Wilsons needs more capital to avoid bankruptcy

By Caroline Salls

Pittsburgh, April 14 - Wilsons The Leather Experts Inc. will not be able to continue its operations outside of bankruptcy if it is not able to obtain additional capital in the second quarter, according to a 10-K filed with the Securities and Exchange Commission.

Wilsons said it stopped making payments under some of its licensing and lease agreements before the end of 2007 as part of its cost reduction initiatives.

The company said its senior credit facility was amended on Feb. 14 to allow for the liquidation of 158 stores, as well as to add a $10 million reserve to its borrowing base, to prohibit borrowing under its revolving line of credit until it provides projections and a business plan acceptable to the lender and to require a monthly appraisal of the company's inventory.

In order to execute its plans, Wilsons said it will need to amend some of the restrictions in its current credit facility or find alternative sources of credit, and it will need to raise additional capital during the second quarter of 2008.

The company said it is pursuing possible sources of funding, including asset sales.

However, Wilsons said there can be no assurance that additional funding will be available, and the company has not received an indication that its credit facility lender will agree to amend the terms of the facility.

As a result, if the company cannot secure additional capital in the second quarter, it will not be able to continue its operations outside of bankruptcy.

If it is forced into bankruptcy, the company said it may be required to redeem shares of its preferred stock at their liquidation value, which is the $45 million purchase price for those shares plus any unpaid dividends.

However, Wilsons said the redemption would not be allowed by law unless it is able to pay its debts as they come due, and the company would be prohibited by the terms of its existing credit facility.

Wilsons reported $77.5 million in net losses for 2007, and the company used $28.2 million in cash for operating activities during the year.

The company said its $45.6 million cash balance at the beginning of 2006 decreased to $7.4 million at the end of 2007.

Nasdaq listing in jeopardy

In addition, Wilsons said it has until Aug. 13 to regain compliance with its Nasdaq Stock Market listing after it received notice on Feb. 15 from Nasdaq that its stock had closed below the minimum $1.00 per share requirement for 30 consecutive business days.

If the bid price of the common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days before Aug. 13, the company will be in compliance with the listing requirement. If the company does not regain compliance, its securities will be delisted.

As of April 7, Wilsons said its closing bid price was $0.19.

Wilsons Leather is a Minneapolis specialty retailer of leather outerwear, accessories and apparel.

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