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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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

Commission file number: 333-57009

Iron Age Holdings Corporation

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

(412) 787-4100

Not Applicable.

Indicate by check mark whether 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 [   ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes [   ]          No [   ] Not Applicable.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [   ]          No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. Not Applicable.

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

July 26, 2003
(Dollars in Thousands)

1.     Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended July 26, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ended January 31, 2004. For further information, refer to Iron Age Holdings Corporation’s (“Holdings” or the “Company”) consolidated financial statements and footnotes thereto for the fiscal year ended January 25, 2003.

Going Concern

Holdings was not in compliance with the financial covenants under the Bank Credit Facility, including the Senior Debt Ratio and Fixed Charge Coverage Ratio (as defined in the Bank Credit Facility) for the first quarter ended April 26, 2003. As a result, during the first quarter, Holdings requested that the senior lenders to the Bank Credit Facility (the “Lenders”) amend the financial covenants for the first quarter and every other quarter of the fiscal year ending January 31, 2004 to a level that considering Holdings’ current operations and forecasts would make it probable that Holdings would be in compliance with its Bank Credit Facility. On May 12, 2003, Holdings and the Lenders entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that allowed Holdings to continue to operate under the existing requirements of the Bank Credit Facility through June 26, 2003. As required by the First Amendment, Holdings retained a financial consultant and a financial advisor to advise Holdings with respect to improving the financial condition of Holdings and to consider alternative financing strategies. Through July 26, 2003, Holdings has incurred approximately $0.6 million in consulting, accounting and legal services associated with its debt restructuring plan. On June 26, 2003, Holdings and the Lenders agreed to an additional waiver allowing Holdings to continue to operate under the Bank Credit Facility through October 31, 2003, subject to certain conditions. Holdings incurred $0.5 million of waiver and forbearance fees that have been charged to interest expense for the second quarter ended July 26, 2003. One condition is for Holdings to continue to maintain a minimum level of excess cash availability of $2.5 million, as agreed with the Lenders on May 29, 2003. As of September 5, 2003, Holdings had excess cash availability of $3.9 million. During the 120 day period through October 31, 2003, the Lenders

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have waived all other financial covenants. Further, by August 25, 2003, Holdings was required to submit binding agreements and commitments regarding a series of transactions to reduce indebtedness and improve the financial condition of Holdings, including the exchange of Senior Subordinated Notes and Discount Notes for new securities and replacing the Bank Credit Facility with new senior indebtedness. If Holdings did not submit these binding agreements and commitments, or if the Lenders did not reasonably approve the terms of the transactions described above, Holdings would have seven business days to provide the Lenders with a debt restructuring plan for their approval. Holdings did not submit such binding agreements and commitments to the Lenders on August 25, 2003. Holdings, however, timely submitted a preliminary debt restructuring plan to the Lenders for their review and approval. Further, Holdings has commenced discussions with the holders of its Senior Subordinated Notes and Discount Notes (the “Note Holders”) with respect to its debt restructuring plan. As of September 9, 2003, negotiations continue with the Lenders and the Note Holders. Holdings intends to finalize a debt restructuring plan prior to October 31, 2003, to significantly reduce the amount of Holdings’ long-term indebtedness. The tax implications of the debt restructuring will be dependent on several factors including the terms and consideration of the debt restructuring and the financial position of Holdings after the debt restructuring. If such debt restructuring plan is not approved by the Lenders, the waiver shall expire. Should Holdings not be able to fulfill the conditions of the waiver or not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the waiver or not be able to obtain an additional waiver, Holdings would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Senior Subordinated Notes and the Discount Notes, which would have a material adverse impact on Holdings’ reported financial position and results of its operations. Holdings’ ability to continue as a going concern is largely dependent on its ability to maintain its existing financing arrangements to operate the business.

The accompanying financial statements have been prepared assuming Holdings will continue as a going concern. However, as discussed above, Holdings was not in compliance with certain financial covenants under the Bank Credit Facility at the end of the first quarter of the year ending January 31, 2004. On June 26, 2003, Holdings received a waiver of all financial covenants through October 31, 2003 from the Lenders. Holdings is continuing to negotiate a debt restructuring plan with the Lenders and the Note Holders. As a result, all of Holdings’ long-term debt and debt payable to majority stockholder continue to be classified as current liabilities.

If the debt restructuring plan includes a conversion of the Senior Subordinated Notes and the Discount Notes to equity, approximately $2.3 million of unamortized deferred financing costs, as of July 26, 2003, would be expensed at the conversion date.

Stock-Based Compensation

Holdings accounts for its stock-based employee compensation plan using the intrinsic value method under Accounting Principles Board Opinion No. 25. Pro forma information regarding net income and earnings per share is required by SFAS No. 148, which also requires that the information be determined as if Holdings has accounted for its employee stock options granted beginning in the fiscal year subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model.

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For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting period. Holdings’ pro forma information follows:

2.     Inventories

Inventories consist of the following:

3.     Intangible Assets

Effective January 27, 2002, Holdings adopted Statement on Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the provisions of SFAS No. 142. While amortization of goodwill is no longer reflected in Holdings’ financial statements, amortization related to certain of Holdings’ other intangible assets will continue to be recorded.

In connection with the adoption of SFAS No. 142, Holdings tested its goodwill for impairment, which required an assessment of whether there is an indication that goodwill is impaired as of the date of adoption, January 27, 2002. Holdings identified two reporting units, distribution and manufacturing, and determined the carrying value of those units as of the date of adoption. Only the distribution reporting unit had related goodwill. Holdings assessed the fair value of the distribution reporting unit and compared it to the reporting unit’s carrying amount, as computed in Step 1 of the evaluation. The fair value of the distribution reporting unit in Step 1 of the evaluation was determined using a 5-year discounted cash flow model. Key assumptions included management’s estimates of future profitability, capital requirements, a discount rate of 14.6% and a terminal growth rate of 2%. Based upon the initial evaluation, Step 2 of the evaluation was required, as the

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distribution reporting unit had a carrying value in excess of its fair value. In conjunction with Step 2, Holdings retained an independent valuation firm to prepare a valuation of Holdings’ assets and liabilities. Step 2 requires the implied fair value of goodwill to be calculated by allocating the fair value of the reporting unit to its tangible and intangible net assets, other than goodwill. The remaining unallocated fair value represents the implied fair value of the goodwill. Management, using the independent valuation firm, determined that all of Holdings’ goodwill was impaired at January 27, 2002. Accordingly, Holdings recorded a goodwill impairment charge of $77.5 million, net of tax of $1.7 million, as a cumulative effect of change in accounting for goodwill, for the first quarter ended April 27, 2002. The goodwill impairment charge had no effect on cash, the ongoing operation of Holdings, the covenants relating to the Bank Credit Facility or the indentures for the Discount Notes and the Senior Subordinated Notes.

Amortization for other intangible assets subject to amortization for the three month and six month periods ended July 26, 2003 and July 27, 2002, respectively, was $0.3 million and $0.6 million, respectively. Estimated amortization expense for the fiscal year ending January 31, 2004 and the succeeding five fiscal years is $1.1 million.

4.     Income Taxes

Income tax expense for the first half of 2004 of $1.3 million was primarily related to the establishment of a valuation allowance of approximately $1.6 million relating to Holdings’ net deferred tax asset offset by current period federal, state and foreign net operating losses of $0.3 million. The utilization of the net deferred tax asset is dependent upon Holdings’ execution of certain tax planning strategies. During the first quarter, Holdings reviewed the likelihood of the execution of the tax planning strategies and determined that it is no longer more likely than not that those tax planning strategies will be executed. As such, Holdings fully reserved for the net deferred tax asset and has not recorded income tax benefits for current year losses. Holdings will continue to monitor its net deferred tax asset and may determine that some or all of the net deferred tax asset will be realizable. At that point, the valuation allowance will be adjusted to reflect the net realizable amount of the deferred tax asset.

5.     Comprehensive Loss

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussions should be read in conjunction with the accompanying Consolidated Financial Statements for the period ended July 26, 2003, and Holdings’ audited consolidated financial statements and Annual Report on Form 10-K for the fiscal year ended January 25, 2003.

Results of Operations
Three Months ended July 26, 2003 compared to
 Three Months ended July 27, 2002

Net Sales for the three months ended July 26, 2003 (“second quarter 2004”) were $23.7 million compared to $23.8 million for the comparable three month period ended July 27, 2002 (“second quarter 2003”), a decrease of $0.1 million, or 0.4%. The decrease in net sales was primarily attributable to (a) a decrease in Holdings’ domestic retail business line (retail stores and shoemobiles) of $0.2 million, or 1.1%, related to the general condition of the economy and (b) a decrease of $0.3 million related to the impact of a large customer order that occurred in second quarter 2003 and did not reoccur in second quarter 2004. The decrease in net sales was partially offset by an increase of $0.3 million, or 23.1%, in Holdings’ Canadian retail business line, from customers who purchase from Holdings’ retail stores and shoemobiles, reflecting an improvement in the Canadian market for Holdings’ products and an improvement in exchange rates.

Gross Profit was $11.7 million for second quarter 2004 and $11.9 million for second quarter 2003, a decrease of $0.2 million, or 1.7%. The decrease in gross profit was primarily related to decreased net sales as discussed above and to general changes in product mix and the impact of competitive pricing strategies. As a percentage of net sales, gross profit for second quarter 2004 decreased to 49.2%, from 49.7% for second quarter 2003.

Selling, General and Administrative Expenses were $11.3 million for second quarter 2004 and $10.4 million for second quarter 2003, an increase of $0.9 million, or 8.7%. The increase in selling, general and administrative expenses was primarily related to the effect of increases in professional fees relating to legal, accounting and consulting services, including $0.6 million associated with Holdings’ debt restructuring plan, and employee related cost increases, including salaries and wages.

Operating Loss for second quarter 2004 was $0.6 million compared to operating income of $0.6 million for second quarter 2003. The decrease in operating income was primarily related to the increase in selling, general and administrative expenses.

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Interest Expense for second quarter 2004 was $4.3 million compared to $3.4 million for second quarter 2003, an increase of $0.9 million, or 26.5%. Interest expense for second quarter 2004 primarily increased due to approximately $0.5 million of waiver and forbearance fees charged by the senior lenders under the Bank Credit Facility. Interest expense for second quarter 2004 also increased due to increased borrowings and to the effect of higher interest rates, including default interest of approximately $0.1 million related to the June 26, 2003 Letter Waiver to the Loan and Security Agreement associated with the Bank Credit Facility. The default interest rate of an additional 3.0% will apply to all borrowings and letters of credit under the Bank Credit Facility through October 31, 2003.

Income Tax Expense was immaterial for second quarter 2004 and an income tax benefit of $0.7 million for second quarter 2003.

At July 26, 2003, Holdings had available foreign, state and federal net operating loss carryforwards of approximately $1.2 million, $20.7 million and $5.6 million, respectively, which expire in various years through 2023.

Six Months ended July 26, 2003 compared to
 Six Months ended July 27, 2002

Net Sales for the six months ended July 26, 2003 (“first half 2004”) were $51.2 million compared to $51.4 million for the comparable six month period ended July 27, 2002 (“first half 2003”), a decrease of $0.2 million, or 0.4%. The decrease in net sales was primarily attributable to the continued softness in the general economic environment, including increased unemployment in the manufacturing sector. The decrease in net sales is specifically related to (a) a decrease of $0.4 million, or 5.8%, in Holdings’ industrial direct mail order business line, (b) a decrease in Holdings’ consumer direct mail order business line of $0.2 million, or 8.0% and (c) a decrease in Holdings’ domestic retail business line (retail stores and shoemobiles) of $0.2 million, or 0.4%. The decrease in net sales was partially offset by an increase of $0.6 million, or 20.7%, in Holdings’ international retail business line, primarily Canada, from customers who purchase from Holdings’ retail stores and shoemobiles, reflecting an improvement in the Canadian market for Holdings’ products and an improvement in exchange rates.

Gross Profit was $25.5 million for first half 2004 and $25.9 million for first half 2003, a decrease of $0.4 million, or 1.5%. The decrease in gross profit was related to decreased net sales as discussed above and to general changes in product mix and the impact of competitive pricing strategies. As a percentage of net sales, gross profit for first half 2004 was 49.8%, a decrease of 0.6% from first half 2003.

Selling, General and Administrative Expenses was $22.2 million for first half 2004 and $20.2 million for first half 2003, an increase of $2.0 million, or 9.9%. The increase in selling, general and administrative expenses was primarily related to the effect of employee related cost increases, including salaries and wages, increases in insurance costs related to more expensive insurance

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markets, increases in operating costs related to the shoemobiles, including fuel increases, and increases in professional fees relating to legal, accounting and consulting services, including $0.6 million associated with Holdings’ debt restructuring plan.

Operating Income for first half 2004 was $1.4 million, or 2.7% of net sales, compared to $3.9 million, or 7.6% of net sales, for first half 2003. The decrease in operating income was primarily related to the increase in selling, general and administrative expenses as discussed above.

Interest Expense for first half 2004 was $7.9 million compared to $6.8 million for first half 2003, an increase of $1.1 million, or 16.2%. Interest expense for second quarter 2004 increased due to approximately $0.5 million of waiver and forbearance fees charged by the senior lenders under the Bank Credit Facility. Interest expense for first half 2004 also increased due to increased borrowings and to the effect of higher interest rates, including default interest of approximately $0.1 million related to the June 26, 2003 Letter Waiver to Loan and Security Agreement associated with the Bank Credit Facility. The default interest rate of an additional 3.0% will apply to all borrowings and letters of credit under the Bank Credit Facility through October 31, 2003.

Income Tax Expense was $1.3 million for first half 2004 and a $0.7 million income tax benefit for first half 2003. Income tax expense for first half 2004 was primarily related to the establishment of a valuation allowance of approximately $1.6 million relating to Holdings’ net deferred tax asset offset by current period federal, state and foreign net operating losses of $0.3 million. The utilization of the net deferred tax asset was dependent upon Holdings’ execution of certain tax planning strategies. During first quarter 2004, Holdings reviewed the likelihood of the execution of the tax planning strategies and determined that it is no longer more likely than not that those tax planning strategies will be executed. As such, Holdings fully reserved for the net deferred tax asset and have not recorded income tax benefits for current year losses. Holdings will continue to monitor its net deferred tax asset and may determine that some or all of the net deferred tax asset will be realizable. At that point, the valuation allowance will be adjusted to reflect the net realizable amount of the deferred tax asset.

At July 26, 2003, Holdings had available foreign, state and federal net operating loss carryforwards of approximately $1.2 million, $20.7 million and $5.6 million, respectively, which expire in various years through 2023.

Cumulative Effect of Change in Accounting Principle was $77.5 million, net of tax of $1.7 million, for first half 2003. On January 27, 2002, Holdings adopted SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. In connection with the adoption of SFAS No. 142, Holdings tested its goodwill for impairment, which required an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. Management, using an independent valuation firm, determined that all of Holdings’ goodwill was impaired at January 27, 2002. Holdings recorded the goodwill impairment charge as a cumulative effect of change in accounting for goodwill.

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Liquidity and Capital Resources

Contractual Obligations and Commercial Commitments

Sources and Uses of Cash

Holdings’ primary cash needs are working capital, capital expenditures and debt service. Holdings has financed cash requirements primarily through internally generated cash flow and funds borrowed under Holdings’ and Iron Age’s credit facilities.

Net cash used in operating activities was $2.1 million for first half 2004, a decrease of $3.2 million as compared to net cash provided by operating activities of $1.1 million for first half 2003. The decrease in cash provided by operating activities in first half 2004 from first half 2003 is primarily the result of the general decline in Holdings’ results of operations, increased interest expense and an increase in inventory. Inventory levels for first half 2004 reflect the timing of inventory received and the introduction of several new styles to meet planned customer demands.

Holdings’ investing activities for first half 2004 consisted of capital expenditures of approximately $1.0 million for improvements in retail stores, shoemobiles and equipment and approximately $0.1 million for the acquisition of software for internal use. Holdings’ investing activities for first half 2003 consisted of capital expenditures of approximately $1.5 million for improvements in retail stores, shoemobiles and equipment and approximately $0.2 million for the acquisition of software for internal use.

Holdings’ financing activities for first half 2004, primarily under the Bank Credit Facility, were net borrowings of $2.9 million. Financing activities for first half 2004 included the scheduled principal payments of approximately $0.5 million on Term Loan A and Term Loan B. Holdings’ financing activities for first half 2003, primarily under the previous bank credit facility, were net borrowings of

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$0.6 million. Financing activities for first half 2003 included the scheduled principal payments of approximately $3.1 million on a term loan under the previous bank credit facility.

Holdings’ total working capital as of July 26, 2003 was a deficit of $98.4 million. At January 25, 2003, working capital was a deficit of $92.4 million. The deficit was related to the reclassification of all of Holdings’ long-term debt and long-term debt payable to majority stockholder as current liabilities.

Holdings is a holding company, and its ability to pay interest on the Discount Notes is dependent upon receipt of dividends from its subsidiaries. Holdings does not have, and may not in the future have, any assets other than the common stock of Iron Age (which is pledged to secure the obligations of Iron Age under the Bank Credit Facility). Iron Age is party to the Bank Credit Facility and an indenture pursuant to which the Senior Subordinated Notes were offered, each of which imposes substantial restrictions on Iron Age’s ability to pay dividends to Holdings.

Cash flow from operations for first half 2004 was sufficient to cover debt service requirements under the Bank Credit Facility. Holdings’ ability to make scheduled payments of principal, or to pay the interest or premium (if any) on, or to refinance, its indebtedness (including the Discount Notes), or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations, management believes that cash flow from operations and available cash, together with available borrowings by Iron Age under the Bank Credit Facility, will not be adequate to meet Holdings’ anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness through fiscal 2004. Holdings has commenced discussions with the senior lenders under the Bank Credit Facility and the holders of its Senior Subordinated Notes and Discount Notes with respect to its debt restructuring plan. As of September 9, 2003, negotiations have not been completed. Holdings intends to finalize a restructuring plan prior to October 31, 2003, which would significantly reduce the amount of Holdings’ long-term indebtedness. As a result, there can be no assurance that Holdings’ business will generate sufficient cash flow from operations or that future borrowing will be available under the Bank Credit Facility in an amount sufficient to enable Holdings to service its indebtedness, including the Discount Notes, or to make capital expenditures.

Long-term debt

As of July 26, 2003, Holdings’ debt consists of its 12 1/8% Senior Discount Notes due 2009 (the “Discount Notes”), Iron Age’s 9 7/8% Senior Subordinated Notes due 2008 (the “Senior Subordinated Notes”), a $50.0 million Loan and Security Agreement (the “Bank Credit Facility”) and certain other debt.

On September 23, 2002, Holdings, Iron Age and Falcon, entered into the Bank Credit Facility with a financial institution and another lender. The Bank Credit Facility consists of a $38.0 revolving credit facility (the “Revolving Credit Facility”), including a $2.0 million letter of credit subfacility, and two term loans: Term Loan A of up to an aggregate of $1.0 million and Term Loan B of up to an aggregate of $3.0 million. In addition, the Bank Credit Facility includes a third term loan, Term Loan

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C, of up to an aggregate of $12.0 million. Availability under the Bank Credit Facility is governed by a borrowing base determined by advance rates against the inventory and accounts receivable of Iron Age and Falcon.

The Revolving Credit Facility and the Term Loan C are due in full on September 23, 2007. The outstanding balances of the Term Loan A and the Term Loan B are due in monthly installments through September 23, 2007. Term Loan A, Term Loan B and the Revolving Credit Facility bear interest at either the prime rate or LIBOR, at the option of Holdings, plus an applicable margin. As of July 26, 2003, outstanding borrowings on the Revolving Credit Facility at prime rate plus a margin of 4.50% and LIBOR plus a margin of 6.75% are approximately $1.8 million and $17.5 million, respectively. As of July 26, 2003, borrowings of approximately $0.8 million for Term Loan A are at prime rate plus a margin of 4.50%. As of July 26, 2003, borrowings on Term Loan B at prime rate plus a margin of 6.25% and LIBOR plus a margin of 8.50% are approximately $0.4 million and $2.0 million, respectively. The interest rate for Term Loan C is 16.25%, including 5.00% paid-in-kind. As of July 26, 2003, outstanding borrowings For Term Loan C, including paid-in-kind interest, approximate $12.2 million. Holdings pays a 0.375% commitment fee on the undrawn amounts of the Revolving Credit Facility. Holdings pays a 5.00% letter of credit fee on any outstanding Letters of Credit. All margins on outstanding borrowings and letters of credit reflect the default rate of interest of an additional 3.0%

At closing, Holdings drew the entire amount of Term Loan A, Term Loan B and Term Loan C and approximately $14.2 million on the Revolving Credit Facility, to refinance its previous bank credit facility of approximately $27.6 million, including accrued interest, and to pay certain financing fees and expenses. In connection with the refinancing of Holdings’ previous bank credit facility, Holdings wrote-off approximately $0.2 million, net of tax of approximately $0.1 million, of unamortized debt issuance costs remaining from its previous bank credit facility.

Holdings incurred approximately $2.2 million in capitalizable debt issuance costs in connection with the Bank Credit Facility which are being amortized over its term.

Holdings had borrowing availability of approximately $2.7 million under the Revolving Credit Facility as of July 26, 2003.

Holdings’ other debt of $1.3 million consists of capital leases.

The Senior Subordinated Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by each Domestic Restricted Subsidiary that is a Material Subsidiary (as such terms are defined in the indenture for the Senior Subordinated Notes (the “Senior Subordinated Notes Indenture”)) (whether currently existing, newly acquired or created). Each such subsidiary guaranty (a “Subsidiary Guaranty”) will provide that the subsidiary guarantor, as primary obligor and not merely as surety, will irrevocably and unconditionally guarantee on an unsecured, senior subordinated basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of Iron Age under the Senior Subordinated Notes Indenture and the Senior Subordinated Notes, whether for payment of principal or of interest on the Senior Subordinated Notes, expenses, indemnification or otherwise. As of January 25, 2003, Iron

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Age Investment Company, one of Iron Age’s Domestic Restricted Subsidiaries became a Material Subsidiary, and therefore was required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes. As of July 26, 2003, none of Iron Age’s other Domestic Restricted Subsidiaries became a Material Subsidiary and were not required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes.

Debt Covenants

Iron Age’s Bank Credit Facility, which is guaranteed by Holdings, requires Holdings to maintain certain financial ratios. The Bank Credit Facility also limits Holdings’ ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, and limiting transactions with affiliates. The Bank Credit Facility also limits Holdings’ ability to engage in mergers or acquisitions, sell certain assets, pay dividends or repurchase its stock. The Bank Credit Facility is secured by a first priority security interest in substantially all of Holdings’ assets. Holdings’ domestic and Canadian subsidiaries are required to guarantee its obligations under the Bank Credit Facility. If Holdings defaults on this debt, due to cross-default provisions in the indentures for the Discount Notes and Senior Subordinated Notes, this debt would also be in default.

Historically, Holdings has not met its debt covenants and has had to amend its credit agreements or receive waivers from its lending institutions. Holdings was not in compliance with the financial covenants under the Bank Credit Facility, including the Senior Debt Ratio and Fixed Charge Coverage Ratio (as defined in the Bank Credit Facility) for the first quarter ended April 26, 2003. In addition, based upon forecasted net income and cash flows, Holdings determined that it would not likely be able to make interest payments on the Senior Subordinated Notes and the Discount Notes that are due on November 1, 2003. As a result, during the first quarter Holdings requested that the senior lenders to the Bank Credit Facility (the “Lenders”) amend the financial covenants for the first quarter and every other quarter of the year ending January 31, 2004 to a level that considering Holding’s current operations and forecasts would make it probable that Holdings would be in compliance with its Bank Credit Facility. On May 12, 2003, Holdings and the Lenders entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that allowed Holdings to continue to operate under the existing requirements of the Bank Credit Facility through June 26, 2003. As required by the First Amendment, Holdings retained a financial consultant and a financial advisor to advise Holdings with respect to improving the financial condition of Holdings and to consider alternative financing strategies. On June 26, 2003, Holdings and the Lenders agreed to an additional waiver allowing Holdings to continue to operate under the Bank Credit Facility through October 31, 2003, subject to certain conditions. One condition is for Holdings to continue to maintain a minimum level of excess cash availability of $2.5 million, as agreed with the Lenders on May 29, 2003. As of September 5, 2003, Holdings had excess cash availability of $3.9 million. During the 120 day period through October 31, 2003, the Lenders have waived all other financial covenants. Further, by August 25, 2003, Holdings was required to submit binding agreements and commitments regarding a series of transactions to reduce indebtedness and improve the financial condition of Holdings, including the exchange of Senior Subordinated Notes and Discount Notes for new securities and replacing the Bank Credit Facility with new senior indebtedness. If Holdings did not submit these binding agreements and

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commitments, or if the Lenders did not reasonably approve the terms of the transactions described above, Holdings would have seven business days to provide the Lenders with a debt restructuring plan for their approval. Holdings did not submit such binding agreements and commitments to the Lenders on August 25, 2003. Holdings, however, timely submitted a preliminary debt restructuring plan to the Lenders for their review and approval. Further, Holdings has commenced discussions with the holders of its Senior Subordinated Notes and Discount Notes (the “Note Holders”) with respect to its debt restructuring plan. Through July 26, 2003, Holdings has incurred approximately $0.6 million in consulting, accounting and legal services associated with its debt restructuring plan. As of September 9, 2003, negotiations continue with the Lenders and the Note Holders. Holdings intends to finalize a debt restructuring plan prior to October 31, 2003, to significantly reduce the amount of Holdings’ long-term indebtedness. The tax implications of the debt restructuring will be dependent on several factors including the terms and consideration of the debt restructuring and the financial position of Holdings after the debt restructuring. If such debt restructuring plan is not approved by the Lenders, the waiver shall expire. Should Holdings not be able to fulfill the conditions of the waiver or not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the waiver or not be able to obtain an additional waiver, Holdings would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Senior Subordinated Notes and the Discount Notes, which would have a material adverse impact on Holdings’ reported financial position and results of its operations. As a result, all of Holdings’ long-term debt and debt payable to majority stockholder continue to be classified as current liabilities. Holdings’ ability to continue as a going concern is largely dependent on its ability to maintain its existing financing arrangements to operate the business.

Recently Issued Accounting Standards

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. Application to pre-existing instruments should be recognized as the cumulative effect of a change in accounting principle. Holdings evaluated the provisions of SFAS No. 150, and concluded that its Series B and Series C Redeemable Preferred Stock does not require reclassification as a liability as the redemption provisions of these instruments is contingent upon a Change of Control or Public Offering, as defined in the indenture governing the Senior Subordinated Notes.

Inflation and Changing Prices

Holdings’ sales and costs are subject to inflation and price fluctuations. However, they historically have not, and in the future are not expected to have, a material adverse effect on Holdings’ results of operations.

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Forward Looking Statements

When used in this quarterly report, the words “believes”, “anticipates”, “expects”, “intends”, and similar expressions are used to identify forward looking statements. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Holdings wishes to caution readers that the following important factors and others in some cases have affected and in the future could affect Holdings’ actual results and could cause Holdings’ actual results to differ materially from those expressed in any forward statements made by Holdings: (i) economic conditions in the safety shoe market, (ii) availability and terms of credit and debt arrangements, (iii) increase in interest rates, (iv) cost of raw materials, (v) inability to maintain state-of-the-art manufacturing facilities, (vi) heightened competition, including intensification of price and service competition, the entry of new competitors and the introduction of new products by existing competitors, (vii) inability to capitalize on opportunities presented by industry consolidation, (viii) loss or retirement of key executives, (ix) loss or disruption of Holdings’ relationships with its major suppliers, including Holdings’ largest supplier in China and (x) inability to grow by acquisition of additional safety shoe distributors or to effectively consolidate operations of businesses acquired.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Holdings is exposed to market risk primarily from changes in interest rates and foreign exchange rates.

The following discussion of Holdings’ exposure to various market risks contains “forward looking statements” that are subject to risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in the circumstances and in light of information currently available to Holdings. Nevertheless, because of the inherent unpredictability of interest rates and foreign currency translation rates, actual results could differ materially from those projected in such forward looking statements.

Interest Rates

At July 26, 2003, Holdings had fixed-rate debt totaling $113.7 million in principal amount and having a fair value of $47.8 million. These instruments bear interest at a fixed rate and, therefore, do not expose Holdings to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease (to the holder) by approximately $4.8 million if interest rates were to increase by 10% from their levels at July 26, 2003 (i.e., an increase from the weighted average interest rate of 11.3% to a weighted average interest rate of 12.4%).

At July 26, 2003, Holdings had variable-rate debt totaling $22.6 million in principal amount and having a fair value of $22.6 million. These borrowings are under the Bank Credit Facility. If interest rates were to increase by 10% from their levels at July 26, 2003, Holdings would incur additional annual interest expense of approximately $0.2 million.

Foreign Exchange Rates

Information relating to the sensitivity to foreign currency exchange rate changes is omitted as foreign exchange exposure risk has not materially changed from that disclosed in Holdings’ Annual Report on Form 10-K for the year ended January 25, 2003.

Item 4. Controls and Procedures

Within the 90 days prior to the date of filing this Quarterly Report on Form 10-Q, Holdings carried out an evaluation, under the supervision and with the participation of its disclosure committee and management, including the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer), of the effectiveness of the design and operation of Holdings’ disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer) concluded that Holdings’ disclosure controls and procedures are effective in timely alerting them to material information relating to Holdings (including its consolidated subsidiaries) required to be included in Holdings’ periodic SEC filings.

Subsequent to the date of that evaluation, there have been no significant changes in the Holdings’ internal controls or in other factors that could significantly affect internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibit Index.

(b)  Reports on Form 8-K.

     A report on Form 8-K was filed on June 27, 2003 to disclose a new waiver under the Company’s existing Loan and Security Agreement, as discussed elsewhere on this quarterly report on Form 10-Q.

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     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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