Regency Square (Jacksonville)
     Seminole Town Center (Sanford)
     Shops at Sunset (South Miami)
     The Avenues (Jacksonville)
     The Falls (Miami)*
     Tyrone Square (St. Petersburg)
     West Oaks Mall (Ocoee)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Georgia (7)
     Arbor Place (Douglasville)
     Mall of Georgia at Mill Creek
     North Georgia Outlet (Dawsonville)
     Northlake Mall (Atlanta)
     Perimeter Mall (Atlanta)
     Town Center at Cobb (Kennesaw)
 Hawaii (1)
     Pearlridge (Aiea)
 Illinois (10)
     Charlestown Mall
     Fox Valley Center (Aurora)
     Gurnee Mills
     Louis Joliet Mall
     Northbrook Court*
     Orland Square
     Spring Hill Mall (West Dundee)
     Stratford Square (Bloomingdale)
     Water Tower Place (Chicago)*
     Woodfield Mall (Schaumburg)
 Indiana (2)
     Castleton Square (Indianapolis)
     Glenbrook Square (Fort Wayne)
 Maryland (2)
     Arundel Mills (Hanover)
     Lakeforest (Gaithersburg)
 Massachusetts (3)
     Emerald Square (N. Attleboro)
     Holyoke Mall
 Michigan (4)
     Fairlane (Dearborn)
     Genesee Valley Center (Flint)
     Great Lakes Crossing (Auburn Hill)
     River Town Crossings (Grandville)
 Minnesota (4)
     Eden Prairie Mall
     Mall of America (Bloomington) *
     Maplewood Mall (St. Paul)
     Rosedale Center (Roseville) |  | Nevada (4)
     Boulevard Mall (Las Vegas)
     Galleria (Henderson)
     Meadows Mall (Las Vegas)
 New Jersey (6)
     Deptford Mall
     Freehold Raceway*
     Garden State Plaza (Paramus)*
     Hamilton Mall (Mays Landing)
     Jersey Gardens (Elizabeth)
     Quaker Bridge Mall (Lawrenceville)
 New York (14)
     Broadway Mall
     Carousel Center (Syracuse)
     Crossgates Mall (Albany)
     Eastview Mall (Victor)
     Galleria at Crystal Run (Middletown)
     Palisades Center (West Nyack)
     Roosevelt Field (Garden City)
     Smith Haven (Lake Grove)
     Soho*
     Sunrise Mall (Massapequa)
     Walden Galleria (Buffalo)
 New Hampshire (1)
     Mall of New Hampshire (Manchester)
 North Carolina (2)
     Concord Mills
     Independence Mall (Wilmington)
 Ohio (4)
     Avenue at Tower City (Cleveland)
     Eastwood Mall (Niles)
     Southern Park (Youngstown)
     Tri-County Mall (Cincinnati)
 Oklahoma (1)
     Woodland Hills Mall (Tulsa)
 Pennsylvania (5)
     Franklin Mills (Philadelphia)
     Monroeville Mall
     Montgomery Mall (North Wales)
     Oxford Valley Mall (Langhorne)
     Ross Park Mall (Pittsburgh)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



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|Puerto Rico (5)
     The Belz Outlet (Canovanas)
     Plaza Carolina (Carolina)
     Plaza Del Sol (Sierra Bayamon)
     Plaza Las Americas (Hato Rey)
 Rhode Island (1)
     Providence Place
 South Carolina (1)
     Haywood Mall (Greenville)
 Tennessee (2)
     Hickory Hollow (Antioch)
     Opry Mills (Nashville) |  | Texas (19)
     Sunrise Mall (Brownsville)
     Cielo Vista (El Paso)
     Collin Creek Mall (Plano)
     Grapevine Mills(+)
     Highland Mall (Austin)
     Houston Galleria*
     Katy Mills
     Lakeline Mall (Cedar Park)
     La Plaza Mall (McAllen)
     North East Mall (Hurst)
     Northpark Mall (Dallas)(+)
     Ridgmar Mall (Ft. Worth)
     Stonebriar Center (Frisco)
     Town East Mall (Mesquite)
     Valley View (Dallas)
 Virginia (1)
     Dulles Town Center
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

|*   |  | Rampage Store                          
|--- |  | ---------------------------------------
|   
|   
|   
|   
|   |  | Both Charlotte Russe and Rampage Stores
|   
|   
|   
|   
|(+) |  | Includes Charlottes Room Store        




ITEM 3. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this filing, we are not
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business, financial
condition or results of operations.






|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Not applicable.



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PART II






|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------

Market Information and Holders

Our common stock began trading on the Nasdaq National Market under the
symbol CHIC on October 20, 1999, following our initial public offering. The
following table sets forth the range of high and low closing sales prices of
the common stock as reported by Nasdaq:

|                                     |                                       |  |      |        |     |  |  |        | 
|------------------------------------ | ------------------------------------- |  | ---- | ------ | --- |  |  | ------ | 
|                                     |                                       |  | High |        | Low
|                                     |                                       |  |      |        |    
|Fiscal Year Ended September 30, 2000 |                                       |  |      |        |     |  |  |       
|                                     | First Quarter (From October 20, 1999) |  |      | 17.375 |     |  |  | 11.875 | 
|                                     | Second Quarter                        |  |      | 21.750 |     |  |  | 10.625 | 
|                                     | Third Quarter                         |  |      | 18.125 |     |  |  | 8.188  | 
|                                     | Fourth Quarter                        |  |      | 14.375 |     |  |  | 10.000 | 
|Fiscal Year Ended September 29, 2001 |                                       |  |      |        |     |  |  |       
|                                     | First Quarter                         |  |      | 16.313 |     |  |  | 10.875 | 
|                                     | Second Quarter                        |  |      | 31.000 |     |  |  | 15.875 | 
|                                     | Third Quarter                         |  |      | 39.150 |     |  |  | 17.770 | 
|                                     | Fourth Quarter                        |  |      | 25.380 |     |  |  | 11.000 | 

As of December 11, 2001, the number of holders of record of our common
stock was approximately 20 and the number of beneficial holders of our common
stock was estimated to be in excess of 2,700. On December 11, 2001, the closing
price of our common stock as reported by Nasdaq was $18.20 per share.

Dividends

We have never declared nor paid dividends on our Common Stock and we do
not intend to pay any dividends on our Common Stock in the foreseeable future.
We currently intend to retain earnings to finance future operations and
expansions. Moreover, under the terms of our revolving credit facility,
dividends, distributions and capital stock redemptions are restricted to $5.0
million or less in any fiscal year, of which up to $2.5 million may be cash
dividends paid on a non-cumulative basis.



13



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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, Managements
Discussion and Analysis of Financial Condition and Results of Operations and
the consolidated financial statements and notes thereto included elsewhere in
this Form 10-K.

|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |        |      |  | 
|------------------------------------------------- | --------------------------- | -------------------------------- | ------ | ------ | ---------------------------------------------------------------- | - | --------- | ------ | --------- | - | --------- | ------ | --------- | - | ------- | ------ | ---- | - | ------- | ------ | ---- |  | 
|                                                  |                             |                                  |        |        | Fiscal Year Ended                                               
|                                                  |                             |                                  |        |        |                                                                 
|                                                  |                             |                                  |        |        | Sept. 27,                                                        |   | Sept. 26, |        | Sept. 25, |   | Sept. 30, |        | Sept. 29,
|                                                  |                             |                                  |        |        | 1997                                                             |   | 1998      |        | 1999      |   | 2000(1)   |        | 2001     
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |          
|                                                  |                             |                                  |        |        | (dollars in thousands, except per share and sales per foot data)
|Statement of Income Data:                         |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Net sales                                         |                             | $                                | 81,543 |        |                                                                  | $ | 134,091   |        |           | $ | 177,459   |        |           | $ | 245,260 |        |      | $ | 324,825 |       
|Cost of goods sold                                |                             |                                  | 50,723 |        |                                                                  |   | 93,142    |        |           |   | 119,141   |        |           |   | 165,917 |        |      |   | 226,066 |       
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Gross profit                                      |                             |                                  | 30,820 |        |                                                                  |   | 40,949    |        |           |   | 58,318    |        |           |   | 79,343  |        |      |   | 98,759  |       
|Selling, general and administrative expenses      |                             |                                  | 17,168 |        |                                                                  |   | 26,989    |        |           |   | 34,062    |        |           |   | 46,055  |        |      |   | 63,114  |       
|Amortization of goodwill and other intangibles    |                             |                                  | 815    |        |                                                                  |   | 895       |        |           |   | 895       |        |           |   | 895     |        |      |   | 895     |       
|Predecessor shareholders salaries                |                             |                                  | 1,200  |        |                                                                  |   |          |        |           |   |          |        |           |   |        |        |      |   |        |       
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Operating income                                  |                             |                                  | 11,637 |        |                                                                  |   | 13,065    |        |           |   | 23,361    |        |           |   | 32,393  |        |      |   | 34,750  |       
|Interest income (expense), net                    |                             |                                  | (2,279 | )      |                                                                  |   | (3,026    | )      |           |   | (2,376    | )      |           |   | (70     | )      |      |   | 425     |       
|Other charges, net                                |                             |                                  | (315   | )      |                                                                  |   | (280      | )      |           |   | (270      | )      |           |   | (270    | )      |      |   | (314    | )     
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Income before income taxes and extraordinary item |                             |                                  | 9,043  |        |                                                                  |   | 9,759     |        |           |   | 20,715    |        |           |   | 32,053  |        |      |   | 34,861  |       
|Income taxes                                      |                             |                                  | 3,987  |        |                                                                  |   | 4,245     |        |           |   | 8,701     |        |           |   | 12,982  |        |      |   | 13,370  |       
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Income before extraordinary item                  |                             |                                  | 5,056  |        |                                                                  |   | 5,514     |        |           |   | 12,014    |        |           |   | 19,071  |        |      |   | 21,491  |       
|Extraordinary loss from early debt retirement     |                             |                                  |       |        |                                                                  |   |          |        |           |   | 519       |        |           |   | 311     |        |      |   |        |       
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Net income                                        |                             | $                                | 5,056  |        |                                                                  | $ | 5,514     |        |           | $ | 11,495    |        |           | $ | 18,760  |        |      | $ | 21,491  |       
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Earnings per share (2):                           |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|                                                  | Basic earnings per share:   |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |        |     
|                                                  |                             | Income before extraordinary item |        | $      | 0.28                                                             |   |           | $      | 0.30      |   |           | $      | 0.66      |   |         | $      | 0.95 |   |         | $      | 1.04 | 
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|                                                  |                             | Net income                       |        | $      | 0.28                                                             |   |           | $      | 0.30      |   |           | $      | 0.63      |   |         | $      | 0.93 |   |         | $      | 1.04 | 
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|                                                  | Diluted earnings per share: |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |        |     
|                                                  |                             | Income before extraordinary item |        | $      | 0.25                                                             |   |           | $      | 0.27      |   |           | $      | 0.57      |   |         | $      | 0.83 |   |         | $      | 0.92 | 
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|                                                  |                             | Net income                       |        | $      | 0.25                                                             |   |           | $      | 0.27      |   |           | $      | 0.54      |   |         | $      | 0.82 |   |         | $      | 0.92 | 
|                                                  |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Weighted average shares outstanding (2):          |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|                                                  | Basic                       |                                  |        | 18,300 |                                                                  |   |           | 18,300 |           |   |           | 18,304 |           |   |         | 20,084 |      |   |         | 20,596 |     
|                                                  | Diluted                     |                                  |        | 19,992 |                                                                  |   |           | 20,668 |           |   |           | 21,234 |           |   |         | 22,845 |      |   |         | 23,428 |     
|Selected Operating Data:                          |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Number of stores open at end of period            |                             |                                  | 41     |        |                                                                  |   | 74        |        |           |   | 96        |        |           |   | 136     |        |      |   | 188     |       
|Average square footage per store (3)              |                             |                                  | 8,206  |        |                                                                  |   | 7,601     |        |           |   | 7,541     |        |           |   | 7,380   |        |      |   | 7,169   |       
|Sales per square foot (4)                         |                             | $                                | 268    |        |                                                                  | $ | 272       |        |           | $ | 282       |        |           | $ | 286     |        |      | $ | 277     |       
|Comparable store sales increase (decrease) (5)    |                             |                                  | 5.1    | %      |                                                                  |   | (5.8      | )%     |           |   | 6.7       | %      |           |   | 2.8     | %      |      |   | (1.7    | )%    
|Average stores sales (6)                          |                             | $                                | 2,222  |        |                                                                  | $ | 2,095     |        |           | $ | 2,138     |        |           | $ | 2,129   |        |      | $ | 2,010   |       
|Balance Sheet Data:                               |                             |                                  |        |        |                                                                  |   |           |        |           |   |           |        |           |   |         |        |      |   |         |       
|Working capital (deficiency)                      |                             | $                                | (2,676 | )      |                                                                  | $ | (1,239    | )      |           | $ | (7,218    | )      |           | $ | (4,625  | )      |      | $ | 2,443   |       
|Total assets                                      |                             |                                  | 57,128 |        |                                                                  |   | 74,427    |        |           |   | 88,569    |        |           |   | 108,505 |        |      |   | 147,421 |       
|Total long-term debt                              |                             |                                  | 22,325 |        |                                                                  |   | 27,600    |        |           |   | 18,000    |        |           |   |        |        |      |   |        |       
|Total stockholders equity                        |                             |                                  | 23,980 |        |                                                                  |   | 29,445    |        |           |   | 40,037    |        |           |   | 74,494  |        |      |   | 102,191 |       



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---

|(1) |  | Our results of operations for the fiscal year ended September 30, 2000
included 53 weeks compared to 52 weeks for all other fiscal years
presented.                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | See Notes 1 and 12 of Notes to the Consolidated Financial Statements for
the method used to calculate the earnings per share and weighted average
shares outstanding.              
|   
|(3) |  | Our average square footage per store is based on all open stores at the
end of the period.                                                                                         
|   
|(4) |  | Our sales per square foot consists of net sales divided by the time
weighted average of gross square footage of all open stores.                                                   
|   
|(5) |  | Our comparable store percentages are based on net sales, and stores are
considered comparable beginning on the first day of the month following
the fourteenth full month of sales.
|   
|(6) |  | Our average store sales are based on the time weighted average of all
open stores in the period.                                                                                   



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Financial
Statements and Notes thereto of the company included elsewhere in this Form
10-K. The following Managements Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. The Companys actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under Risks Relating to Our
Business in this section.

OVERVIEW

We were founded in 1975 and opened our first store in Carlsbad,
California. By September 1996, we had developed into a regional retailer with
35 stores in three states. On September 26, 1996, two funds managed by Saunders
Karp & Megrue Partners, L.L.C., a private equity investment firm, acquired the
business from its founders with the intention of pursuing an accelerated
national new store expansion program. Bernard Zeichner, who had joined us as
President in May 1996, shared the belief that a significant opportunity existed
to leverage the strength of our new store economics by further penetrating
existing markets and expanding the chain into other regions of the country. We
subsequently implemented a series of strategic initiatives to position us to
support an accelerated store rollout. We hired a number of senior executives
with national retail experience to complement our existing senior management
team and significantly upgraded our management information systems,
distribution systems and facilities. In September 1997, we launched our second
distinct retail concept by acquiring 16 stores in five states from Rampage
Retailing, Inc.

Our strong operating performance over the past three fiscal years reflects
the benefits of the infrastructure building process that we undertook, the
successful integration of the Rampage chain and the successful execution of our
national expansion program for the Charlotte Russe and Rampage chains. We have
leveraged this success to begin developing an additional retail concept known
as Charlottes Room, which features accessories, novelty gifts and other home
décor items for 11 to 17 year olds.

RESULTS OF OPERATIONS

The following table sets forth our operating results, expressed as a
percentage of sales, and store information for the periods indicated.

|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------- |  | ----------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                  |  | Fiscal Year
|                                                  |  |            
|                                                  |  | 1999        |       | 2000 |  | 2001
|                                                  |  |             |       |      |  |     
|Net sales                                         |  |             | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold                                |  |             | 67.1  |      |  |      | 67.6  |   |  |  | 69.6  |  
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Gross profit                                      |  |             | 32.9  |      |  |      | 32.4  |   |  |  | 30.4  |  
|Selling, general and administrative expenses      |  |             | 19.2  |      |  |      | 18.8  |   |  |  | 19.4  |  
|Amortization of goodwill and other intangibles    |  |             | 0.5   |      |  |      | 0.4   |   |  |  | 0.3   |  
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Operating income                                  |  |             | 13.2  |      |  |      | 13.2  |   |  |  | 10.7  |  
|Interest income (expense), net                    |  |             | (1.3  | )    |  |      | 0.0   |   |  |  | 0.1   |  
|Other charges, net                                |  |             | (0.2  | )    |  |      | (0.1  | ) |  |  | (0.1  | )
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Income before income taxes and extraordinary item |  |             | 11.7  |      |  |      | 13.1  |   |  |  | 10.7  |  
|Income taxes                                      |  |             | 4.9   |      |  |      | 5.3   |   |  |  | 4.1   |  
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Income before extraordinary item                  |  |             | 6.8   |      |  |      | 7.8   |   |  |  | 6.6   |  
|Extraordinary loss from early debt retirement     |  |             | 0.3   |      |  |      | 0.1   |   |  |  | 0.0   |  
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Net income                                        |  |             | 6.5   | %    |  |      | 7.7   | % |  |  | 6.6   | %
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  
|Number of stores open at end of period            |  |             | 96    |      |  |      | 136   |   |  |  | 188   |  
|                                                  |  |             |       |      |  |      |       |   |  |  |       |  



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Year Ended September 29, 2001 Compared to Year Ended September 30, 2000

Net Sales.Our results for the fiscal year ended September 29, 2001
included 52 weeks of operations while our results for the fiscal year ended
September 30, 2000 included 53 weeks of operations. Our net sales increased to
$324.8 million from $245.3 million, an increase of $79.5 million, or 32.4%,
over the prior fiscal year. This increase reflects $83.3 million of net sales
from the 54 new stores opened during fiscal 2001, as well as other stores
opened in prior fiscal years that did not qualify as comparable stores. This
increase was partially offset by a 1.7% decrease in our comparable store sales,
which resulted in decreased sales of $3.8 million compared to the prior fiscal
year. If we exclude the additional week in fiscal 2000, our total sales would
have increased 35.0% over the comparable 52-week period of the prior fiscal
year.

Gross Profit.Gross profit represents net sales less cost of goods sold,
which includes buying, distribution and occupancy costs. Our gross profit
increased to $98.8 million from $79.3 million, an increase of $19.5 million, or
24.5%, over the prior fiscal year. This increase was the result of higher net
sales, offset in part by decreased gross profit margins. As a percentage of net
sales, gross profit decreased to 30.4% from 32.4%. The decrease as a percentage
of net sales was principally due to higher occupancy expenses and markdown
expenses, partially offset by higher initial markups.

Selling, General and Administrative Expenses.Our selling, general and
administrative expenses increased to $63.1 million from $46.1 million, an
increase of $17.0 million, or 37.0%, over the prior fiscal year. This increase
was attributable to new store expansion, increased corporate expenses and
higher marketing expenses. As a percentage of net sales, selling, general and
administrative expenses increased to 19.4% from 18.8%, primarily due to higher
store operating expenses and marketing expenses.

Amortization of Goodwill and Other Intangibles.Our amortization of
goodwill and other intangibles expense remained constant at $0.9 million during
these two fiscal years.

Income Taxes.Our effective tax rate of 39.5%, before taking into account
a $0.4 million reversal of income tax expense, compares to an effective tax
rate of 40.5% for the prior fiscal year. During fiscal 2001, we settled an
audit with the IRS by agreeing to pay less than had previously been
anticipated; and, accordingly, we reduced our liability for taxes payable by
$0.4 million. Our effective tax rate exceeds statutory tax rates due to
non-deductible amortization of goodwill associated with the acquisition of our
business in September 1996.

Net Income.Our net income increased to $21.5 million from $18.8 million,
an increase of $2.7 million, or 14.6%, over the prior fiscal year. This
increase was primarily due to an increase in gross profit and was partially
offset by an increase in selling, general and administrative expenses, and an
increase in income taxes.

Year Ended September 30, 2000 Compared to Year Ended September 25, 1999

Net Sales.Our results for the fiscal year ended September 30, 2000
included 53 weeks of operations while our results for the fiscal year ended
September 25, 1999 included 52 weeks of operations. Our net sales increased to
$245.3 million from $177.5 million, an increase of $67.8 million, or 38.2%,
over the prior fiscal year. This increase was attributable primarily to $63.0
million of net sales for the 40 new stores opened during fiscal 2000, as well
as other stores opened in prior fiscal years that did not qualify as comparable
stores. Our comparable store sales increased 2.8% and contributed $4.8 million
to the net sales increase during fiscal 2000. If we exclude the additional week
in fiscal 2000, our total sales would have increased 35.6% over the comparable
52-week period of the prior fiscal year.

Gross Profit.Gross profit represents net sales less cost of goods sold,
which includes buying, distribution and occupancy costs. Our gross profit
increased to $79.3 million from $58.3 million, an increase of $21.0 million, or
36.1%, over the prior fiscal year. This increase was the result of higher net
sales, offset in part by decreased gross profit margins. As a percentage of net
sales, gross profit decreased to 32.4% from 32.9%. The decrease as a percentage
of net sales was principally due to higher markdowns, occupancy expenses and
inventory shrink expenses, partially offset by higher initial markups and lower
freight expenses.



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Selling, General and Administrative Expenses.Our selling, general and
administrative expenses increased to $46.1 million from $34.1 million, an
increase of $12.0 million, or 35.2%, over the prior fiscal year. This increase
was attributable to new store expansion, increased corporate expenses and
higher marketing expenses. As a percentage of net sales, selling, general and
administrative expenses decreased to 18.8% from 19.2%, primarily due to the
impact of leveraging corporate expenses over a higher sales base.

Amortization of Goodwill and Other Intangibles.Our amortization of
goodwill and other intangibles expense remained constant at $0.9 million during
these two fiscal years.

Income Taxes.Our effective tax rate of 40.5% compares to an effective tax
rate of 42.0% for the prior fiscal year. Our effective tax rate exceeds
statutory tax rates due to non-deductible amortization of goodwill associated
with the acquisition of our business in September 1996.

Net Income.Our net income increased to $18.8 million from $11.5 million,
an increase of $7.3 million, or 63.2%, over the prior fiscal year. This
increase was primarily due to an increase in gross profit and was partially
offset by an increase in selling, general and administrative expenses, an
increase in income taxes and a $0.3 million charge relating to the early
repayment of a secured bank credit facility.



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QUARTERLY RESULTS AND SEASONALITY

We have historically experienced and expect to continue to experience
seasonal and quarterly fluctuations in our net sales and operating income. As
is the case with many retailers of apparel and related merchandise, our
business is subject to seasonal influences, characterized by strong sales
during the back-to-school, Easter and winter holiday seasons. The strength of
each of these three seasons generally provides relatively balanced sales during
our first, third and fourth fiscal quarters. We typically experience lower net
sales and net income during the second quarter of each fiscal year. 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, as well as other factors discussed in
the section entitled Risks Relating to Our Business.

The following table includes our unaudited quarterly results of operations
data for each of the eight quarters during the two-year period ended September
29, 2001. This data has been derived from our unaudited consolidated financial
statements. The fourth quarter of the fiscal year ended September 30, 2000
includes an additional week of operations compared to the 13 weeks of
operations for each of the other fiscal quarters presented below. We believe
that this information has been prepared on the same basis as our audited
consolidated financial statements and that all necessary adjustments,
consisting only of normal recurring adjustments, have been included to present
fairly the selected quarterly information when read in conjunction with our
audited consolidated financial statements and the notes to those statements
included elsewhere in this Form 10-K.

|                              |                               |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |      |        |      | 
|----------------------------- | ----------------------------- | ------------------------------------------ | -------------------------------- | -------------------------------- | --- | --------------------------------------------- | ---- | ------------------ | --- | -------- | ---- | --------- | --- | ------- | ---- | -------- | --- | ---------- | ---- | --------- | --- | ------ | ---- |  | --- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- | 
|                              |                               |                                            |                                  |                                  |     | Fiscal Year 2000                              |      | Fiscal Year 2001  
|                              |                               |                                            |                                  |                                  |     | Three Months Ended                            |      | Three Months Ended
|                              |                               |                                            |                                  |                                  |     |                                               |      |                   
|                              |                               |                                            |                                  |                                  |     | Dec. 25,                                      |      | Mar. 25,           |     | June 24, |      | Sept. 30, |     | Dec. 30 |      | Mar. 25, |     | June 30,   |      | Sept. 29,
|                              |                               |                                            |                                  |                                  |     | 1999                                          |      | 2000               |     | 2000     |      | 2000      |     | 2000    |      | 2001     |     | 2001       |      | 2001     
|                              |                               |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |          
|                              |                               |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     | (14 weeks)
|                              |                               |                                            |                                  |                                  |     | (dollars in thousands, except per share data)
|Statement of Operations Data: |                               |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      | 
|                              |                               |                                            | Net sales                        |                                  | $   | 62,931                                        |      |                    | $   | 47,268   |      |           | $   | 58,695  |      |          | $   | 76,366     |      |           | $   | 93,043 |      |  | $   | 64,037 |      |  | $    | 78,406 |      |  | $    | 89,339 |     
|                              |                               |                                            | Gross profit                     |                                  |     | 21,308                                        |      |                    |     | 13,620   |      |           |     | 18,698  |      |          |     | 25,717     |      |           |     | 31,347 |      |  |     | 18,632 |      |  |      | 22,994 |      |  |      | 25,786 |     
|                              |                               |                                            | Operating income                 |                                  |     | 9,168                                         |      |                    |     | 3,704    |      |           |     | 7,403   |      |          |     | 12,118     |      |           |     | 13,552 |      |  |     | 5,236  |      |  |      | 7,893  |      |  |      | 8,069  |     
|                              |                               |                                            | Income before extraordinary
item |                                  |     | 5,210                                         |      |                    |     | 2,283    |      |           |     | 4,356   |      |          |     | 7,222      |      |           |     | 8,048  |      |  |     | 3,360  |      |  |      | 4,789  |      |  |      | 5,294  |     
|                              |                               |                                            | Net income                       |                                  |     | 4,899                                         |      |                    |     | 2,283    |      |           |     | 4,356   |      |          |     | 7,222      |      |           |     | 8,048  |      |  |     | 3,360  |      |  |      | 4,789  |      |  |      | 5,294  |     
|                              | Earnings Per Share:           |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |     
|                              |                               |                                            | Basic earnings per share:        |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |      |        |     
|                              |                               |                                            |                                  | Income before extraordinary
item |     | $                                             | 0.26 |                    |     | $        | 0.11 |           |     | $       | 0.22 |          |     | $          | 0.36 |           |     | $      | 0.40 |  |     | $      | 0.16 |  |      | $      | 0.23 |  |      | $      | 0.25 | 
|                              |                               |                                            |                                  | Net income                       |     | $                                             | 0.25 |                    |     | $        | 0.11 |           |     | $       | 0.22 |          |     | $          | 0.36 |           |     | $      | 0.40 |  |     | $      | 0.16 |  |      | $      | 0.23 |  |      | $      | 0.25 | 
|                              |                               |                                            | Diluted earnings per share:      |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |      |        |     
|                              |                               |                                            |                                  | Income before extraordinary
item |     | $                                             | 0.23 |                    |     | $        | 0.10 |           |     | $       | 0.19 |          |     | $          | 0.31 |           |     | $      | 0.35 |  |     | $      | 0.14 |  |      | $      | 0.20 |  |      | $      | 0.23 | 
|                              |                               |                                            |                                  | Net income                       |     | $                                             | 0.22 |                    |     | $        | 0.10 |           |     | $       | 0.19 |          |     | $          | 0.31 |           |     | $      | 0.35 |  |     | $      | 0.14 |  |      | $      | 0.20 |  |      | $      | 0.23 | 
|                              | As a Percentage of Net Sales: |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |     
|                              |                               |                                            | Net sales                        |                                  |     | 100.0                                         | %    |                    |     | 100.0    | %    |           |     | 100.0   | %    |          |     | 100.0      | %    |           |     | 100.0  | %    |  |     | 100.0  | %    |  |      | 100.0  | %    |  |      | 100.0  | %   
|                              |                               |                                            | Gross profit                     |                                  |     | 33.9                                          |      |                    |     | 28.8     |      |           |     | 31.9    |      |          |     | 33.7       |      |           |     | 33.7   |      |  |     | 29.1   |      |  |      | 29.3   |      |  |      | 28.9   |     
|                              |                               |                                            | Operating income                 |                                  |     | 14.6                                          |      |                    |     | 7.8      |      |           |     | 12.6    |      |          |     | 15.9       |      |           |     | 14.6   |      |  |     | 8.2    |      |  |      | 10.1   |      |  |      | 9.0    |     
|                              |                               |                                            | Net income                       |                                  |     | 7.8                                           |      |                    |     | 4.8      |      |           |     | 7.4     |      |          |     | 9.5        |      |           |     | 8.6    |      |  |     | 5.2    |      |  |      | 6.1    |      |  |      | 5.9    |     
|                              | Operating Data:               |                                            |                                  |                                  |     |                                               |      |                    |     |          |      |           |     |         |      |          |     |            |      |           |     |        |      |  |     |        |      |  |      |        |      |  |     
|                              |                               | Comparable store sales increase
(decrease) |                                  |                                  | 6.4 | %                                             |      |                    | 3.0 | %        |      |           | 0.6 | %       |      |          | 1.5 | %          |      |           | 3.7 | %      |      |  | 5.4 | %      |      |  | (6.6 | )%     |      |  | (7.4 | )%    
|                              |                               | Stores open at end of period               |                                  |                                  | 109 |                                               |      |                    | 112 |          |      |           | 123 |         |      |          | 136 |            |      |           | 151 |        |      |  | 156 |        |      |  | 177  |        |      |  | 188  |       



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LIQUIDITY AND CAPITAL RESOURCES

Our capital requirements result primarily from capital expenditures
related to new store openings. We have historically satisfied our cash
requirements principally through cash flow from operations, although we have
also used borrowings under prior credit facilities in the past for
acquisitions, including our acquisition and the acquisition of the Rampage
stores. Due to the rapid turnover of our inventory, we generate trade payables
and other accrued liabilities sufficient to offset our working capital
requirements, and this allows us to generally operate with negative working
capital. As of September 29, 2001, we had working capital of approximately $2.4
million which included $10.0 million of cash and cash equivalents.

During fiscal years 1999, 2000 and 2001, our net cash provided by
operations was $27.8 million, $27.8 million and $36.4 million. In fiscal 2001,
our net cash provided by operations increased as a result of increased
operating earnings and increased current liabilities. Our cash used in
investing activities related to new store openings and other corporate outlays
were $14.5 million, $24.0 million and $33.1 million in fiscal 1999, 2000 and
2001.

During fiscal 1999, we repaid $11.0 million of our 12.5% subordinated debt
owed to two funds managed by Saunders Karp & Megrue Partners, L.L.C., although
net borrowings under our revolving credit facility rose only $1.4 million
during the same period. In fiscal 2000, we repaid the remaining $18.0 million
balance under the revolving credit facility using the $13.5 million net
proceeds of our initial public offering and cash flows from operations.

Based on our experience with store openings for our two established
concepts, we estimate that the average net investment to open these new stores
is approximately $450,000, which includes capital expenditures, net of landlord
contributions, and initial inventory, net of payables. During the first year of
operations, our stores opened during the four year period ended September 30,
2000 generated store-level operating cash flow in excess of $400,000,
representing an average cash return on investment of approximately 90%. There
can be no assurance that our new stores will obtain these levels in the future,
especially given the weak retailing trends during the second half of fiscal
year 2001. We opened our eight Charlottes Room stores during fiscal years
2000 and 2001. Accordingly, we are unable to reasonably estimate the overall
cash return on investment for Charlottes Room as a mature concept.

After taking into account new store construction, existing store
remodeling, distribution center expansion, and other corporate capital
projects, total capital expenditures for fiscal 2002 are projected to be
approximately $30.0 million.

Our unsecured revolving credit facility with Fleet National Bank, as
agent, provides us with a $15.0 million revolving line of credit under which
borrowed funds bear interest at either the Eurodollar rate plus 1.00% or the
base rate of Fleet National Bank, at our option, subject to certain
adjustments. At September 29, 2001, no outstanding balance existed under the
revolving credit facility. The revolving credit facility requires that we
maintain certain financial ratios such as: total liabilities to earnings before
interest, taxes, depreciation and amortization; fixed charges coverage; and
minimum net worth.

We believe that cash flows from operations, our current cash balance and
funds available under our revolving credit facility will be sufficient to meet
our working capital needs and contemplated capital expenditure requirements for
fiscal 2002. If our cash flow from operations should decline significantly or
if we should accelerate our store expansion program or decide to expand our
Charlottes Room concept beyond our current plans, it may be necessary for us
to seek additional sources of capital.



20



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##### Table of Contents



INFLATION

We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented. We cannot assure
you, however, that our business will not be affected by inflation in the
future.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks relate primarily to changes in interest rates. We bear
this risk in two specific ways. First, our revolving credit facility carries a
variable interest rate that is tied to market indices and, therefore, our
statement of income and our cash flows will be exposed to changes in interest
rates. As of September 29, 2001, we had no borrowings against our credit
facility. However, we may borrow additional funds under our revolving credit
facility as needed.

The second component of interest rate risk involves the short-term
investment of excess cash in short-term, investment-grade interest-bearing
securities. These investments are considered to be cash equivalents and are
shown that way 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.

FORWARD-LOOKING STATEMENTS

We have made statements under the captions, Business, Managements
Discussion and Analysis of Financial Condition and Results of Operations,
Quantitative and Qualitative Disclosures About Market Risk and Risks
Relating to Our Business, as well as in other sections of this Form 10-K, that
are forward-looking statements. You can identify these statements by
forward-looking words such as may, will, expect, intend, anticipate,
believe, estimate and continue or similar words. These forward-looking
statements may also use different phrases. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements, which are subject to risks, uncertainties,
and assumptions about us, may include, among other things, projections of our
future results of operations or of our financial condition, our anticipated
growth strategies, and general and regional economic conditions, industry
trends, consumer demands and preferences, competition from other retailers and
uncertainties generally associated with womens apparel and accessory
retailing.

There may be events in the future that we are not able to accurately
predict or which we do not fully control that could cause actual results to
differ materially from those expressed or implied in our forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by these forward-looking statements, including shopping mall traffic and
shopping patterns, timing of openings for new shopping malls or our stores,
fashion trends, national or regional economic influences, and weather.

We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Form 10-K might not occur.



21



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Risks Relating to Our Business.

We intend to continue to open new stores at a rapid rate, which could strain
our resources and cause us to operate our business less effectively.

Our growth will largely depend on successfully opening and operating new
stores. During fiscal 2001, we opened 54 new stores, of which 49 were Charlotte
Russe and Rampage stores, and we closed two Charlotte Russe stores. The net
addition of 47 stores represented an increase of approximately 35% from the
number of stores open at the end of fiscal 2000. We plan to open at least 55
new Charlotte Russe and Rampage stores during fiscal 2002, an increase of 31%
from the end of the prior fiscal year for these chains. We intend to continue
to increase our number of Charlotte Russe and Rampage stores by approximately
25-30% per year for at least the next few years. During fiscal 2001, we opened
five Charlottes Room stores. We also plan to expand our test of the
Charlottes Room concept to a total of 10 stores during fiscal 2002. Our
planned expansion will require that we substantially increase our distribution
center capacity during fiscal 2002 and continually monitor and upgrade our
management information and other systems. This rapid expansion also will place
increased demands on our managerial, operational and administrative resources.
These demands and needs will be even greater and require more complex solutions
to the extent we expand the Charlottes Room concept beyond our current plans.
These increased demands and operating complexities could cause us to operate
our business less effectively, which in turn could cause deterioration in the
financial performance of our individual stores and slow our new store growth.

Our planned expansion involves a number of risks that could prevent or delay
the successful opening of new stores as well as impact the performance of our
existing stores.

Our ability to open and operate new stores successfully depends on many
factors, including, among others, our ability to:



| |  |  | identify suitable store locations, the availability of which is outside of our control;                             
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | negotiate acceptable lease terms, including desired tenant improvement allowances;                                  
|
| |  |  | source sufficient levels of inventory to meet the needs of new stores;                                              
|
| |  |  | hire, train and retain store personnel;                                                                             
|
| |  |  | successfully integrate new stores into our existing operations, particularly our new
Charlottes Room locations; and
|
| |  |  | satisfy the fashion preferences of new geographic areas.                                                            

In addition, many of our new stores will be opened in regions of the
United States in which we currently have few or no stores. The expansion into
new markets may present competitive, merchandising and distribution challenges
that are different from those currently encountered in our existing markets.
Further, our Charlottes Room concept may not gain market acceptance. Any of
these challenges could adversely affect our business and results of operations.
In addition, to the extent our new store openings are in existing markets, we
may experience reduced net sales volumes in existing stores in those markets.

The decline in general economic conditions has led to reduced consumer demand
for our apparel and accessories.

Consumer spending habits, including spending for the fashionable apparel
and related accessories that we sell, are affected by, among other things,
prevailing economic conditions, levels of employment, salaries and wage rates,
consumer confidence and consumer perception of economic conditions. The general
slowdown in the United States economy and the uncertain economic outlook has
adversely affected consumer spending habits and mall traffic, which may cause
us to delay or slow our expansion plans and result in lower net sales than
expected on a quarterly or annual basis.



22



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Our stores are heavily dependent on the customer traffic generated by shopping
malls.

Most of our store locations are not sufficiently concentrated to make
significant marketing expenditures cost effective. As a result, we depend
heavily on locating our stores in prominent locations within successful
shopping malls in order to generate customer traffic. We cannot control the
development of new shopping malls, the availability or cost of appropriate
locations within existing or new shopping malls or the success of individual
shopping malls.

If at any time our comparable store sales and quarterly results of operations
decline or do not meet the expectations of research analysts, the price of our
common stock could decline substantially.

Our quarterly results of operations for our individual stores have
fluctuated in the past and can be expected to continue to fluctuate in the
future. For instance, our quarterly comparable store sales increases have
ranged as high as 6.4% and as low as a negative 7.4% over the past eight
quarters. Our net sales and operating results are typically lower in the second
quarter of our fiscal year due to the traditional retail slowdown immediately
following the winter holiday season. Our comparable store sales and quarterly
results of operations are affected by a variety of factors, including:



| |  |  | the timing of new store openings and the relative proportion of new stores to mature stores;   
| | - |  | -----------------------------------------------------------------------------------------------
|
| |  |  | fashion trends;                                                                                
|
| |  |  | calendar shifts of holiday or seasonal periods;                                                
|
| |  |  | the effectiveness of our test-and-reorder strategy in maintaining appropriate inventory levels;
|
| |  |  | changes in our merchandise mix;                                                                
|
| |  |  | timing of promotional events;                                                                  
|
| |  |  | general economic conditions and, in particular, the retail sales environment;                  
|
| |  |  | actions by competitors or mall anchor tenants;                                                 
|
| |  |  | weather conditions; and                                                                        
|
| |  |  | the level of pre-opening expenses associated with new stores.                                  

Our business and reputation may be adversely affected if our Rampage stores are
associated with negative publicity related to the use of the Rampage trademark
by other parties.

In connection with the acquisition of our Rampage stores, we acquired the
exclusive right within the United States to use the Rampage trademark on
exterior and interior signage identifying our Rampage stores, as well as the
non-exclusive right within the United States to use the Rampage trademark for
promotional and advertising materials. We do not, however, have the right to
use the Rampage trademark on our merchandise. The right to market merchandise
under the Rampage trademark was retained by Rampage Clothing Company. Further,
nothing in our license agreement with Rampage Clothing Company prohibits the
sale of merchandise bearing the Rampage trademark by other parties or the
licensing of the Rampage trademark to other parties. In fact, Rampage Clothing
Company has licensed the trademark to other parties. We believe a positive
Rampage brand image is important to our success. Accordingly, if the
merchandise sold by the Rampage Clothing Company or other parties under the
Rampage trademark is of low quality or if the Rampage Clothing Company or these
parties otherwise engage in activities that negatively affect the Rampage
trademark or are otherwise inconsistent with our Rampage store concept,
consumers could lose confidence in our merchandise and our reputation and
business could be materially adversely affected.



23



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Our success depends on our ability to identify and rapidly respond to consumer
fashion tastes.

The apparel industry is subject to rapidly evolving fashion trends and
shifting consumer demands. Accordingly, our success is heavily dependent both
on the priority our target customers place on fashion and on our ability to
anticipate, identify and capitalize upon emerging fashion trends. Current
fashion tastes place significant emphasis on a fashionable look. In the past
this emphasis has increased and decreased through fashion cycles and decreased
emphasis has adversely affected our results. Although we rely on a
test-and-reorder merchandise strategy to minimize our exposure to misjudging
fashion tastes and to reduce inventory risks, we can not assure you that this
strategy will continue to be successful. Our failure to anticipate, identify or
react appropriately to changes in styles, trends, desired images or brand
preferences could lead to, among other things, excess inventories and higher
markdowns, as well as decreased appeal of our brands.

Our market share may be adversely impacted at any time by a significant number
of competitors.

We operate in a highly competitive environment characterized by low
barriers to entry. We compete against a diverse group of retailers, including
national and local specialty retail stores, regional retail chains, traditional
department stores and, to a lesser extent, mall merchandisers. Our market share
and results of operations may be adversely impacted by this significant number
of competitors. Also, many of our competitors also are larger and have
substantially greater resources than we do.

We rely on our good relationships with vendors to implement our business
strategy successfully.

Our business is dependent on continued good relations with our vendors. In
particular, we believe that we generally are able to obtain attractive pricing
and other terms from vendors because we are perceived as a desirable customer.
Our test-and-reorder merchandise strategy also relies in large part on our
ability to obtain merchandise from our vendors within three to six weeks from
the date of order. Our failure to maintain good relations with our vendors
could increase our exposure to changing fashion cycles, which may in turn lead
to increased inventory markdown rates.

Our operations, as well as a substantial number of our stores, are concentrated
in the Southwest, which makes us susceptible to adverse conditions in this
region.

Our headquarters and distribution center are located in California, and a
substantial number of our stores are located in California and the Southwest.
As a result, our business is more susceptible to regional factors than the
operations of more geographically diversified competitors. These factors
include, among others, economic and weather conditions, demographic and
population changes and fashion tastes. Further, a natural disaster or other
catastrophic event, such as an earthquake, affecting southern California could
significantly disrupt our operations.

The state of California is currently experiencing an energy crisis.
Although we have not experienced material increases in either our cost of goods
sold or overall operating expenses as a result of this crisis, if the crisis
continues or becomes more severe, our energy costs may increase significantly
in the future for our California based operations. Any such increase could be
material and could adversely affect our margins and our profitability.

Our failure to retain our existing senior management team could adversely
affect our business.

Our business requires disciplined execution at all levels of our
organization in order to timely deliver and display fashionable merchandise in
appropriate quantities in our stores. This execution requires experienced and
talented management. We currently have a management team with a great deal of
experience with us and in apparel retailing. If we were to lose the benefit of
this experience, and in particular if we were to lose the services of Bernard
Zeichner, our Chief Executive Officer, or Harriet Bailiss-Sustarsic, our
President and Chief Merchandising Officer, our business could be adversely
affected. We do not maintain key man insurance on any of the members of our
management team.



24



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##### Table of Contents



We rely on third parties for upgrading and maintaining our management
information systems. If these third parties do not adequately perform these
functions appropriately, our business could be disrupted.

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




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is indexed on page F-1 of this
Report and is contained on pages F-2 through F-19.






|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

Not applicable.



25



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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to this item is incorporated by reference to the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.




ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this item is incorporated by reference to the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.






|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

Information with respect to this item is incorporated by reference to the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this item is incorporated by reference to the
Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.



26



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PART IV






|ITEM 14. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|-------- | ---------------------------------------------------------------



|(a) | 1.                                                                                                         | The financial statements listed in the Index to Financial
Statements at page F-1 are filed as part of this
report.
|--- | ---------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------
|   
|    | 2.                                                                                                         | The exhibits are listed in the Exhibit Index, which is incorporated
herein by reference.                            
|   
|(b) | Reports on Form 8-K                                                                                       
|   
|    | There were no reports on Form 8-K filed during the last quarter of the
fiscal year covered by this
Report.



27



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, State of California, on the 13th day of December, 2001.

| |                                                                      |                       
| | -------------------------------------------------------------------- | ----------------------
| | CHARLOTTE RUSSE HOLDING, INC.                                       
|
| | By:                                                                  | /s/   DANIEL T. CARTER
| |                                                                     
| | Daniel T. CarterExecutive Vice President and
Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Bernard Zeichner and Daniel T.
Carter, and each of them acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capabilities, to sign any and all amendments to this Annual Report
on Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, with full power of each to act alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:

|                                                 |  |                                                                                                      |  |                  
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                        |  | Title                                                                                                |  | Date             
|                                                 |  |                                                                                                      |  |                  
|                                                
|/s/ BERNARD ZEICHNER
        
Bernard Zeichner   |  | Chief Executive Officer and Director (Principal Executive Officer)                                   |  | December 13, 2001
|                                                
|/s/ DANIEL T. CARTER
        
Daniel T. Carter   |  | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |  | December 13, 2001
|                                                
|/s/ PAUL R. DEL ROSSI
        
Paul R. Del Rossi |  | Director                                                                                             |  | December 13, 2001
|                                                
|/s/ W. THOMAS GOULD
        
W. Thomas Gould     |  | Director                                                                                             |  | December 13, 2001
|                                                
|/s/ ALLAN W. KARP
        
Allan W. Karp         |  | Director                                                                                             |  | December 13, 2001
|                                                
|/s/ LEONARD H. MOGIL
        
Leonard H. Mogil   |  | Director                                                                                             |  | December 13, 2001
|                                                
|/s/ DAVID J. ODDI
        
David J. Oddi         |  | Director                                                                                             |  | December 13, 2001



28



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                  |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                  |  | Page
|                                                                                                                                  |  |     
|Charlotte Russe Holding, Inc.                                                                                                     |  |      |     | 
|                                                                                                                                 
|Report of Ernst & Young LLP, Independent Auditors                                                                                 |  |      | F-2 | 
|                                                                                                                                 
|Consolidated Balance Sheets as of September 29, 2001 and September 30, 2000                                                       |  |      | F-3 | 
|                                                                                                                                 
|Consolidated Statements of Income for the years ended September 29, 2001,
September 30, 2000 and September 25, 1999               |  |      | F-4 | 
|                                                                                                                                 
|Consolidated Statements of Stockholders Equity for the years ended
September 29, 2001, September 30, 2000 and September 25, 1999 |  |      | F-5 | 
|                                                                                                                                 
|Consolidated Statements of Cash Flows for the years ended September 29,
2001, September 30, 2000 and September 25, 1999           |  |      | F-6 | 
|                                                                                                                                 
|Notes to Consolidated Financial Statements                                                                                        |  |      | F-7 | 



F-1



---



##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Charlotte Russe Holding, Inc.

We have audited the accompanying consolidated balance sheets of Charlotte
Russe Holding, Inc. as of September 29, 2001 and September 30, 2000, and the
related consolidated statements of income, stockholders equity and cash flows
for each of the three years in the period ended September 29, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Charlotte
Russe Holding, Inc., at September 29, 2001 and September 30, 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended September 29, 2001, in conformity with accounting principles
generally accepted in the United States.



| | ERNST & YOUNG LLP
| | -----------------

San Diego, California
October 19, 2001



F-2



---



##### Table of Contents






CHARLOTTE RUSSE HOLDING, INC.
 CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |            |             | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------- | ------------- | ----------- | ------------- | ---------- | ---------- | ----------- | 
|                                     |                                                                                                                                                                    |                                            |            | September 29, |             | September 30,
|                                     |                                                                                                                                                                    |                                            |            | 2001          |             | 2000         
|                                     |                                                                                                                                                                    |                                            |            |               |             |              
|ASSETS                               |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|Current assets:                      |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     | Cash and cash equivalents                                                                                                                                          |                                            | $          | 10,031,398    |             |               | $          | 3,829,352  |            
|                                     | Inventories                                                                                                                                                        |                                            |            | 23,536,420    |             |               |            | 15,026,508 |            
|                                     | Other current assets                                                                                                                                               |                                            |            | 2,560,153     |             |               |            | 2,115,376  |            
|                                     | Deferred tax assets                                                                                                                                                |                                            |            | 3,700,000     |             |               |            | 2,160,000  |            
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total current assets                       |            |               | 39,827,971  |               |            |            | 23,131,236  | 
|Fixed assets, net                    |                                                                                                                                                                    |                                            | 77,350,576 |               |             |               | 54,273,890 |           
|Goodwill, net                        |                                                                                                                                                                    |                                            | 28,790,000 |               |             |               | 29,617,939 |           
|Other assets                         |                                                                                                                                                                    |                                            | 1,452,387  |               |             |               | 1,482,345  |           
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total assets                               |            | $             | 147,420,934 |               |            | $          | 108,505,410 | 
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                    
|                                    
|                                    
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     | Accounts payable trade                                                                                                                                             |                                            | $          | 19,607,137    |             |               | $          | 12,767,401 |            
|                                     | Accounts payable other                                                                                                                                             |                                            |            | 4,825,946     |             |               |            | 4,780,008  |            
|                                     | Accrued payroll and related expense                                                                                                                                |                                            |            | 1,931,838     |             |               |            | 2,009,179  |            
|                                     | Income and sales taxes payable                                                                                                                                     |                                            |            | 5,091,687     |             |               |            | 3,494,327  |            
|                                     | Other current liabilities                                                                                                                                          |                                            |            | 5,928,411     |             |               |            | 4,705,033  |            
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total current liabilities                  |            |               | 37,385,019  |               |            |            | 27,755,948  | 
|Notes payable to bank                |                                                                                                                                                                    |                                            |           |               |             |               |           |           
|Deferred rent                        |                                                                                                                                                                    |                                            | 5,574,982  |               |             |               | 3,677,480  |           
|Other liabilities                    |                                                                                                                                                                    |                                            | 269,470    |               |             |               | 278,098    |           
|Deferred tax liabilities             |                                                                                                                                                                    |                                            | 2,000,000  |               |             |               | 2,300,000  |           
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total liabilities                          |            |               | 45,229,471  |               |            |            | 34,011,526  | 
|Commitments                          |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|Stockholders equity:                |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     | Preferred Stock $0.01 par value, 3,000,000
shares authorized, none issued and
outstanding                                                                          |                                            |            |              |             |               |            |           |            
|                                     | Common Stock $0.01 par value, 100,000,000
shares authorized, issued and outstanding
shares  20,802,747 at September 29, 2001 and
20,319,412 at September 30, 2000 |                                            |            | 208,028       |             |               |            | 203,194    |            
|                                     | Additional paid-in capital                                                                                                                                         |                                            |            | 40,038,464    |             |               |            | 33,980,470 |            
|                                     | Deferred compensation                                                                                                                                              |                                            |            | (372,000      | )           |               |            | (516,000   | )          
|                                     | Retained earnings                                                                                                                                                  |                                            |            | 62,316,971    |             |               |            | 40,826,220 |            
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total stockholders equity                 |            |               | 102,191,463 |               |            |            | 74,493,884  | 
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           
|                                     |                                                                                                                                                                    | Total liabilities and stockholders equity |            | $             | 147,420,934 |               |            | $          | 108,505,410 | 
|                                     |                                                                                                                                                                    |                                            |            |               |             |               |            |           

See accompanying notes.



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##### Table of Contents






CHARLOTTE RUSSE HOLDING, INC.
 CONSOLIDATED STATEMENTS OF INCOME

|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |            |            |            |  
|---------------------------------------------------------------------- | -------------------------------- | ------------------------------ | ---------------------------- | ---------- | ------------- | ------- | ------------- | ---------- | ------------- | -------- | ----------- | ---------- | ---------- | ---------- | -
|                                                                       |                                  |                                |                              |            | Years Ended  
|                                                                       |                                  |                                |                              |            |              
|                                                                       |                                  |                                |                              |            | September 29, |         | September 30, |            | September 25,
|                                                                       |                                  |                                |                              |            | 2001          |         | 2000          |            | 1999         
|                                                                       |                                  |                                |                              |            |               |         |               |            |              
|Net sales                                                              |                                  | $                              | 324,825,186                  |            |               | $       | 245,260,066   |            |               | $        | 177,459,298 |           
|Cost of goods sold, including buying,
distribution and occupancy costs |                                  |                                | 226,065,816                  |            |               |         | 165,916,833   |            |               |          | 119,141,254 |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Gross profit                                                           |                                  |                                | 98,759,370                   |            |               |         | 79,343,233    |            |               |          | 58,318,044  |           
|Selling, general and administrative expenses                           |                                  |                                | 63,114,603                   |            |               |         | 46,054,762    |            |               |          | 34,061,732  |           
|Amortization of goodwill and other intangibles                         |                                  |                                | 894,923                      |            |               |         | 895,368       |            |               |          | 895,368     |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Operating income                                                       |                                  |                                | 34,749,844                   |            |               |         | 32,393,103    |            |               |          | 23,360,944  |           
|Other income (expense):                                                |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       |                                  | Interest income (expense), net |                              |            | 425,130       |         |               |            | (69,937       | )        |             |            | (2,375,889 | )         
|                                                                       |                                  | Other charges, net             |                              |            | (314,228      | )       |               |            | (270,382      | )        |             |            | (270,074   | )         
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       |                                  |                                | Total other income (expense) |            |               | 110,902 |               |            |               | (340,319 | )           |            |            | (2,645,963 | )
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Income before income taxes and extraordinary item                      |                                  |                                | 34,860,746                   |            |               |         | 32,052,784    |            |               |          | 20,714,981  |           
|Income taxes                                                           |                                  |                                | 13,369,995                   |            |               |         | 12,981,378    |            |               |          | 8,700,392   |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Income before extraordinary item                                       |                                  |                                | 21,490,751                   |            |               |         | 19,071,406    |            |               |          | 12,014,589  |           
|Extraordinary loss from early debt retirement                          |                                  |                                |                             |            |               |         | 311,314       |            |               |          | 519,100     |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Net income                                                             |                                  | $                              | 21,490,751                   |            |               | $       | 18,760,092    |            |               | $        | 11,495,489  |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Basic earnings per share:                                              |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Income before extraordinary item |                                | $                            | 1.04       |               |         | $             | 0.95       |               |          | $           | 0.66       |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Net income                       |                                | $                            | 1.04       |               |         | $             | 0.93       |               |          | $           | 0.63       |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Diluted earnings per share:                                            |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Income before extraordinary item |                                | $                            | 0.92       |               |         | $             | 0.83       |               |          | $           | 0.57       |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Net income                       |                                | $                            | 0.92       |               |         | $             | 0.82       |               |          | $           | 0.54       |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|Weighted average shares outstanding:                                   |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Basic                            |                                |                              | 20,596,000 |               |         |               | 20,084,000 |               |          |             | 18,304,000 |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           
|                                                                       | Diluted                          |                                |                              | 23,428,000 |               |         |               | 22,845,000 |               |          |             | 21,234,000 |           
|                                                                       |                                  |                                |                              |            |               |         |               |            |               |          |             |           

See accompanying notes.



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##### Table of Contents






CHARLOTTE RUSSE HOLDING, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |        |          |       |  |   |            |   |  |   |            |  |  |   |             |  
|---------------------------------------------------- |  | ------------ | ---------- | ---------- |  | -------- | ------- | ------------ |  | ------------- | ---------- | ------------- |  | ------ | -------- | ----- |  | - | ---------- | - |  | - | ---------- |  |  | - | ----------- | -
|                                                     |  | Common Stock |            | Additional |  |          |         |              |  | Notes         |            |               |  |        |          | Total
|                                                     |  |              |            | Paid-in    |  | Deferred |         | Receivable   |  | Retained      |            | Stockholders'
|                                                     |  | Shares       |            | Amount     |  | Capital  |         | Compensation |  | from Officers |            | Earnings      |  | Equity
|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |       
|Balance at September 26, 1998                        |  |              | 18,300,000 |            |  | $        | 183,000 |              |  | $             | 18,691,381 |               |  | $      |         |       |  | $ |           |   |  | $ | 10,570,639 |  |  | $ | 29,445,020  |  
|Stock option transactions, including
tax benefits    |  |              | 10,800     |            |  |          | 108     |              |  |               | 36,692     |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 36,800      |  
|Deferred compensation related to
stock options       |  |              |           |            |  |          |        |              |  |               | 720,000    |               |  |        | (720,000 | )     |  |   |           |   |  |   |           |  |  |   |            |  
|Amortization of deferred
compensation                |  |              |           |            |  |          |        |              |  |               |           |               |  |        | 60,000   |       |  |   |           |   |  |   |           |  |  |   | 60,000      |  
|Notes receivable from officers                       |  |              |           |            |  |          |        |              |  |               |           |               |  |        |         |       |  |   | (1,000,000 | ) |  |   |           |  |  |   | (1,000,000  | )
|Net income                                           |  |              |           |            |  |          |        |              |  |               |           |               |  |        |         |       |  |   |           |   |  |   | 11,495,489 |  |  |   | 11,495,489  |  
|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |        |          |       |  |   |            |   |  |   |            |  |  |   |             |  
|Balance at September 25, 1999                        |  |              | 18,310,800 |            |  |          | 183,108 |              |  |               | 19,448,073 |               |  |        | (660,000 | )     |  |   | (1,000,000 | ) |  |   | 22,066,128 |  |  |   | 40,037,309  |  
|Initial public offering of stock                     |  |              | 1,450,000  |            |  |          | 14,500  |              |  |               | 13,519,000 |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 13,533,500  |  
|Exercise of warrant by bank                          |  |              | 376,180    |            |  |          | 3,762   |              |  |               | (3,762     | )             |  |        |         |       |  |   |           |   |  |   |           |  |  |   |            |  
|Repayment of notes receivable                        |  |              |           |            |  |          |        |              |  |               |           |               |  |        |         |       |  |   | 1,000,000  |   |  |   |           |  |  |   | 1,000,000   |  
|Stock option transactions, including
tax benefits    |  |              | 156,500    |            |  |          | 1,565   |              |  |               | 785,845    |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 787,410     |  
|Amortization of deferred
compensation                |  |              |           |            |  |          |        |              |  |               |           |               |  |        | 144,000  |       |  |   |           |   |  |   |           |  |  |   | 144,000     |  
|Issuance of stock under employee
stock purchase plan |  |              | 25,932     |            |  |          | 259     |              |  |               | 231,314    |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 231,573     |  
|Net income                                           |  |              |           |            |  |          |        |              |  |               |           |               |  |        |         |       |  |   |           |   |  |   | 18,760,092 |  |  |   | 18,760,092  |  
|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |        |          |       |  |   |            |   |  |   |            |  |  |   |             |  
|Balance at September 30, 2000                        |  |              | 20,319,412 |            |  |          | 203,194 |              |  |               | 33,980,470 |               |  |        | (516,000 | )     |  |   |           |   |  |   | 40,826,220 |  |  |   | 74,493,884  |  
|Public offering of stock                             |  |              | 100,000    |            |  |          | 1,000   |              |  |               | 1,785,000  |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 1,786,000   |  
|Stock option transactions, including
tax benefits    |  |              | 359,800    |            |  |          | 3,599   |              |  |               | 4,019,237  |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 4,022,836   |  
|Amortization of deferred
compensation                |  |              |           |            |  |          |        |              |  |               |           |               |  |        | 144,000  |       |  |   |           |   |  |   |           |  |  |   | 144,000     |  
|Issuance of stock under employee
stock purchase plan |  |              | 23,535     |            |  |          | 235     |              |  |               | 253,757    |               |  |        |         |       |  |   |           |   |  |   |           |  |  |   | 253,992     |  
|Net income                                           |  |              |           |            |  |          |        |              |  |               |           |               |  |        |         |       |  |   |           |   |  |   | 21,490,751 |  |  |   | 21,490,751  |  
|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |        |          |       |  |   |            |   |  |   |            |  |  |   |             |  
|Balance at September 29, 2001                        |  |              | 20,802,747 |            |  | $        | 208,028 |              |  | $             | 40,038,464 |               |  | $      | (372,000 | )     |  | $ |           |   |  | $ | 62,316,971 |  |  | $ | 102,191,463 |  
|                                                     |  |              |            |            |  |          |         |              |  |               |            |               |  |        |          |       |  |   |            |   |  |   |            |  |  |   |             |  

See accompanying notes.



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##### Table of Contents






CHARLOTTE RUSSE HOLDING, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |           |            |  
|--------------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------- | ----------- | ------------- | ---------- | ------------- | ----------- | ------------- | ---------- | - | ----------- | --------- | ---------- | -
|                                                                                  |                                               |                                     |             | Years Ended  
|                                                                                  |                                               |                                     |             |              
|                                                                                  |                                               |                                     |             | September 29, |            | September 30, |             | September 25,
|                                                                                  |                                               |                                     |             | 2001          |            | 2000          |             | 1999         
|                                                                                  |                                               |                                     |             |               |            |               |             |              
|Operating Activities                                                              |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Net income                                                                        |                                               | $                                   | 21,490,751  |               |            | $             | 18,760,092  |               |            | $ | 11,495,489  |          
|Adjustments to reconcile net income to net cash provided by operating
activities: |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|                                                                                  | Depreciation and amortization                 |                                     |             | 10,661,193    |            |               |             | 7,719,040     |            |   |             | 6,069,858 |           
|                                                                                  | Deferred rent                                 |                                     |             | 1,897,502     |            |               |             | 1,686,228     |            |   |             | 1,035,619 |           
|                                                                                  | Amortization of deferred compensation         |                                     |             | 144,000       |            |               |             | 144,000       |            |   |             | 60,000    |           
|                                                                                  | Loss on disposal of asset                     |                                     |             | 282,467       |            |               |             | 34,759        |            |   |             | 146,039   |           
|                                                                                  | Extraordinary loss from early debt retirement |                                     |             |              |            |               |             | 532,160       |            |   |             | 455,295   |           
|                                                                                  | Deferred income taxes                         |                                     |             | (1,840,000    | )          |               |             | 790,000       |            |   |             | (625,000  | )         
|                                                                                  | Changes in operating assets and liabilities:  |                                     |             |               |            |               |             |               |            |   |             |           |           
|                                                                                  |                                               | Inventories                         |             |               | (8,509,912 | )             |             |               | (3,832,594 | ) |             |           | (2,329,125 | )
|                                                                                  |                                               | Other current assets                |             |               | (444,777   | )             |             |               | 338,854    |   |             |           | (440,756   | )
|                                                                                  |                                               | Accounts payable trade              |             |               | 6,839,736  |               |             |               | 874,146    |   |             |           | 4,495,217  |  
|                                                                                  |                                               | Accounts payable other              |             |               | 45,938     |               |             |               | 159,127    |   |             |           | 3,596,532  |  
|                                                                                  |                                               | Accrued payroll and related expense |             |               | (77,341    | )             |             |               | (329,654   | ) |             |           | 1,185,823  |  
|                                                                                  |                                               | Income and sales taxes payable      |             |               | 4,650,945  |               |             |               | 1,603,985  |   |             |           | 290,082    |  
|                                                                                  |                                               | Other current liabilities           |             |               | 1,274,916  |               |             |               | (569,246   | ) |             |           | 2,329,073  |  
|                                                                                  |                                               | Other liabilities                   |             |               | 19,445     |               |             |               | (76,682    | ) |             |           | 40,576     |  
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Net cash provided by operating activities                                         |                                               |                                     | 36,434,863  |               |            |               | 27,834,215  |               |            |   | 27,804,722  |          
|                                                                                 
|Investing Activities                                                              |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Purchases of fixed assets                                                         |                                               |                                     | (33,103,571 | )             |            |               | (24,038,529 | )             |            |   | (14,459,578 | )        
|Other assets                                                                      |                                               |                                     | (58,878     | )             |            |               | (132,753    | )             |            |   | (345,667    | )        
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Net cash used in investing activities                                             |                                               |                                     | (33,162,449 | )             |            |               | (24,171,282 | )             |            |   | (14,805,245 | )        
|                                                                                 
|Financing Activities                                                              |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Payments on capital leases                                                        |                                               |                                     | (79,611     | )             |            |               | (368,089    | )             |            |   | (432,158    | )        
|Payments on notes payable to bank and revolving credit facility                   |                                               |                                     |            |               |            |               | (22,750,000 | )             |            |   | (21,400,000 | )        
|Proceeds from notes payable to bank and revolving credit facility                 |                                               |                                     |            |               |            |               | 4,750,000   |               |            |   | 22,800,000  |          
|Payments on notes payable to related parties                                      |                                               |                                     |            |               |            |               |            |               |            |   | (11,000,000 | )        
|Funding of notes receivable from officers                                         |                                               |                                     |            |               |            |               |            |               |            |   | (1,120,000  | )        
|Repayments of notes receivable from officers                                      |                                               |                                     |            |               |            |               | 1,000,000   |               |            |   | 120,000     |          
|Proceeds from issuance of common stock                                            |                                               |                                     | 3,009,243   |               |            |               | 14,552,483  |               |            |   | 10,800      |          
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Net cash provided by (used in) financing activities                               |                                               |                                     | 2,929,632   |               |            |               | (2,815,606  | )             |            |   | (11,021,358 | )        
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Net increase in cash and cash equivalents                                         |                                               |                                     | 6,202,046   |               |            |               | 847,327     |               |            |   | 1,978,119   |          
|Cash and cash equivalents at beginning of the year                                |                                               |                                     | 3,829,352   |               |            |               | 2,982,025   |               |            |   | 1,003,906   |          
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          
|Cash and cash equivalents at end of the year                                      |                                               | $                                   | 10,031,398  |               |            | $             | 3,829,352   |               |            | $ | 2,982,025   |          
|                                                                                  |                                               |                                     |             |               |            |               |             |               |            |   |             |          

See accompanying notes.



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##### Table of Contents






CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Organization

Charlotte Russe Holding, Inc. (the Company) was incorporated in Delaware
in July 1996. On September 27, 1996, the Company was capitalized through the
issuance of Common Stock and long-term debt. Effective September 27, 1996, the
Company acquired all of the stock of Lawrence Merchandising Corporation, a
California corporation, and its affiliates, Lawrence Merchandising Corporation
of Nevada and Lawrence Merchandising Corporation of Nevada II, both Nevada
corporations, (collectively, the Predecessor companies) for approximately
$35.0 million in cash. In addition, the Company repaid $5.0 million of the
Predecessors short-term borrowings concurrent with the consummation of the
purchase transaction. The acquisition was accounted for using the purchase
method of accounting. The excess of the aggregate purchase price over the fair
value of net assets acquired of approximately $32.9 million was recognized as
goodwill.

Description of Business

The Company operates in one segment, selling clothing and accessories for
women through its mall-based retail stores that operate under the names
Charlotte Russe, Rampage, and Charlottes Room. As of September 29, 2001, the
Company operated 188 mall-based retail stores in 26 states and Puerto Rico.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Fiscal Year

The Companys fiscal year is the 52/53 week period ending on the last
Saturday in September. The fiscal year ended September 30, 2000 contained 53
weeks while the fiscal years ended September 29, 2001 and September 25, 1999
each contained 52 weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

Cash Equivalents

The Company considers all liquid investments with maturities of three
months or less when purchased to be cash equivalents.

Inventories

Inventories are accounted for by the retail inventory method. The cost of
inventory is determined at the lower of the first-in, first-out (FIFO) method
or market.



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

1. Organization and Summary of Significant Accounting Policies (Continued)

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five to seven years. Leasehold improvements are amortized on a straight-line
basis over the estimated useful lives of the respective assets or the term of
the lease, whichever is less. Depreciation expense for the years ended
September 29, 2001, September 30, 2000 and September 25, 1999 was $9,744,418,
$6,758,446 and $4,910,019, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost over the fair value of net
assets acquired by the Company. Goodwill is amortized on a straight-line basis
over 40 years. The amortization period was determined based upon the following
factors, among others: operating history, brand name recognition, merchandising
strategy, vendor network, proven portability to new markets and demographics of
the junior womens market. Accumulated amortization for goodwill at September
29, 2001 and September 30, 2000 was $4,127,502 and $3,299,563, respectively.

Other intangibles, included in Other Assets in the accompanying balance
sheet, result from the Companys acquisition of the assets of Rampage
Retailing, Inc. (Rampage) and represent amounts attributable to a license
agreement allowing the Company to utilize the Rampage name and other
intangibles. These assets are stated at cost and are amortized using the
straight-line method over the estimated useful life of 20 years. The
amortization period was primarily determined based on the expectation that the
Rampage license renewal options would be exercised. (See Note 6). Accumulated
amortization for other intangibles at September 29, 2001 and September 30, 2000
was $267,928 and $200,944, respectively.

In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, Goodwill and Other Intangible Assets,which supercedes APB 17, Intangible
Assets, and eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets. Instead, goodwill and other intangibles
with indefinite lives will be tested for impairment on at least an annual basis
utilizing a test that begins with an estimate of the fair value of the
reporting unit or intangible asset. Previous accounting principles utilized
undiscounted cash flows to determine if an impairment had occurred. The
Company will adopt SFAS No. 142 during fiscal 2002.

Deferred Financing Costs

Debt issuance costs are amortized to interest expense using the
straight-line method over the life of the related debt. Unamortized issuance
costs remaining upon early retirement of debt are expensed. Accumulated
amortization at September 29, 2001 and September 30, 2000 was $35,328 and
$13,476, respectively.

Deferred Rent

Rent expense on noncancellable leases containing known future scheduled
rent increases are recorded on a straight-line basis over the term of the
respective leases. The excess rent expense over rent paid is accounted for as
deferred rent.



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

1. Organization and Summary of Significant Accounting Policies (Continued)

Income Taxes

The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.

Impairment of Long-lived Assets

In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of, whenever events or changes in circumstances indicate that the
carrying amount of its assets might not be recoverable, the Company, using its
best estimates based upon reasonable and supportable assumptions and
projections, reviews the carrying value of long-lived assets for impairment.
Impairment for long-lived assets to be held is measured by comparing the
carrying amount of the asset to its fair value. Impairment is reviewed at the
lowest levels for which there are identifiable cash flows that are independent
of the cash flows of other groups of assets. The Company performs such analysis
on an individual store basis and estimates fair values based on sales prices
for comparable assets. The Company measures impairment for long-lived assets to
be disposed of at the lower of the carrying amount or net realizable value
(fair market value less cost to dispose). The Company identified two
under-performing stores and closed these locations in fiscal 2001. Accordingly,
the Company recorded an impairment loss of $722,000, which is included in
selling, general and administrative expenses in fiscal 1999.

Stock Based Compensation

Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. SFAS No. 123 also permits companies to elect to continue
using the current intrinsic value accounting method specified in Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, to account for stock-based compensation. The Company has decided to
retain the current intrinsic value based method, and has disclosed the pro
forma effect of using the fair value based method to account for its
stock-based compensation.

Revenue Recognition

Retail merchandise sales are recognized at the point of sale, less
estimated sales returns. A reserve is provided for anticipated returns based on
historical experience.

Store Pre-opening Costs

Costs incurred in connection with the opening of a new store are expensed
as incurred.



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

1. Organization and Summary of Significant Accounting Policies (Continued)

Earnings Per Share

Basic earnings per share is computed based on the weighted average
outstanding common shares. Dilutive earnings per share is computed based on the
weighted average outstanding shares and potentially dilutive stock options and
warrants.

Fair Value of Financial Instruments

Financial instruments, including cash and cash equivalents, accounts
payable, accrued expenses, income tax payable and capital lease obligations are
carried at cost, which management believes approximates fair value because of
the short-term maturity of these instruments. Interest on long-term debt is
primarily based on variable rates; therefore, management believes the carrying
amounts for the outstanding borrowings approximate fair value. There was no
long-term debt at September 29, 2001.

Comprehensive Income

The Company has adopted SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components. Net income was the same as comprehensive income for all
periods presented.

Advertising Costs

Advertising costs are expensed as incurred and were $1,410,816, $157,733
and $379,116, for the years ended September 29, 2001, September 30, 2000 and
September 25, 1999, respectively.

Reclassifications

Certain amounts in the prior years financial statements have been
reclassified to conform with the fiscal 2001 presentation.

2. Fixed Assets

Fixed assets consist of the following:

|                                               |  |               |             |               |  |   |             |  
|---------------------------------------------- |  | ------------- | ----------- | ------------- |  | - | ----------- | -
|                                               |  | September 29, |             | September 30,
|                                               |  | 2001          |             | 2000         
|                                               |  |               |             |              
|Leasehold improvements                         |  | $             | 74,645,007  |               |  | $ | 50,834,920  |  
|Furniture and fixtures                         |  |               | 17,027,076  |               |  |   | 13,497,799  |  
|Equipment and vehicles                         |  |               | 11,288,623  |               |  |   | 6,442,643   |  
|                                               |  |               |             |               |  |   |             |  
|                                               |  |               | 102,960,706 |               |  |   | 70,775,362  |  
|Less accumulated depreciation and amortization |  |               | (25,610,130 | )             |  |   | (16,501,472 | )
|                                               |  |               |             |               |  |   |             |  
|                                               |  | $             | 77,350,576  |               |  | $ | 54,273,890  |  
|                                               |  |               |             |               |  |   |             |  



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

3. Notes Receivable from Officers

In April 1999, the Company loaned $1,000,000 under a note agreement to its
Chief Executive Officer. The full amount of the note was secured by a pledge of
750,000 shares of Common Stock of the Company, plus any shares obtained by the
officer in the future. The entire amount of outstanding principal and accrued
interest was repaid in October 1999.

4. Credit Arrangements

At September 29, 2001, the Company has an unsecured $15.0 million
revolving credit agreement. Interest on the revolving facility is payable
quarterly at either (i) the Banks Base Rate, as defined, or (ii) the Banks
Eurodollar Rate plus 1.00%, at the Companys option, subject to certain
adjustments. All outstanding borrowings under the revolving credit facility are
due on the maturity date, December 23, 2004. At September 29, 2001, there was
no outstanding debt under the revolving credit facility. The bank credit
agreement requires that the Company maintain certain financial ratios and
restricts future liens and indebtedness, sales of assets and dividend payments.
As of September 29, 2001, the Company is in compliance with the terms of the
bank credit agreement.

During fiscal 2000, the Company repaid the outstanding balance of a prior
$32.0 million secured revolving credit facility primarily through proceeds from
the Companys initial public offering and from operational cash flows. In
connection with the repayment of this borrowing and termination of the related
agreement, unamortized deferred financing costs were written off in December
1999 resulting in an extraordinary item charge of $311,314, net of taxes.

In connection with the original bank credit agreement, the Company issued
warrants to purchase approximately 413,560 shares of the Companys Common Stock
at $1.00 per share. The number of shares of Common Stock issuable under the
warrant increased by an aggregate of 216 shares pursuant to certain
anti-dilution provisions. On October 19, 1999, the warrants were exercised in
conjunction with the Companys initial public offering in a cashless
transaction resulting in the issuance of 376,180 shares of the Companys Common
Stock.

Pursuant to the terms of the bank credit agreement, the Company can issue
up to $5.0 million of documentary or standby letters of credit. The Company is
charged a fee equal to the Banks Eurodollar Rate for the average daily face
amount of outstanding letters of credit and customary issuance and amendment
charges. Fees are paid quarterly in arrears and charges are paid as incurred.
At September 29, 2001 and September 30, 2000, there were outstanding letters of
credit in the amount of $2.3 million and $1.4 million, respectively.

5. Subordinated Notes Payable to Related Parties

The Company had two senior subordinated note agreements with affiliated
investors that were paid off in June 1999. Interest accrued at 12.5% and was
due semi-annually. Principal was due upon maturity of the notes, September 27,
2003. The Company recognized interest expense of $1,349,900 for the year ended
September 25, 1999.

In conjunction with the issuance of the two senior subordinated notes, the
Company issued warrants to purchase approximately 1,964,410 shares of Common
Stock at $1.00 per share. The number of shares of Common Stock issuable under
these warrants increased by an aggregate of 1,030 shares pursuant to certain
anti-dilution provisions. The warrants are exercisable immediately and expire
on September 27, 2006. The warrants were valued



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC
 Notes to Consolidated Financial Statements  (Continued)

5. Subordinated Notes Payable to Related Parties (Continued)

at approximately $722,000, which were included in deferred financing costs and
were being amortized on a straight-line basis over the term of the notes.
The fair value of the warrants was estimated at the date of grant using the
minimum value method with the following assumptions: risk free interest rate of
6.0%; an expected warrant life of 7.5 years; and no annual dividends.

In connection with the repayment of all outstanding principal under the
two agreements in June 1999, the Company incurred a prepayment fee of $255,200,
which was charged to income in the accompanying statement of income for the
year ended September 25, 1999 and accounted for as an extraordinary item. In
addition, unamortized warrant issue costs of approximately $263,900, were
written off in June 1999 resulting in total extraordinary item charges of
$519,100, net of taxes.

6. Commitments

Leases

The Company leases its retail stores, distribution centers, and office
facilities under various operating leases that expire between 2001 and 2014.
Under certain retail store leases, the Company is required to pay the greater
of a minimum lease payment or 5% to 11% of annual sales volume. Rent expense,
including reimbursement of the Companys proportional share of common area
maintenance expenses, for the years ended September 29, 2001, September 30,
2000 and September 25, 1999 was $44,219,476, $32,266,022 and $22,837,051,
respectively, including $1,708,916, $1,343,794 and $1,122,680, respectively, of
contingent rentals.

The following is a summary of the annual future minimum capital and
operating lease commitments as of September 29, 2001:

|                                            |      |   |         |        |           |   |             |            | 
|------------------------------------------- | ---- | - | ------- | ------ | --------- | - | ----------- | ---------- | 
|                                            |      |   | Capital |        | Operating
|                                            |      |   | Leases  |        | Leases   
|                                            |      |   |         |        |          
|Year ending September:                      |      |   |         |        |           |   |             |           
|                                            | 2002 |   | $       | 47,420 |           |   | $           | 35,815,619 | 
|                                            | 2003 |   |         |       |           |   |             | 36,504,744 | 
|                                            | 2004 |   |         |       |           |   |             | 36,616,471 | 
|                                            | 2005 |   |         |       |           |   |             | 35,518,609 | 
|                                            | 2006 |   |         |       |           |   |             | 33,641,382 | 
|Thereafter                                  |      |   |        |        |           |   | 134,881,972 |           
|                                            |      |   |         |        |           |   |             |           
|Total minimum lease payments                |      | $ | 47,420  |        |           | $ | 312,978,797 |           
|                                            |      |   |         |        |           |   |             |           
|Less amount representing interest           |      |   | (2,403  | )      |           |   |             |           
|                                            |      |   |         |        |           |   |             |           
|Present value of net minimum lease payments |      | $ | 45,017  |        |           |   |             |           
|                                            |      |   |         |        |           |   |             |           



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

6. Commitments (Continued)

License Agreement

In conjunction with the acquisition of Rampage assets on September 30,
1997, the Company entered into a license agreement enabling the Company to
operate stores under the Rampage name. The license fee is calculated as the
greater of an annual fee (ranging between $300,000 to $450,000) or a percent of
sales at stores operating under the Rampage name (ranging between 1.0% and
1.5%). The license agreement is for an initial term of four years with an
automatic option to renew for another four years. The agreement may be renewed
for ten additional four-year periods, provided certain conditions are met.
Currently, management believes the license agreement will be renewed
for at least four additional periods. License fees are recorded monthly based
on the greater of a percentage of sales or the annual fee, as defined. License
fees incurred during the years ended September 29, 2001, September 30, 2000 and
September 25, 1999 were $690,587, $608,439 and $451,723, respectively, and are
included in selling, general and administrative expenses.

7. Equity

Stock Options

In 1996, the Company established a Long-Term Incentive Plan (the 1996
Plan). The 1996 Plan provides for the issuance of shares of Common Stock under
incentive stock options and non-qualified stock options. Options vest ratably
at 20% per year over five years from the date of the grant, subject to certain
acceleration provisions and are exercisable for a period of up to ten years
from the date of grant. Incentive stock options are granted at prices that
approximate the fair value of the common shares at the date of grant as
determined by the Board of Directors.

In May 1999, the Company established a 1999 Long-Term Incentive Plan (the
1999 Plan). The 1999 Plan provides for the issuance of shares of Common Stock
under non-qualified stock options and stock appreciation rights. The exercise
price of options shall not be less than 85% of the fair market value at the
date of grant, or 110% in the case of any person possessing 10% combined voting
power of all classes of stock of the Company. The Companys Board of Directors
determines the vesting and other provisions of option and stock appreciation
rights granted under the 1999 Plan. In July 1999, the Companys Board of
Directors resolved that no further stock option grants will be made from the
1996 Plan or the 1999 Plan.

Pursuant to the terms of the grant in October 1996, upon completion of the
Companys initial public offering on October 19, 1999, vesting for options to
purchase 274,500 shares of Common Stock related to the Chief Executive Officer
was accelerated and the options became fully vested. The Company has determined
the stock option award to be a fixed award and as such, no compensation was
recorded.

The Companys Board of Directors and stockholders adopted the 1999 Equity
Incentive Plan, effective as of the completion of its initial public offering.
The 1999 Equity Incentive Plan permits the grant of options that qualify as
incentive stock options and non-qualified options. The option exercise price of
each option shall be determined by the compensation committee of the Board of
Directors. In the case of incentive stock options, however, the exercise price
shall not be less than 100% of the fair market value of the shares on the date
of grant, or 110% in the case of incentive stock options granted to an
individual with ownership in excess of certain limits. Subject to adjustment
for stock splits and similar events, the total number of shares of Common Stock
that can be issued under the 1999 Equity Incentive Plan is 1,250,000 shares.
The terms of these options will be substantially the same as other options
previously issued.



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

7. Equity (Continued)

A summary of the Companys stock option activity and related information
for the plans is as follows:

|                                  |           |  |           |          |                                |   |      |       | 
|--------------------------------- | --------- |  | --------- | -------- | ------------------------------ | - | ---- | ----- | 
|                                  |           |  | Options   |          | Weighted
AverageExercise Price
|                                  |           |  |           |          |                               
|Outstanding at September 26, 1998 |           |  | 1,773,000 |          |                                | $ | 1.41 |      
|                                  | Granted   |  |           | 120,000  |                                |   |      | 7.00  | 
|                                  | Cancelled |  |           | (57,600  | )                              |   |      | 1.00  | 
|                                  | Exercised |  |           | (10,800  | )                              |   |      | 1.00  | 
|                                  |           |  |           |          |                                |   |      |      
|Outstanding at September 25, 1999 |           |  | 1,824,600 |          |                                |   | 1.80 |      
|                                  | Granted   |  |           | 270,000  |                                |   |      | 11.19 | 
|                                  | Cancelled |  |           | (10,500  | )                              |   |      | 11.00 | 
|                                  | Exercised |  |           | (156,500 | )                              |   |      | 1.02  | 
|                                  |           |  |           |          |                                |   |      |      
|Outstanding at September 30, 2000 |           |  | 1,927,600 |          |                                |   | 3.12 |      
|                                  | Granted   |  |           | 443,000  |                                |   |      | 15.23 | 
|                                  | Cancelled |  |           | (24,600  | )                              |   |      | 9.93  | 
|                                  | Exercised |  |           | (359,800 | )                              |   |      | 2.69  | 
|                                  |           |  |           |          |                                |   |      |      
|Outstanding at September 29, 2001 |           |  | 1,986,200 |          |                                | $ | 5.82 |      
|                                  |           |  |           |          |                                |   |      |      
|Exercisable, September 25, 1999   |           |  | 648,600   |          |                                | $ | 1.31 |      
|Exercisable, September 30, 2000   |           |  | 1,130,800 |          |                                | $ | 1.50 |      
|Exercisable, September 29, 2001   |           |  | 1,055,850 |          |                                | $ | 1.83 |      

The following table summarizes information about stock options outstanding
as of September 29, 2001:

|                |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|--------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |  | Options Outstanding |         | Options Exercisable
|                |  |                     |         |                    
|                |  |                     |         |                     |  | Weighted Average |     |             |  |                  |       |  |  |  |         |  |  |  
|                |  | Number              |         | Remaining           |  | Weighted Average |     | Number      |  | Weighted Average
|Exercise Prices |  | Outstanding         |         | Contractual Life    |  | Exercise Price   |     | Outstanding |  | Exercise Price  
|                |  |                     |         |                     |  |                  |     |             |  |                 
|$  1.00         |  |                     | 866,500 |                     |  |                  | 5.0 |             |  | $                | 1.00  |  |  |  | 712,675 |  |  | $ | 1.00  | 
|$  2.00$  7.00 |  |                     | 455,100 |                     |  |                  | 5.8 |             |  | $                | 3.20  |  |  |  | 302,575 |  |  | $ | 2.26  | 
|$11.00$13.50   |  |                     | 471,600 |                     |  |                  | 8.6 |             |  | $                | 11.23 |  |  |  | 35,600  |  |  | $ | 11.35 | 
|$20.04$27.00   |  |                     | 193,000 |                     |  |                  | 9.9 |             |  | $                | 20.39 |  |  |  | 5,000   |  |  | $ | 27.00 | 

The weighted average fair value of options granted was $11.27, $8.29 and
$2.56 for the years ended September 29, 2001, September 30, 2000 and September
25, 1999, respectively.

The Company has recorded deferred compensation in connection with the
grants of certain stock options to employees during the year ended September
25, 1999. The options were granted at the then deemed fair value of $7.00 per
share. In conjunction with the Companys initial public offering registration
statement, the Company revised the estimate of the deemed fair value of its
Common Stock resulting in $720,000 of deferred compensation. The deemed fair
value per share represents a discount from the initial public offering per
share price and is



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

7. Equity (Continued)

attributable to restrictions on the availability of these shares for sale
(vesting provisions) and improved operating results since the date of their
grant. The deferred compensation is being amortized ratably over the vesting
period of the respective options. No deferred compensation was recorded for
option grants prior to this period which were granted at exercise prices equal
to the deemed fair value, as determined by the Companys Board of Directors
based on valuation analyses of publicly traded peer companies.

Pro forma information regarding net income is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. For options granted
through October 18, 1999, the fair value of options granted were estimated at
the date of grant using the minimum value option pricing model with the
following weighted-average assumptions: risk free interest rate of 6%, dividend
yield of 0%, and weighted-average expected life of the option of five years.
For options granted from October 19, 1999 to September 29, 2001, the fair value
of the options was estimated at the date of grant using the Black-Scholes
method for option pricing with the following weighted average assumptions:
risk-free interest rate of 6%, dividend yield of 0%, expected volatility of 70%
and weighted average expected life of the option of five years.

The minimum value option-pricing model is similar to the Black-Scholes
option valuation model that was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable,
except that it excludes the factor of volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the
Companys employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Companys pro forma information follows:

|                                         |  |               |            |               |  |               |            |  |  |   |            | 
|---------------------------------------- |  | ------------- | ---------- | ------------- |  | ------------- | ---------- |  |  | - | ---------- | 
|                                         |  | Years Ended  
|                                         |  |              
|                                         |  | September 29, |            | September 30, |  | September 25,
|                                         |  | 2001          |            | 2000          |  | 1999         
|                                         |  |               |            |               |  |              
|Net income as reported                   |  | $             | 21,490,751 |               |  | $             | 18,760,092 |  |  | $ | 11,495,489 | 
|Pro forma net income                     |  | $             | 20,573,751 |               |  | $             | 17,863,372 |  |  | $ | 11,392,119 | 
|Net income per share basic as reported   |  | $             | 1.04       |               |  | $             | 0.93       |  |  | $ | 0.63       | 
|Pro forma                                |  | $             | 1.00       |               |  | $             | 0.89       |  |  | $ | 0.62       | 
|Net income per share diluted as reported |  | $             | 0.92       |               |  | $             | 0.82       |  |  | $ | 0.54       | 
|Pro forma                                |  | $             | 0.88       |               |  | $             | 0.78       |  |  | $ | 0.53       | 

Stock Purchase Plan

On September 27, 1999, the Company approved the adoption of the 1999
Employee Stock Purchase Plan (the Plan), which authorized up to 350,000
shares of Common Stock for employee purchase through payroll deductions at 85%
of fair market value. All employees of the Company who have completed at least
six months of employment and work at least 20 hours per week, are eligible to
participate, except for employees who own



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

7. Equity (Continued)

Common Stock or options on such common stock which represents 5% or more of the
Company. There were 23,535 and 25,932 shares issued under the Plan during the
years ended September 29, 2001 and September 30, 2000, respectively.

Shares Reserved for Future Issuance

|                                                                  |  |               |           |               |  |  |           | 
|----------------------------------------------------------------- |  | ------------- | --------- | ------------- |  |  | --------- | 
|                                                                  |  | September 29, |           | September 30,
|                                                                  |  | 2001          |           | 2000         
|                                                                  |  |               |           |              
|Conversion of warrants                                            |  |               | 1,965,440 |               |  |  | 1,965,440 | 
|Stock options issued and outstanding                              |  |               | 1,986,200 |               |  |  | 1,927,600 | 
|Common shares authorized for future stock option grants           |  |               | 568,100   |               |  |  | 490,500   | 
|Shares authorized for issuance under Employee Stock
Purchase Plan |  |               | 300,533   |               |  |  | 324,068   | 
|                                                                  |  |               |           |               |  |  |           | 
|Shares reserved for future issuance                               |  |               | 4,820,273 |               |  |  | 4,707,608 | 
|                                                                  |  |               |           |               |  |  |           | 

Stock Split

In connection with the completion of its initial public offering on
October 19, 1999, the Company approved a 100-for-1 stock split. In addition,
the Companys certificate of incorporation was amended upon completion of its
initial public offering, to authorize the issuance of up to 100,000,000 shares
of Common Stock and 3,000,000 shares of Preferred Stock. Consequently, the
stock option data and per share data, throughout the consolidated financial
statements and the notes to the consolidated financial statements, have been
restated to reflect the stock split.

8. Income Taxes

Income taxes consist of the following:

|             |         |   |               |            |               |   |               |            |  |   |           |           |  
|------------ | ------- | - | ------------- | ---------- | ------------- | - | ------------- | ---------- |  | - | --------- | --------- | -
|             |         |   | Years Ended  
|             |         |   |              
|             |         |   | September 29, |            | September 30, |   | September 25,
|             |         |   | 2001          |            | 2000          |   | 1999         
|             |         |   |               |            |               |   |              
|Current:     |         |   |               |            |               |   |               |            |  |   |           |          
|             | Federal |   | $             | 12,853,895 |               |   | $             | 10,437,978 |  |   | $         | 7,801,816 |  
|             | State   |   |               | 2,240,000  |               |   |               | 1,813,000  |  |   |           | 1,523,576 |  
|             |         |   |               |            |               |   |               |            |  |   |           |          
|             |         |   | 15,093,895    |            |               |   | 12,250,978    |            |  |   | 9,325,392 |          
|Deferred:    |         |   |               |            |               |   |               |            |  |   |           |          
|             | Federal |   |               | (1,456,600 | )             |   |               | 603,900    |  |   |           | (526,703  | )
|             | State   |   |               | (267,300   | )             |   |               | 126,500    |  |   |           | (98,297   | )
|             |         |   |               |            |               |   |               |            |  |   |           |          
|             |         |   | (1,723,900    | )          |               |   | 730,400       |            |  |   | (625,000  | )        
|             |         |   |               |            |               |   |               |            |  |   |           |          
|Income Taxes |         | $ | 13,369,995    |            |               | $ | 12,981,378    |            |  | $ | 8,700,392 |          
|             |         |   |               |            |               |   |               |            |  |   |           |          



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

8. Income Taxes (Continued)

A reconciliation of the calculated income tax provision based on statutory
tax rates in effect and the effective tax rate follows:

|                                               |  |               |            |               |  |               |            |  |  |   |           | 
|---------------------------------------------- |  | ------------- | ---------- | ------------- |  | ------------- | ---------- |  |  | - | --------- | 
|                                               |  | Years Ended  
|                                               |  |              
|                                               |  | September 29, |            | September 30, |  | September 25,
|                                               |  | 2001          |            | 2000          |  | 1999         
|                                               |  |               |            |               |  |              
|Tax at U.S. statutory rates                    |  | $             | 12,201,261 |               |  | $             | 11,218,474 |  |  | $ | 7,250,183 | 
|State income taxes, net of federal tax
benefit |  |               | 1,343,707  |               |  |               | 1,260,476  |  |  |   | 908,862   | 
|Non-deductible expenses                        |  |               | 223,295    |               |  |               | 266,493    |  |  |   | 197,761   | 
|Other, net                                     |  |               | (398,268   | )             |  |               | 235,935    |  |  |   | 343,586   | 
|                                               |  |               |            |               |  |               |            |  |  |   |           | 
|                                               |  | $             | 13,369,995 |               |  | $             | 12,981,378 |  |  | $ | 8,700,392 | 
|                                               |  |               |            |               |  |               |            |  |  |   |           | 

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred tax liabilities and assets are as follows:

|                                      |                            |   |               |            |               |   |            |            |  
|------------------------------------- | -------------------------- | - | ------------- | ---------- | ------------- | - | ---------- | ---------- | -
|                                      |                            |   | September 29, |            | September 30,
|                                      |                            |   | 2001          |            | 2000          |  
|                                      |                            |   |               |            |               |  
|Deferred tax assets:                  |                            |   |               |            |               |   |            |           
|                                      | Inventory                  |   | $             | 1,581,945  |               |   | $          | 1,055,750  |  
|                                      | Deferred rent              |   |               | 2,281,840  |               |   |            | 1,507,767  |  
|                                      | State income taxes         |   |               | 339,500    |               |   |            | 421,421    |  
|                                      | Employee benefit programs  |   |               | 276,928    |               |   |            | 174,250    |  
|                                      | Other accrued expenses     |   |               | 1,599,787  |               |   |            | 635,575    |  
|                                      |                            |   |               |            |               |   |            |           
|Total deferred tax assets             |                            |   | 6,080,000     |            |               |   | 3,794,763  |           
|Deferred tax liabilities:             |                            |   |               |            |               |   |            |           
|                                      | Tax over book depreciation |   |               | (3,417,044 | )             |   |            | (2,797,765 | )
|                                      | Intangibles                |   |               | (962,956   | )             |   |            | (1,136,998 | )
|                                      |                            |   |               |            |               |   |            |           
|Total deferred tax liabilities        |                            |   | (4,380,000    | )          |               |   | (3,934,763 | )         
|                                      |                            |   |               |            |               |   |            |           
|Net deferred tax assets (liabilities) |                            | $ | 1,700,000     |            |               | $ | (140,000   | )         
|                                      |                            |   |               |            |               |   |            |           

9. Supplemental Cash Flows Disclosures

|                                                |                   |   |               |           |               |   |               |           |  |   |        |           | 
|----------------------------------------------- | ----------------- | - | ------------- | --------- | ------------- | - | ------------- | --------- |  | - | ------ | --------- | 
|                                                |                   |   | Years Ended  
|                                                |                   |   |              
|                                                |                   |   | September 29, |           | September 30, |   | September 25,
|                                                |                   |   | 2001          |           | 2000          |   | 1999         
|                                                |                   |   |               |           |               |   |              
|Income tax benefit of stock option
transactions |                   | $ | 3,053,585     |           |               | $ | 627,160       |           |  | $ | 26,000 |          
|Cash paid during the year for:                  |                   |   |               |           |               |   |               |           |  |   |        |          
|                                                | Interest          |   | $             | 33,800    |               |   | $             | 348,142   |  |   | $      | 3,731,697 | 
|                                                | Income taxes, net |   | $             | 9,998,757 |               |   | $             | 6,636,600 |  |   | $      | 8,911,510 | 



F-17



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

10. Related Party Transactions

The Company expensed a management fee of $250,000 to its majority
stockholder during each of the years ended September 29, 2001, September 30,
2000, and September 25, 1999. This fee terminates at any time when the majority
stockholder owns less than 1,820,735 shares of common stock, including shares
of common stock issuable upon exercise of outstanding warrants.

The Company, its majority stockholder and its CEO have entered into a
stockholders agreement. This agreement provides that (1) as long as the
majority stockholder owns more than 25% but less than 50% of the Companys
outstanding shares, they will have the right to nominate three directors and
(2) as long as the majority stockholder owns at least 1,820,735 shares of
common stock, including shares of common stock issuable upon exercise of
outstanding warrants, it will have the right to nominate two directors. The
stockholders agreement grants the Companys CEO certain tag along rights in the
event of a private sale by the majority stockholder of their shares of common
stock. The stockholders agreement also grants, subject to limitations and
exceptions, demand and piggyback registration rights to the majority
stockholder and piggyback registration rights to the CEO.

For the years ended September 29, 2001, September 30, 2000 and September
25, 1999, the Company purchased approximately $681,000, $275,000 and $89,000,
of merchandise from a company primarily owned by family members of one of the
Companys officers.

11. Employee Savings Plan

The Company has an Internal Revenue Code Section 401(k) profit-sharing
plan (the Plan) for eligible employees. The Plan is funded by employee
contributions and provides for the Company to make discretionary contributions.
The Company matches 25% of participants contributions up to 4% of eligible
compensation. Amounts contributed and expensed under this plan were $80,000,
$65,000 and $50,062 for the years ended September 29, 2001, September 30, 2000
and September 25, 1999, respectively.



F-18



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##### Table of Contents



CHARLOTTE RUSSE HOLDING, INC.
 Notes to Consolidated Financial Statements  (Continued)

12. Earnings Per Share

A reconciliation of the numerators and denominators used in basic and
diluted earnings per share is as follows:

|                                            |                                  |   |               |            |               |   |               |            |   |   |            |            |  
|------------------------------------------- | -------------------------------- | - | ------------- | ---------- | ------------- | - | ------------- | ---------- | - | - | ---------- | ---------- | -
|                                            |                                  |   | Years Ended  
|                                            |                                  |   |              
|                                            |                                  |   | September 29, |            | September 30, |   | September 25,
|                                            |                                  |   | 2001          |            | 2000          |   | 1999         
|                                            |                                  |   |               |            |               |   |              
|Net income                                  |                                  | $ | 21,490,751    |            |               | $ | 18,760,092    |            |   | $ | 11,495,489 |           
|Income before extraordinary item            |                                  | $ | 21,490,751    |            |               | $ | 19,071,406    |            |   | $ | 12,014,589 |           
|Income before extraordinary item per share: |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Basic                            |   | $             | 1.04       |               |   | $             | 0.95       |   |   | $          | 0.66       |  
|                                            | Effect of dilutive stock options |   |               | (0.04      | )             |   |               | (0.04      | ) |   |            | (0.03      | )
|                                            | Effect of dilutive warrants      |   |               | (0.08      | )             |   |               | (0.08      | ) |   |            | (0.06      | )
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Diluted                          |   | $             | 0.92       |               |   | $             | 0.83       |   |   | $          | 0.57       |  
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           
|Earnings per share:                         |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Basic                            |   | $             | 1.04       |               |   | $             | 0.93       |   |   | $          | 0.63       |  
|                                            | Effect of dilutive stock options |   |               | (0.04      | )             |   |               | (0.04      | ) |   |            | (0.03      | )
|                                            | Effect of dilutive warrants      |   |               | (0.08      | )             |   |               | (0.07      | ) |   |            | (0.06      | )
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Diluted                          |   | $             | 0.92       |               |   | $             | 0.82       |   |   | $          | 0.54       |  
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           
|Weighted average number of shares:          |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Basic                            |   |               | 20,596,000 |               |   |               | 20,084,000 |   |   |            | 18,304,000 |  
|                                            | Effect of dilutive stock options |   |               | 956,000    |               |   |               | 924,000    |   |   |            | 844,000    |  
|                                            | Effect of dilutive warrants      |   |               | 1,876,000  |               |   |               | 1,837,000  |   |   |            | 2,086,000  |  
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           
|                                            | Diluted                          |   |               | 23,428,000 |               |   |               | 22,845,000 |   |   |            | 21,234,000 |  
|                                            |                                  |   |               |            |               |   |               |            |   |   |            |           



F-19



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##### Table of Contents






EXHIBIT INDEX



| | (a) Exhibits marked with an asterisk are filed herewith. The remainder of the exhibits have heretofore been filed with the Commission and are incorporated herein by reference.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                     
|2.1     |  | Stock Purchase Agreement dated as of August 26, 1996 by and among
Charlotte Russe Holding, Inc., Daniel Lawrence, Frank Lawrence and Larry
Lawrence (Exhibit 2.1 to Registration Statement 333-84297 filed October
19, 1999)                                                                                                        
|       
|       
|       
|       
|3.1     |  | Certificate of Incorporation of Charlotte Russe Holding, Inc., as
amended+ (Exhibit 3.1 to Registration Statement 333-84297 filed October
19, 1999)                                                                                                                                                                                 
|       
|       
|       
|       
|3.2     |  | Certificate of Amendment to the Certificate of Incorporation of
Charlotte Russe Holding, Inc. (Exhibit 3.2 to Registration Statement
333-84297 filed October 19, 1999)                                                                                                                                                              
|       
|       
|       
|       
|3.3     |  | Amended and Restated By-laws of Charlotte Russe Holding, Inc.+ (Exhibit
3.3 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                                             
|       
|       
|       
|       
|4.1     |  | Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement
333-84297 filed October 19, 1999)                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.1    |  | Revolving Credit Agreement, dated as of December 23, 1999, by and among
Charlotte Russe, Inc. as Borrower, Charlotte Russe Holding, Inc., as
Guarantor, and BankBoston, N.A. as Agent (Exhibit 10.1 to Form 10-Q filed
on February 8, 2000)                                                                                         
|       
|       
|       
|       
|10.2    |  | Guaranty, dated as of December 23, 1999, by Charlotte Russe Holding,
Inc., Charlotte Russe Merchandising, Inc., and certain other Subsidiaries
of the Borrower (as therein defined) which may become parties thereto,
each as Guarantor, in favor of BankBoston, N.A. as Agent (Exhibit 10.2 to
Form 10-Q filed on February 8, 2000)
|       
|       
|       
|       
|10.3    |  | Stockholders Agreement by and among Charlotte Russe Holding, Inc., The SK
Equity Fund, L.P., SK Investment Fund, L.P., and Bernard Zeichner (Exhibit
10.7 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                               
|       
|       
|       
|       
|10.4    |  | Employment Agreement by and between Charlotte Russe, Inc. and Bernard
Zeichner dated October 1, 1996 (Exhibit 10.9 to Registration Statement
333-84297 filed October 19, 1999)                                                                                                                                                      
|       
|       
|       
|       
|10.5    |  | Amendment No. 1 to Employment Agreement by and between Charlotte Russe,
Inc. and Bernard Zeichner (Exhibit 10.10 to Registration Statement
333-84297 filed October 19, 1999)                                                                                                                                                        
|       
|       
|       
|       
|10.6    |  | Trade Secret and Confidentiality Agreement dated as of October 1, 1996 by
and between Charlotte Russe Holding, Inc. and Bernard Zeichner (Exhibit
10.11 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                 
|       
|       
|       
|       
|10.7    |  | Charlotte Russe Holding, Inc. 1999 Long-Term Incentive Plan (Exhibit
10.12 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                                              
|       
|       
|       
|       
|10.8    |  | Charlotte Russe Holding, Inc. 1996 Long-Term Incentive Plan (Exhibit
10.13 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                                              
|       
|       
|       
|       
|10.9    |  | Lease Agreement for San Diego Distribution Center dated July 24, 1997 by
and between Price Enterprises, Inc. and Charlotte Russe, Inc. (Exhibit
10.14 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                   
|       
|       
|       
|       
|10.10   |  | Charlotte Russe Holding, Inc. 1999 Equity Incentive Plan (Exhibit 10.15
to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                                                 



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                
|       
|       
|       
|       
|10.11   |  | License Agreement dated September 30, 1997 by and between Rampage
Clothing Company and Charlotte Russe, Inc. (Exhibit 10.16 to Registration
Statement 333-84297 filed October 19, 1999)                                                                        
|       
|       
|       
|       
|10.12   |  | Charlotte Russe Holding, Inc. 1999 Employee Stock Purchase Plan (Exhibit
10.17 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                     
|       
|       
|       
|       
|10.13   |  | Common Stock Purchase Warrant No. 2 by and between Charlotte Russe
Holding, Inc. and The SK Equity Fund, L.P., dated as of September 27, 1996
(Exhibit 10.19 to Registration Statement 333-84297 filed October 19, 1999)                                       
|       
|       
|       
|       
|10.14   |  | Common Stock Purchase Warrant No. 3 by and between Charlotte Russe
Holding, Inc. and SK Investment Fund, L.P., dated as of September 27, 1996
(Exhibit 10.20 to Registration Statement 333-84297 filed October 19, 1999)                                       
|       
|       
|       
|       
|10.15   |  | First Amendment dated October 1, 1999 to the Common Stock Purchase
Warrant by and between Charlotte Russe Holding, Inc. and The SK Equity
Fund, L.P., dated as of September 27, 1996 (Exhibit 10.22 to Registration
Statement 333-84297 filed October 19, 1999)
|       
|       
|       
|       
|10.16   |  | First Amendment dated October 1, 1999 to the Common Stock Purchase
Warrant by and between Charlotte Russe Holding, Inc. and SK Investment
Fund, L.P., dated as of September 27, 1996 (Exhibit 10.23 to Registration
Statement 333-84297 filed October 19, 1999)
|       
|       
|       
|       
|10.17   |  | Form of Indemnification Agreement for Directors and Officers of
Charlotte Russe Holding, Inc. (Exhibit 10.24 to Registration Statement
333-84297 filed October 19, 1999)                                                                                       
|       
|       
|       
|       
|10.18   |  | Stockholders Agreement dated as of October 1, 1999 by and among
Charlotte Russe Holdings, Inc., The SK Equity Fund, L.P. and SK Investment
Fund, L.P. (Exhibit 10.25 to Registration Statement 333-84297 filed
October 19, 1999)                               
|       
|       
|       
|       
|10.19   |  | Amendment No. 2 to Employment Agreement by and between Charlotte
Russe, Inc. and Bernard Zeichner (Exhibit 10.10 to Registration Statement
333-84297 filed October 19, 1999)*                                                                                  
|       
|       
|       
|       
|10.20   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and
Harriet A. Bailiss-Sustarsic dated October 16, 2001*                                                                                                                                     
|       
|       
|       
|       
|10.21   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and
Mark A. Hoffman dated August 20, 2001*                                                                                                                                                   
|       
|       
|       
|       
|10.22   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and
Daniel T. Carter dated October 11, 2001*                                                                                                                                                 
|       
|       
|       
|       
|10.23   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and
R. Tina Kernohan dated August 29, 2001*                                                                                                                                                  
|       
|       
|       
|       
|10.24   |  | Amendment #1 to Revolving Credit Agreement, dated as of December 23,
1999, by and among Charlotte Russe, Inc. as Borrower, Charlotte Russe
Holding, Inc., as Guarantor, and BankBoston, N.A. as Agent (Exhibit 10.1
to Form 10-Q filed on February 8, 2000)*   
|       
|       
|       
|       
|21      |  | Subsidiaries (Exhibit 21 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                           
|       
|       
|       
|       
|23.1    |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                  
|       
|       
|       
|       
|24      |  | Power of Attorney (See Signature Page)                                                                                                                                                                                                                         



| | (b) |  | Financial Statement Schedules                                                                                                                                                                                                                                                                                                                              
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission have been omitted because they are not required under the
related instructions or are inapplicable as the information has been
provided in the consolidated financial statements or related notes
thereto.