10-Q 1 mv8-18_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 28, 2003 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to --------------- ---------------- Commission file number: 0-24179 ------- KASPER A.S.L., LTD. ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-3497645 ------------------------ -------------------------------- (State of Incorporation) (IRS Employer Identification No) 77 METRO WAY, SECAUCUS, NEW JERSEY 07094 ----------------------------------------------------------------------- (Address and zip code of principal executive office) (201) 864-0328 ----------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes [ ] No [X] 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 Section 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of August 18, 2003 was 6,800,000. 1 KASPER A.S.L., LTD. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) INDEX

PART I - FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets at ~~September~~June 28, ~~2002~~2003, December 2928, ~~2001~~2002 and ~~September~~June 29, ~~2001~~2002.........................................~~.....................................~~ 13 Condensed Consolidated Statements of Operations for the Thirteen weeks and ~~Thirty~~Twenty-~~Nine~~six weeks ended ~~September~~June 28, ~~2002~~2003 and ~~September~~June 29, ~~2001~~2002............................................................... 24 Condensed Consolidated Statements of Cash Flows for the ~~Thirty~~Twenty-~~Nine~~six weeks ended ~~September~~June 28, ~~2002~~2003 and ~~September~~June 29, ~~2001~~2002 ....................~~......................................~~ 35 Notes to Condensed Consolidated Financial Statements ......................~~.........................~~ 46 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. ~~10 Item 3~~. ~~Controls and Procedures~~................................... 14 Item 4. Controls and Procedures.................................................... 2022 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...........................................~~.....................................~~ 2123 SIGNATURES CERTIFICATIONS EXHIBIT INDEX

2 KASPER A.S.L., LTD. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

-------------------- ------------------- -------------------- ASSETS ~~SEPTEMBER~~JUNE DECEMBER JUNE 28, ~~2002~~2003 ~~DECEMBER 29~~28, ~~2001~~2002 ~~SEPTEMBER~~ 29, ~~2001~~2002 -------------------- ------------------- -------------------- (UNAUDITED) (AUDITED) (UNAUDITED) (RESTATED) Current Assets: Cash and cash equivalents.................................... $ 413,~~237~~387 $ 624,~~405~~941 $ 239,~~304~~272 Restricted cash.............................................. --20 -- 150,~~000~~848 Accounts receivable, net of reserves of $3729,~~941~~324, $4134,~~838~~679 and $3833,~~785~~757, respectively...............................~~.....~~ 3332,~~155~~342 414,~~333~~479 455,~~466~~731 Inventories, net............................................. 3651,~~973~~640 7348,~~699~~302 6938,~~824~~353 Prepaid expenses and other current assets.................... 76,~~423~~029 ~~4,226~~ 5,~~781~~441 ~~Deferred taxes............................................... -- -- 5~~6,~~004~~413 -------------------- ------------------- -------------------- Total Current Assets........................................~~.......~~ 81103,~~788~~418 8893,~~663~~163 ~~129~~140,~~379~~617 -------------------- ------------------- -------------------- Property, plant and equipment, at cost less accumulated depreciation and amortization of $1924,~~548~~362, $1621,~~438~~538 and $1618,~~894~~507, respectively........................................ 19,~~731~~718 1519,~~637~~673 18,~~803~~579 Reorganization value in excess of identifiable assets, net of accumulated amortization..................................... 5019,~~245~~844 5019,~~245~~844 5119,~~059~~844 Trademarks, net of accumulated amortization........................ 103,162 103,162 103,~~979~~162 Other assets, at cost less accumulated amortization................ 12,~~039~~289 ~~983~~997 ~~5,541~~988 -------------------- ------------------- -------------------- Total Assets...................................................... $~~255~~248,~~965~~431 $~~258~~236,~~690~~839 $~~308~~283,~~761~~190 ==================== =================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Not Subject to Compromise: Accounts payable............................................. $1726,~~962~~768 $2428,~~899~~592 $2015,~~028~~079 Accrued expenses and other current liabilities............... 3114,~~736~~106 1813,~~219~~095 1613,~~843~~887 Interest payable............................................. ~~189~~72 ~~28,483~~182 ~~24,471~~561 Deferred ~~royalty~~ income taxes....................................... 513,~~000~~987 --9,118 --8,653 ~~Reclassified~~Deferred ~~long-term~~royalty ~~debt~~income..................................... ~~-- 110~~5,000 ~~110~~5,~~000~~098 ~~Bank~~2,969 ~~revolver~~DIP facility................................................ -- ~~59,048~~-- 7978,~~659~~002 -------------------- ------------------- -------------------- Total Current Liabilities.......................................... 5459,~~887~~933 ~~240~~56,~~649~~085 ~~251~~119,~~001~~151 Long-Term Liabilities Not Subject to Compromise: Deferred royalty income...................................... 118,~~733~~139 --10,000 --15,000 Other long-term liabilities.................................. --647 738 -- ~~4,156~~ -------------------- ------------------- -------------------- Total Liabilities Not Subject to Compromise........................ 6668,~~620~~719 ~~240~~66,~~649~~823 ~~255~~134,~~157~~151 Liabilities Subject to Compromise.................................. ~~149~~144,~~171~~462 --145,074 --149,491 -------------------- ------------------- -------------------- Total Liabilities.................................................. ~~215~~213,~~791~~181 ~~240~~211,~~649~~897 ~~255~~283,~~157~~642 Commitments and Contingencies Shareholders' Equity (Deficit): Common Stock, 6,800,000 shares issued and outstanding........ 68 68 68 Preferred Stock, none issued and outstanding................. -- -- -- Capital in excess of par value............................... 120,~~455~~774 120,~~139~~561 ~~119~~120,~~932~~350 Accumulated deficit.......................................... (7985,~~879~~550) (~~101~~95,~~490~~046) (65120,~~738~~240) Cumulative other comprehensive loss.......................... (~~470~~42) (~~676~~641) (~~658~~630) -------------------- ------------------- -------------------- Total Shareholders' Equity (Deficit)..............................~~...........~~ 4035,~~174~~250 1824,~~041~~942 ~~53,604~~(452) -------------------- ------------------- -------------------- Total Liabilities and Shareholders' Equity......................... $~~255~~248,~~965~~431 $~~258~~236,~~690~~839 $~~308~~283,~~761~~190 ==================== =================== ====================

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these balance sheets. 3 KASPER A.S.L., LTD. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited)

THIRTEEN WEEKS ENDED ~~THIRTY~~TWENTY-~~NINE~~SIX WEEKS ENDED ---------------------------------------~~-----~~ -----------------------------------------~~---~~ ~~SEPTEMBER~~JUNE 28, ~~2002~~JUNE ~~SEPTEMBER~~ 29, ~~2001~~JUNE ~~SEPTEMBER~~ 28, ~~2002~~JUNE ~~SEPTEMBER~~ 29, ~~2001~~2003 2002 2003 2002 -------------------- -------------------- -------------------- -------------------- (RESTATED) Net sales...................................... $ 9787,~~786~~448 $ ~~102~~67,~~928~~774 $ ~~279~~187,~~174~~945 $ ~~301~~181,~~124~~390 Royalty income................................. 43,~~533~~817 4,~~059~~042 128,~~260~~182 107,~~800~~727 -------------------- -------------------- -------------------- -------------------- Total revenue.................................. ~~102~~91,~~319~~265 ~~106~~71,~~987~~816 ~~291~~196,~~434~~127 ~~311~~189,~~924~~117 Cost of sales.................................. 5856,~~817~~540 9336,~~291~~695 ~~172~~119,~~354~~063 ~~237~~113,~~473~~537 -------------------- -------------------- -------------------- -------------------- Gross profit................................... 4334,~~502~~725 1335,~~696~~121 ~~119~~77,~~080~~064 7475,~~451~~580 Operating expenses (income): Selling, general and administrative expenses...~~...........................~~ 2326,~~475~~024 2823,~~056~~824 7150,~~261~~958 7947,~~993~~779 Depreciation and amortization.................. 1,~~120~~501 21,~~983~~028 32,~~178~~970 82,~~840~~057 ~~Special~~Restructuring ~~charges~~and (other credits)................ 11-- ~~585~~(2,476) -- (1,~~923~~934) ~~3,082~~ -------------------- -------------------- -------------------- -------------------- Total operating expenses....................... 2427,~~606~~525 3122,~~624~~376 7253,~~516~~928 9147,~~915~~902 -------------------- -------------------- -------------------- -------------------- Operating income ~~(loss)~~............................... 187,~~896~~200 ~~(17~~12,~~928)~~745 4623,~~564~~136 ~~(17~~27,~~464)~~678 Interest and financing costs (excludes $5,157 and $4,630 of stayed interest in second quarter 2003 and 2002, respectively and $10,050 and $7,298 in first half 2003 and 2002, respectively).....~~......~~ 727 1,~~043~~570 71,~~135~~710 65,~~164~~122 ~~21,473~~ -------------------- -------------------- -------------------- -------------------- Income ~~(loss)~~ before reorganization costs, income taxes and ~~provision~~cumulative ~~for~~effect ~~income~~of ~~taxes~~change in accounting principle..................... 176,~~853~~473 ~~(25~~11,~~063)~~175 4021,~~400~~426 ~~(38~~22,~~937)~~556 Reorganization costs........................... ~~667~~3,906 --841 35,~~134~~053 --2,469 -------------------- -------------------- -------------------- -------------------- Income ~~(loss)~~ before ~~provision~~income ~~for~~taxes ~~income~~and cumulative effect of change in accounting principle.... 2,567 10,334 16,373 20,087 Income taxes................................... 171,~~186~~077 ~~(25~~4,~~063)~~340 376,~~266~~877 ~~(38~~8,~~937)~~437 ~~Provision~~------------------ ~~for~~------------------- ~~income~~-------------------- ~~taxes~~------------------- Income before cumulative effect of change in accounting principle..................... 71,~~215~~490 ~~259~~5,994 159,~~655~~496 ~~981~~11,650 Cumulative effect of change in accounting principle................................... -- -- -- 30,400 -------------- ---- ------------------- -------------------- -------------------- Net income (loss).............................. $ 91,~~971~~490 $ ~~(25~~5,~~322)~~994 $ 219,~~611~~496 $ (3918,~~918~~750) ==================== ==================== ==================== ==================== Basic and diluted earnings (loss) per common share................................ $ 10.4722 $(30.~~72)~~88 $3 1.1840 $(52.8776) ==================== ==================== ==================== ==================== Weighted average number of shares used in computing basic and diluted earnings (loss) per common share..................... 6,800,000 6,800,000 6,800,000 6,800,000

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 4 KASPER A.S.L., LTD. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

~~THIRTY~~TWENTY-~~NINE~~SIX WEEKS ENDED ------------------------------------------------ ~~SEPTEMBER~~JUNE 28, ~~2002~~2003 ~~SEPTEMBER~~JUNE 29, ~~2001~~2002 ---------------------- ---------------------- (RESTATED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................................................ $ 219,~~611~~496 $ (3918,~~918~~750) ---------------------- ---------------------- Adjustments to reconcile net income (loss) to net cash ~~provided by~~ (used in) provided by operating activities: Cumulative effect of change in accounting principle....................... -- 30,400 Depreciation and amortization............................................. 32,~~121~~970 72,~~276~~057 ~~Amortization~~Interest ofrate ~~reorganization~~swap........................................................ ~~value~~-- in521 ~~excess~~Deferred ofincome ~~identifiable assets~~taxes..................................................... 4,869 8,116 Deferred royalty income................................................... --(1,959) (2,~~444~~031) ~~Income~~Deferred ~~applicable to minority interest~~other............................................................ (91) -- ~~320~~ Non-cash restructuring and other costs....................................~~..........~~ 149 (1,~~308~~074) -- (Increase) decrease in: Accounts receivable, net.................................................. (2817,~~822~~863) (191,~~991~~398) Inventories, net.......................................................... 36(3,~~726~~338) 4035,~~748~~346 Prepaid expenses and other assets......................................... (31,~~197~~408) (2,~~059~~187) ~~Income~~(Decrease) ~~taxes~~increase ~~receivable~~in: Accounts payable, accrued expenses and other current liabilities.......... 4,696 (1,611) Interest payable......................................... ~~-- 387 Increase (decrease) in: Accounts payable, accrued expenses and other current liabilities~~................. ~~16,654~~(110) (1027,~~677~~937) ~~Interest~~Deferred ~~payable~~royalty income................................................... -- 20,000 ---------------------- ---------------------- Total adjustments....... ~~794 12,749 Deferred royalty income~~..................................................... 16(12,~~733~~085) 60,202 ---------------------- ~~Other~~---------------------- ~~long~~Net ~~term~~cash ~~liabilities~~(used in) provided by operating activities before reorganization items..................................................................... -- (~~311~~2,589) 41,452 ---------------------- ---------------------- ~~Total~~OPERATING ~~adjustments~~CASH FLOWS FROM REORGANIZATION ITEMS: Payment of liabilities subject to compromise.............................. (612) -- Payment of reorganization items........................................... 40(5,~~701~~509) 30(2,~~886~~130) Interest expense not paid................................................. -- 29,096 ---------------------- ---------------------- Net cash ~~provided by~~ (used in) provided by operating activities.......................... ~~62,312~~ (98,~~032~~710) 68,418 ---------------------- ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures net of proceeds from sales of fixed assets........... (52,~~744~~951) (~~992~~3,610) ~~Interest rate swap ....................................................... 516 159~~ ---------------------- ---------------------- Net cash (used in) investing activities..................................... (52,~~228~~951) (~~833~~3,610) ---------------------- ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net ~~(repayments)~~ borrowings under bank revolver........................................ ~~(59,048)~~-- 918,~~401~~954 ---------------------- ---------------------- Net cash ~~(used in)~~ provided by financing activities................................. ~~(59,048)~~-- 918,~~401~~954 Effect of exchange rate changes on restricted and unrestricted cash and cash equivalents...............................................................~~...~~ ~~(204)~~127 (7947) ---------------------- ---------------------- Net (decrease) increase in restricted and unrestricted cash and cash equivalents.............................................................. (211,~~168~~534) ~~(543)~~83,715 Restricted and unrestricted cash and cash equivalents, at beginning of period................................................................... 24,941 6,405 ~~3,847~~ ---------------------- ---------------------- Restricted and unrestricted cash and cash equivalents, at end of period......~~..........................................~~ $ 413,~~237~~407 $ 390,~~304~~120 ====================== ======================

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 5 KASPER A.S.L., LTD. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL The accompanying unaudited condensed consolidated financial statements of Kasper A.S.L., Ltd. and its wholly-owned subsidiaries (the "Company") have been prepared in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all normal and recurring adjustments and accruals considered necessary for a fair presentation of the Company's financial position at June 28, 2003 and the results of operations for the thirteen and twenty-six weeks ended June 28, 2003 (the "second quarter 2003" and "first half 2003", respectively) and June 29, 2002 (the "second quarter 2002" and "first half 2002", respectively) and cash flows for the twenty-six weeks ended June 28, 2003 and June 29, 2002 have been included. These statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Operating results for the second quarter 2003 and first half 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 27, 2003. Certain amounts reflected in 2002 have been reclassified to conform to the presentation of similar items in 2003. The consolidated financial statements include the accounts of Kasper A.S.L., Ltd. and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. NOTE 2. REORGANIZATION CASE On February 5, 2002 (the "Filing Date"), the Company and substantially all of its domestic subsidiaries (collectively, the "Debtors"), filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (Case Nos. 02-B10497, 02-B10500, and 02-B10502 through 10505 (ALG)) (the "Chapter 11 Cases"). Pursuant to an order of the Bankruptcy Court, the Chapter 11 Cases were consolidated for procedural purposes only and are being jointly administered by the Bankruptcy Court. The Company's international subsidiaries were not included in the filings. The Company expects to continue to operate in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy Court. The accompanying condensed consolidated financial statements are presented in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), and have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the ordinary course of business. The Company is currently operating under the jurisdiction of Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and continuation of the Company as a going concern is contingent upon, among other things, its ability to formulate a plan of reorganization which will gain approval of the requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy Court, its ability to comply with the Citicorp DIP Credit Agreement (as defined below), its ability to generate sufficient cash flows from operations, securing post-emergence financing and the success of future operations. These conditions create substantial doubt regarding the ability of the Company to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties. 6 While under the protection of Chapter 11, the Company may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the financial statements. Additionally, the amounts reported on the condensed consolidated balance sheet could materially change because of changes in business strategies and the effects of a plan of reorganization. In the Chapter 11 Cases, substantially all unsecured liabilities as of the Filing Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 Cases, have been segregated and classified as liabilities subject to compromise in the accompanying condensed consolidated balance sheets. Generally, all actions to enforce or otherwise effect repayment of pre-Chapter 11 liabilities as well as all pending litigation against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. The ultimate amount of and settlement terms for such liabilities are subject to approval of a plan of reorganization and accordingly are not presently determinable. The principal categories of obligations classified as liabilities subject to compromise under the Chapter 11 Cases as of June 28, 2003 are identified below: JUNE 28, 2003 ------------- (in thousands) 13.0% Senior Notes due 2004 $110,000 Interest accrued on above Senior Notes 29,096 Accounts payable 3,637 Other accrued expenses 1,729 -------- Total liabilities subject to compromise $144,462 ======== For the first half 2003 and first half 2002, the Company recognized $5.1 million and $2.5 million in reorganization costs, respectively. These amounts relate primarily to professional fees, bank fees and, in 2003, lease cancellation costs. Interest expense, including default interest, under the Senior Notes would have amounted to $10.1 million and $9.0 million for the first half 2003 and first half 2002, respectively, had it not have been for the Chapter 11 Cases. As of June 28, 2003, the cumulative stayed interest not recognized by the Company since the Filing Date totaled $26.9 million. At the commencement of the Chapter 11 Cases, the Company filed a preliminary plan of reorganization. The United States Trustee thereafter appointed the Official Committee of Unsecured Creditors (the "Creditors' Committee"), and based on negotiations with the Creditors' Committee, the Company filed a First Amended and Restated Joint Plan of Reorganization (the "Plan") and First Amended and Restated Disclosure Statement (the "Disclosure Statement") on November 6, 2002. A hearing to consider the Plan was scheduled for December 5, 2002 (the "Scheduled Hearing"). On December 4, 2002, the Company received a proposal to acquire the Company for $88 million in cash (the "Management Proposal") from a management group led by John D. Idol, the Company's Chief Executive Officer (the "Management Group"), and Parthenon Capital, LLC ("Parthenon"). The Scheduled Hearing was postponed to allow the Company to consider the Management Proposal. Under the Management Proposal, no payment would be made to the Company's existing stockholders. The Management Proposal was modified on December 10, 2002 to increase the amount of the cash payment to $100 million. On September 20, 2002, the Board of Directors of the Company formed a special committee of independent directors (the "Special Committee") in connection with the Company's exploration of strategic alternatives, including a possible sale of the Company. The Special Committee was formed in anticipation of potential offers to purchase the Company, and to avoid potential conflicts of interest in the event such an offer was made by the Company's management. On December 23, 2002, the Special Committee, consisting of Salvatore Salibello and Denis Taura, with the support of the Creditor's Committee, engaged Peter J. Solomon Company ("Solomon") to advise the Special Committee in connection with exploring strategic alternatives. Solomon, on behalf of the Special Committee, solicited proposals from potential purchasers of the Company, including the Management Group and Parthenon. 7 On June 12, 3003, the Company entered into an agreement to be acquired by Kellwood Company ("Kellwood") for $111.0 million in cash, $40.0 million in Kellwood common stock and the assumption of deferred liabilities, primarily pre-paid royalties, subject to adjustments as set forth in the purchase agreement (the "Kellwood Agreement"). The Kellwood Agreement was subject to higher or better offers and an auction to be conducted pursuant to Court-approved bidding procedures. On August 5, 2003, the Company received a bid to be acquired by Jones Apparel Group, Inc. ("Jones") for $156.0 million in cash and the assumption of deferred liabilities, primarily pre-paid royalties, subject to adjustments as set forth in the purchase agreement (the "Jones Bid"). The Jones Bid was subject to higher or better offers and an auction to be conducted pursuant to Court-approved bidding procedures. On August 7, 2003, the auction was conducted pursuant to Court-approved bidding procedures. As a result of the auction, Jones was determined to have submitted the highest offer, and the Company entered into an agreement to be acquired by Jones for $204.0 million in cash and the assumption of deferred liabilities, primarily pre-paid royalties, projected to be approximately $12.6 million at closing, for an aggregate value of $216.6 million, subject to adjustments (the "Jones Purchase Agreement"). The Jones Purchase Agreement was confirmed at a hearing in the Bankruptcy Court on August 14, 2003 and will be implemented through an amended plan of reorganization that will require, among other things, the approval of the requisite majority of the Company's creditors and confirmation by the Bankruptcy Court. A restructuring of the Company's debt, under the Plan, may result in the cancellation of indebtedness ("COD"), which if it occurs in the course of a proceeding pursuant to Chapter 11 of the United States Bankruptcy Code, would be excluded from the Company's gross income in the year of the forgiveness. However, the Company will be required to reduce its basis in its tax attributes, which include net operating loss carry-forwards and general business and other credits and tax basis in its assets by an amount equal to the COD. The reduction of these tax attributes results in the Company not being able to shelter future taxable income in the amount equal to the COD. NOTE 3. INVENTORIES, NET Inventories, net of reserves, are valued at lower of cost (first-in, first-out) or market and consist of the following:

~~SEPTEMBER~~JUNE 28, ~~2002~~2003 DECEMBER 2928, ~~2001~~2002 ~~SEPTEMBER~~JUNE 29, ~~2001~~2002 -------------~~-----~~ ----------------- -------------~~-----~~ (in thousands) Raw materials $5 4,~~365~~240 $10 6,~~090~~482 $19 8,~~360~~651 Finished goods 3147,~~608~~400 6341,~~609~~820 5029,~~464~~702 ------- -------- ------- Total inventories $3651,~~973~~640 $7348,~~699~~302 $6938,~~824~~353 ======= ======== =======

NOTE 4. REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment upon adoption with completion of testing within one year of adoption and at least annually thereafter. The Company, as required, adopted SFAS No. 142 beginning December 30, 2001. SFAS No. 142 requires that the Company's Reorganization Value in Excess of Identifiable Assets (the "Reorganization Asset") and other indefinitely lived intangible assets (collectively, the "Intangibles") be tested for impairment using the two-step process. The first step is to determine the fair value of the reporting unit, which may be calculated using a discounted cash flow methodology, and compare this value to its carrying value. If the fair value exceeds the carrying value, no further work is required and no impairment loss would be recognized. The second step is an allocation of the fair value of the reporting unit to all 8 of the reporting unit's assets and liabilities under a hypothetical purchase price allocation. As of the date the Company adopted SFAS No. 142, the Company was experiencing substantial operating losses; highly leveraged; unable to make its semi-annual interest payments on its Senior Notes; undergoing a corporate restructuring of which success was uncertain; had diminimus market capitalization and; on the verge of filing bankruptcy. These circumstances led to a significant diminution of the Company's fair vale and the failure of step one of SFAS No. 142. The Company utilized the discounted cash flow methodology to estimate fair value. The evaluation of reporting units on a fair value basis, as required from the implementation of SFAS No. 142, indicated that the implied Reorganization Asset of the Kasper Wholesale segment was $30.4 million less than its carrying value. Based on the evaluation, along with continuing difficulties being experienced in the industry, the Company recorded a non-cash charge of $30.4 million to reduce the carrying value of the Reorganization Asset to the estimated fair value as of December 28, 2002, in the first quarter 2002. This non-cash charge is reported as a cumulative effect of an accounting change in the accompanying statement of operations for the first half 2002. The first half 2002 was restated, as required by SFAS No, 142, to reflect the impairment charge that was determined prior to the issuance of the Company's financial statements for the fiscal year ended December 28, 2002. NOTE 5. DEBT CREDIT FACILITY - On July 9, 1999, the Company entered into a credit facility with a bank group led by Chase (the "Chase Facility") in order to, among other things, fund the Company's working capital requirements and to finance the Company's purchase of the Anne Klein trademarks (the "Trademark Purchase"). On the Filing Date, the Company obtained a $35 million DIP Revolving Credit Agreement from its then existing bank group (the "Chase DIP"). The Chase DIP also provided for a term loan for the purpose of refinancing the pre-petition obligations outstanding under the Chase Facility. On July 12, 2002, the Chase DIP was amended to convert the term loan to a revolving credit agreement. The Chase DIP provided, among other things, for the maintenance of certain financial ratios and covenants, and set limits on capital expenditures and dividends to shareholders. The Chase DIP was scheduled to expire on February 5, 2003. Availability under the Chase DIP was limited to a borrowing base calculated upon eligible accounts receivable, inventory, trademarks and letters of credit. Interest on outstanding borrowings was determined based on stated margins above the prime rate at Chase. In connection with the Chase DIP, the Company paid $875,000 in facility, advisory and structuring fees, along with an annual administrative agency fee of $100,000 and an annual collateral monitoring fee of $100,000. These fees were expensed as incurred and included as part of reorganization costs. In connection with the July 12, 2002 amendment, the Company paid $100,000 in bank fees, which were capitalized and amortized over the remaining life of the Chase DIP, totaling $85,000 in 2002. On January 30, 2003, the Company obtained a $100 million debtor-in-possession financing facility (the "Citicorp DIP Credit Agreement") from its new bank group led by Citicorp USA, Inc. ("Citicorp"). The Citicorp DIP Credit Agreement replaced the Chase DIP and permits up to $60.0 million available for issuance of letters of credit, of which $15.0 million will be available for stand-by letters of credit and up to $10.0 million for discretionary swing loans. The Citicorp DIP Credit Agreement provides, among other things, for the maintenance of certain financial ratios and covenants, and set limits on capital expenditures and dividends to shareholders. The Citicorp DIP Credit Agreement, has a term ending on the earliest to occur of (i) the six month anniversary of the closing date, (ii) the effective date of the Plan, or (iii) the occurrence of an Event of Default. Availability under the Citicorp DIP Credit Agreement is limited to a borrowing base calculated upon eligible accounts receivable, eligible inventory, eligible documentary letters of credit and trademarks, in each case, less appropriate reserves. Interest on outstanding borrowings is determined based on stated margins above the Base Rate Loans and Eurodollar Rate Loans maintained by Citicorp on the terms and subject to the conditions of the agreement. 9 The Company paid approximately $1.6 million in commitment and related fees in connection with the Citicorp DIP Credit Agreement in January 2003. On March 14, 2003 the Company obtained an amendment to the Citicorp DIP Credit Agreement, which allowed the DIP portion of the credit agreement to be extended to December 31, 2003, as well as amended certain financial covenants. There were no incremental bank fees associated with this amendment. As of June 28, 2003, there were no direct borrowings and $31.5 million outstanding in letters of credit under the Citicorp DIP Credit Agreement. In addition to $13.4 million of unrestricted cash and cash equivalents on hand, the Company had approximately $39.8 million available for future borrowings as of June 28, 2003. NOTE 6. INCOME (LOSS) PER SHARE The computation of basic and diluted income (loss) per common share is based upon the weighted average number of common shares outstanding during the period. The gains and losses resulting from changes in exchange rates from year to year have been reported in other comprehensive income. NOTE 7. CHANGE IN ESTIMATE During the second quarter 2002, the Company determined that, due to improved sell-through in its wholesale segment, certain allowance reserves amounting to $9.7 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve which benefited gross margin for the second quarter and first half 2002. The Company also determined that, due to weak sell-through in its dress and certain sportswear businesses, certain additional allowance reserves amounting to $10.0 million were required in its wholesale segment as of June 29, 2002 and recorded such reserves to the detriment of gross margin for the second quarter and first half 2002. During the second quarter of 2002, the Company determined that, due primarily to improved margins of its wholesale off-price sales, certain inventory reserves amounting to $2.0 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve, which benefited gross margin for the second quarter and first half 2002. During the first half 2002, the Company utilized in its production process certain raw materials that were aged as of December 29, 2001 that, as part of the Company's normal valuation process, had been reserved. As a result of the utilization of the previously reserved raw materials, the Company recognized this change in estimate as a benefit to gross margin of $1.3 million in the second quarter of 2002 and $1.7 million in the first half 2002. NOTE 8. COMMITMENTS AND CONTINGENCIES The Company is currently undergoing an examination by the Internal Revenue Service ("IRS") for the 1997, 1998, 1999, and 2000 tax years. During the fiscal year ended December 28, 2002, the IRS issued a proposed adjustment, which would have resulted in additional federal and state income taxes, including interest, for the years under exam (the "IRS Claim"). In addition, the proposed adjustment would have reduced the Company's net operating loss carryforwards, by approximately $34.1 million resulting from the disallowance of certain deductions and require the Company to write-down certain tax assets. On November 22, 2002, the Debtors filed an Objection to the IRS Claim pursuant to section 505(a)(8) of the Bankruptcy Code, by which they requested the Court to disallow the IRS Claim in its entirety based on a determination of federal income tax liability pursuant to section 505(a)(1) of the Bankruptcy Code. During the second quarter 2003, the Company had continuing dialog with the IRS. Any resolution of the IRS Claim may result in a reduction in the disallowance of certain deductions and would be documented in a stipulation with the IRS that would resolve the IRS Claim and be subject to consideration by and receipt of no adverse criticism of the Joint Committee of the Congress of the United States. At such time that the resolution with the IRS is documented in a stipulation, net operating losses that were previously unavailable due to uncertainties resulting from the proposed IRS audit adjustments, will be utilized resulting in a lower effective tax rate. 10 NOTE 9. SEGMENT INFORMATION The Company's primary segment is the design, distribution and wholesale sale of women's career suits, dresses and sportswear principally to major department stores and specialty shops. In addition, as of June 28, 2003, the Company operated 63 Kasper retail stores, 11 Anne Klein retail stores and one Anne Klein New York full price store, as another distribution channel for its products. The Company's licensing operations are also considered a segment for reporting purposes. During the second quarter 2003, the Company began the design and production of its new handbag line, which has been included in the Company's wholesale segment. For the purposes of decision-making and assessing performance, management includes its international operations in its wholesale segment, as they are deemed immaterial for segment reporting. The Company measures segment profit as earnings before interest, taxes, depreciation, amortization and restructuring ("EBITDAR"). All intercompany revenues and expenses are eliminated in computing revenues and EBITDAR. Information on segments and a reconciliation to the consolidated financial statements is as follows:

THIRTEEN WEEKS ENDED ~~SEPT.~~JUNE 28, ~~2002~~2003: WHOLESALE RETAIL LICENSING CONSOLIDATED ------------------ ----------------- ----------------- ----------------- (in thousands) Revenues $ 8371,~~941~~288 $ 1316,~~845~~160 $ 43,~~533~~817 $ ~~102~~91,~~319~~265 ------------------ ------------------ ----------------- ----------------- EBITDAR 133,~~831~~719 21,~~366~~922 3,~~830~~060 208,~~027~~701 Depreciation and amortization 1,~~120~~501 ~~Special charge 11~~ ----------------- Operating income $ 187,~~896~~200 ================= THIRTEEN WEEKS ENDED ~~SEPT.~~JUNE 29, ~~2001~~2002: WHOLESALE RETAIL LICENSING CONSOLIDATED ------------------ ----------------- ----------------- ----------------- (in thousands) Revenues $ 8552,~~141~~714 $ 1715,~~787~~060 $ 4,~~059~~042 $ ~~106~~71,~~987~~816 ------------------ ------------------ ----------------- ----------------- EBITDAR ~~(17~~6,~~931)~~155 ~~(336)~~2,032 3,~~907~~110 ~~(14~~11,~~360)~~297 Depreciation and amortization 21,~~983~~028 ~~Special~~Restructuring ~~charge~~and ~~585~~other credits (2,476) ----------------- Operating ~~loss~~income $ ~~(17~~12,~~928)~~745 ================= ~~THIRTY~~TWENTY-~~NINE~~SIX WEEKS ENDED ~~SEPT.~~JUNE 2830, ~~2002~~2003: WHOLESALE RETAIL LICENSING CONSOLIDATED ------------------ ----------------- ----------------- ----------------- (in thousands) Revenues $ ~~235~~159,~~458~~133 $ 4328,~~716~~812 $ 128,~~260~~182 $ ~~291~~196,~~434~~127 ------------------ ------------------ ----------------- ----------------- EBITDAR 3316,~~001~~662 42,~~988~~741 96,~~830~~703 4726,~~819~~106 Depreciation and amortization 32,~~178~~970 ~~Special credit (1,923)~~ ----------------- Operating income $ 4623,~~564~~136 ================= ~~THIRTY~~TWENTY-~~NINE~~SIX WEEKS ENDED ~~SEPT.~~JUNE 29, ~~2001~~2002: WHOLESALE RETAIL LICENSING CONSOLIDATED ------------------ ----------------- ----------------- ----------------- (in thousands) Revenues $ ~~248~~151,~~163~~518 $ 5229,~~961~~872 $ 107,~~800~~727 $ ~~311~~189,~~924~~117 ------------------ ------------------ ----------------- ----------------- EBITDAR ~~(14~~19,~~963)~~179 ~~(728)~~2,622 106,~~149~~000 (527,~~542)~~801 Depreciation and amortization 82,~~840~~057 ~~Special~~Restructuring ~~charge~~and 3other credits (1,~~082~~934) ----------------- Operating ~~loss~~income $ ~~(17~~27,~~464)~~678 =================

11 NOTE 10. RESTRUCTURING AND OTHER CHARGES (CREDITS) The Company continues to carry out its restructuring plans established in the fourth quarter of 2000 with certain modifications. During the fourth quarter of 2001, the Company recorded a charge of $4.9 million for lease cancellation costs and asset write downs in connection with the decision to exit certain retail store leases and certain office space in fiscal 2002. During the second quarter of 2002 the Company reevaluated its decision to exit certain office space and as a result, recognized a restructuring credit of $2.5 million. The Company incurred additional restructuring charges of $592,000 in the first half of 2002 relating to professional fees.

Estimated occupancy costs, severance and Professional Fees asset write-downs Total -------------------- -------------------------- ----------------------- (in thousands) Balance at December 3029, ~~2000~~2001 $ 101 $ 3,102 $ 3,203 --------- $ --------- $ --------- ~~2001~~2002 ~~special~~restructuring ~~charge~~and ~~4,297~~other ~~4,904~~charges ~~9,201~~(credits) ~~2001~~603 ~~payments/write-downs~~ (43,~~196~~098) (12,~~802~~495) 2002 (~~5,998~~payments) reversals (704) 956 252 ----------- ----------- ---------- Balance at December 2928, ~~2001~~2002 $ ~~101~~--- $ ~~3,102~~960 $ ~~3,203~~960 ----------- ----------- ---------- ~~2002~~2003 ~~special~~restructuring ~~charge~~charges ~~(credit)~~--- ~~603~~--- ~~(2,526)~~--- ~~(1,923)~~2003 ~~2002~~payments --- (~~payments~~360) ~~reversals~~ (~~704~~360) ~~994 290~~ ----------- ----------- ---------- Balance at ~~September~~June 28, ~~2002~~2003 $ --- $ ~~1,570~~600 $ ~~1,570~~600 =========== =========== ==========

NOTE 11. SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION The following presents the condensed financial statements of the Company and its subsidiaries, as of June 28, 2003 and December 28, 2002 and for the first half and second quarter 2003 and 2002, that filed voluntary petitions under Chapter 11:

~~REVENUES~~CONDENSED BYBALANCE ~~SEGMENT~~SHEETS ~~(000'S~~June ~~EXCEPT~~28, ~~PERCENTAGES)~~2003 ~~THIRD~~December ~~QUARTER~~28, ~~YEAR~~2002 ~~TO DATE~~ ------------------------------------------------------ --------------- ------------------- --------------------- %(Unaudited) %ASSETS %(in %thousands) ~~2002~~Current OFAssets: ~~TOTAL~~Restricted ~~2001~~and OFunrestricted ~~TOTAL~~cash ~~2002~~$ OF10,840 ~~TOTAL~~$22,896 ~~2001~~Accounts OFreceivable, ~~TOTAL~~net 28,757 12,709 Inventories, net 49,970 46,726 Prepaid expenses and other current assets 5,258 4,701 ------------------- ------------------- Total Current Assets 94,825 87,032 ------------------- ------------------- ~~Wholesale $83~~Property,~~941~~ ~~82.0%~~plant $and 85equipment,~~141~~ ~~79.6%~~net ~~$235~~18,~~458~~106 ~~80.8% $248~~18,~~163~~064 ~~79.5%~~Intangibles ~~Retail~~and 13other assets,~~845~~ ~~13.5%~~net 17124,~~787~~312 ~~16.6% 43~~123,~~716~~020 ~~15.0%~~Investment 52in subsidiaries 47,~~961~~796 ~~17.0%~~47,796 ------------------- ------------------- Total Assets $285,039 $ 275,912 =================== =================== LIABILITIES AND EQUITY Current Liabilities: Accounts payable, accrued expenses and other current liabilities $ 61,793 $58,228 Payable to wholly-owned entities not in bankruptcy 69,782 67,861 ------------------- ------------------- ~~Net~~Total ~~Sales~~Current 97Liabilities 131,~~786~~575 ~~95.5% 102~~126,~~928~~089 ~~96.2%~~------------------- ~~279,174~~------------------- ~~95.8%~~Long-term ~~301,124~~liabilities ~~96.5%~~not ~~Licensing~~subject ~~4,533~~to ~~4.5%~~compromise 48,~~059~~139 ~~3.8% 12~~10,~~260~~000 ~~4.2%~~Liabilities 10subject to compromise 144,~~800~~462 ~~3.5%~~145,074 ------------------- ------------------- Total Liabilities 284,176 281,163 Shareholders' Equity 863 (5,251) ------------------- ------------------- Total ~~Revenue~~Liabilities ~~$102,319~~and ~~100.0%~~Equity $ ~~106~~285,~~987~~039 ~~100.0%~~ $~~291,434~~ ~~100.0% $311~~275,~~924~~912 ~~100.0%~~ ============== =====~~==========~~ =============== ====~~==========~~ ~~EBITDAR~~12 BYCONDENSED ~~SEGMENT~~STATEMENTS ~~(000'S~~OF ~~EXCEPT~~OPERATIONS ~~PERCENTAGES)~~First ~~THIRD~~Half ~~QUARTER~~2003 ~~YEAR~~First TOHalf ~~DATE~~2002 --------------------------------------------------------------------- ------------------- ------------------- (Unaudited) (in thousands) Total revenue $ 191,573 $ 185,730 Cost of sales 122,700 114,081 ------------------- %------------------- %Gross %profit %68,873 ~~2002~~71,649 OFSelling, ~~TOTAL~~general ~~2001~~and OFadministrative ~~TOTAL~~expenses ~~2002~~47,582 OF45,556 ~~TOTAL~~Depreciation ~~2001~~and OFamortization ~~TOTAL~~2,640 1,776 Restructuring and other credits --- (1,934) ------------------- ------------------- Total operating expenses 50,222 45,398 ------------------- ------------------- ~~Wholesale~~Operating ~~$13~~income 18,~~831~~651 ~~69.~~26,251 Interest and financing costs 1%,674 $5,118 ~~(17~~Reorganization costs 5,~~931)~~053 2,469 Income taxes 6,024 8,160 Cumulative effect of accounting change --- 30,400 ------------------- ------------------- Net income (~~124.9%~~loss) $335,~~001~~900 ~~69.0%~~ $ (1419,~~963~~896) ~~(270.0%)~~=================== ~~Retail~~=================== ~~2,366~~CONDENSED ~~11.8%~~STATEMENTS OF OPERATIONS Second Quarter 2003 Second Quarter 2002 --------------------------------------------------------------------- ------------------- ------------------- (~~336~~Unaudited) (~~2.3%~~in thousands) 4Total revenue $ 89,~~988~~499 ~~10.4%~~$ ~~(728)~~71,025 ~~(13.1%)~~Cost ~~Licensing~~of 3sales 58,~~830~~335 ~~19.1%~~37,466 3-------------------- ------------------- Gross profit 31,~~907~~164 ~~27.2%~~33,559 9Selling,~~830~~ ~~20.6%~~general 10and administrative expenses 24,~~149~~443 ~~183.~~22,804 Depreciation and amortization 1%,341 890 Restructuring and other credits --- (2,476) -------------------- ------------------- Total operating expenses 25,784 21,218 -------------------- ------------------- ~~Total~~Operating ~~$20~~income 5,~~027~~380 ~~100.0%~~12,341 $Interest ~~(14~~and financing costs 724 1,~~360)~~567 ~~100.0%~~Reorganization ~~$47~~costs 3,~~819~~906 ~~100.0%~~842 Income taxes 733 4,257 -------------------- ------------------- Net income $17 ($5,~~542)~~675 ~~100.0%~~ ============== ====== ========= ========== CONDENSED STATEMENT OF CASH FLOWS First Half 2003 ------------------------------------------------------------------- ------------------- (Unaudited) (in thousands) Cash Flows used in Operating Activities $(9,326) Cash Flows used in Investing Activities (2,750) Cash Flows used in Financing Activities --- ------------------- Net decrease in cash and cash equivalents (12,076) Cash and cash equivalents, beginning of period 22,896 ------------------- Cash and cash equivalents, end of period $ 10,820 ===== ==============

13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the foregoing condensed consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations in the Company's Annual Report on Form 10-K for the year ended December 28, 2002. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth at the end of this Item. OVERVIEW On February 5, 2002, the Company and certain of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. The Company continues to operate in the ordinary course of business as debtor-in-possession under the jurisdiction of the Bankruptcy. The Company's ability to continue as a going concern is dependent upon the acceptance of a plan of reorganization by the Bankruptcy Court and the Company's creditors, securing exit financing upon emergence from bankruptcy, compliance with all debt covenants under the Citicorp DIP Credit Agreement, the ability to generate sufficient cash flows from operations and the success of future operations. There can be no assurance that the Company will be successful in resolving these uncertainties. As a result, the independent auditors have qualified their opinion relative to the uncertainty of the Company to continue as a going concern. The financial information contained herein does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might become necessary should the Company be unable to continue as a going concern in its present form. RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED JUNE 28, 2003 AS COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 2002 TOTAL REVENUE Net Sales for the thirteen weeks ended June 28, 2003 (the "second quarter 2003") were $87.4 million as compared to $67.8 for the thirteen weeks ended June 29, 2002 (the "second quarter 2002"). Sales from the Company's wholesale operations ("Wholesale") increased 35.2% to $71.3 million in the second quarter 2003 from $52.7 in the second quarter 2002. During the second quarter 2002, the Company determined that, due to improved sell-through in its wholesale segment, certain allowance reserves amounting to $9.7 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve, which benefited net sales and gross profit for the second quarter 2002. The increase in wholesale net sales is due primarily to a shift in shipments from the first quarter 2003 to the second quarter 2003, increased penetration of existing doors and new distribution in the Anne Klein business, as well as increases in the Le Suit, AK Dress and the private label businesses. 14 Sales at the Company's retail stores ("Retail") increased to $16.2 million in the second quarter 2003 from $15.1 million in the second quarter 2002, primarily due to an additional eight open stores from year to year. Comparable store sales increased 0.7% in the second quarter 2003 compared to the second quarter 2002 as a result of stronger sales at the Company's Anne Klein stores. Royalty revenue decreased slightly to $3.8 million in the second quarter 2003 from $4.0 million in the second quarter 2002. GROSS PROFIT Gross profit as a percentage of total revenue decreased to 38.0% for the second quarter 2003, compared to 48.9% for the second quarter 2002. Wholesale gross profit as a percentage of sales decreased to 30.6% in the second quarter 2003 from 43.9% in the second quarter 2002. As discussed in Total Revenue, during the second quarter 2002 the Company reversed a $9.7 million reserve relating to certain allowance reserves established at the end of fiscal 2001, which benefited gross profit for the second quarter 2002. During the second quarter 2002, the Company determined that, due primarily to improved margins of its wholesale off-price sales, certain inventory reserves amounting to $2.0 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve, which benefited gross profit for the second quarter 2002. In addition, the Company utilized in its production process certain raw materials that were aged as of December 29, 2001 that, as part of the Company's normal valuation process, had been reserved. As a result of the utilization of the previously reserved raw materials, the Company recognized this change in estimate as a benefit to gross profit of $1.3 million in the second quarter 2002. Additionally, the Company obtained a favorable decision with respect to a severance dispute with certain union employees in which the arbitrator ruled that the Company is not obligated to pay severance to any of the permanently laid off employees as a result of its 2001 reductions in force. As a result, the Company realized a benefit to cost of sales of approximately $450,000 in the second quarter 2002. Excluding these reversals, second quarter 2002 consolidated gross profit, as a percentage of total revenue, would have been 34.8% and wholesale gross margins would have been 22.6%. Retail gross profit as a percentage of sales increased to 56.2% in the second quarter 2003 from 52.8% in the second quarter 2002 primarily due to lower product costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") increased to $26.0 million in the second quarter 2003 as compared to $23.8 million in the second quarter 2002. As a result of the additional 8 retail stores opened over the prior year, Retail incurred and additional $1.2 million in SG&A. International operations added approximately $600,000 in expenses as a result of the growth of the Anne Klein lines in Canada and Europe. Wholesale and licensing SG&A increased approximately $400,000 as a result of severance paid during the second quarter 2003. During the second quarter 2002, the Company obtained a favorable decision with respect to a severance dispute with certain union employees in which the arbitrator ruled that the Company is not obligated to pay severance to any of the permanently laid off employees as a result of its 2001 reductions in force. As a result, the Company realized a benefit relating to selling, general and administrative expenses of approximately $150,000 in the second quarter 2002. RESTRUCTURING AND OTHER CREDITS The Company recorded a $2.5 million restructuring credit in the second quarter 2002. During the fourth quarter 2001, the Company recorded a charge of $4.9 million for lease cancellation costs and asset write-downs in connection with the decision to exit certain retail store leases and certain office space in fiscal 2002. During the second quarter 2002, the Company reevaluated its decision to exit certain office space and as a result, recognized a restructuring credit of $2.5 million. This credit was partially offset by 15 approximately $50,000 in restructuring charges related primarily to professional fees associated with the Company's pending bankruptcy filing. DEPRECIATION AND AMORTIZATION Depreciation and amortization totaled $1.5 million in the second quarter 2003 and $1.0 million in the second quarter 2002. The increase in depreciation relates to the implementation of the new management information systems and capital expenditures relating to department store boutiques and new retail stores. INTEREST AND FINANCING COSTS Interest and financing costs decreased to $727,000 in the second quarter 2003 from $1.6 million in the second quarter 2002. Interest expense is comprised of the interest expense on the Citicorp DIP Credit Agreement and Chase DIP (both defined elsewhere within), factoring fees and changes in fair value of the Company's interest rate swap. Interest under the Chase DIP and Citicorp DIP Credit Agreement, as applicable, totaled approximately $443,000 in the second quarter 2003 and $1.6 million in the second quarter 2002 as a result of the decrease in borrowings and lower interest rates. In the first quarter 2003, the Company paid approximately $1.6 million in bank fees related to the Citicorp DIP Credit Agreement resulting in approximately $126,000 of amortization charges in the second quarter 2003. Factoring fees were approximately $198,000 in the second quarter 2003 and $219,000 in the second quarter 2002. Offsetting interest expense in the second quarter 2002 was the increase in market valuation of the Company's interest rate swap of $260,000. As of June 30, 2002, the interest rate swap expired. REORGANIZATION CHARGES The Company recorded $3.9 million and $841,000 in reorganization charges in the second quarter 2003 and second quarter 2002, respectively. During the second quarter 2003, the Company incurred approximately $2.5 million in costs relating to the surrender of leased office space. The remaining costs related primarily to professional fees and, in 2002, bank fees associated with the Company's reorganization as a result of the Chapter 11 Cases. INCOME TAXES The Company recorded income taxes of $1.1 million for the second quarter 2003 compared to $4.3 million for the second quarter 2002. These amounts differ from the amount computed by applying the federal income tax statutory rate of 34% to income before taxes primarily because of state and foreign taxes. NET INCOME Net income was $1.5 million in the second quarter 2003 compared to $6.0 million in the second quarter 2002. The decrease is the result of increased reorganization costs and the reserve reversals that occurred in the second quarter 2002, partially offset by reduced interest and financing costs. TWENTY-SIX WEEKS ENDED JUNE 28, 2003 AS COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 29, 2002 TOTAL REVENUE Net sales for the twenty-six weeks ended June 28, 2003 (the "first half 2003") were $187.9 million as compared to $181.4 million for the twenty-six weeks ended June 29, 2002 (the "first half 2002"). Wholesale sales increased to $159.1 million from $151.5 million. As discussed above, in the first half 2002, the Company reversed a $9.7 million reserve, which benefited net sales in the first half 2002. The increase in wholesale net sales is primarily due to increased penetration of existing doors and new distribution in the Anne Klein business, as well as increases in the Le Suit, private label and AK Dress businesses. Somewhat offsetting the increase in net sales for the first half 2003 was a decrease in the Kasper suit, dress and sportswear businesses. 16 Retail sales decreased to $28.8 million in the first half 2003 from $29.9 million in the first half 2002, primarily due to the closing of 24 under performing stores during the first quarter 2002, which contributed $1.8 million in sales to the first half 2002, offset partially by sales from the additional eight open stores from year to year. Comparable store sales decreased 3.1% in the first half 2003 compared to the first half 2002 as a result of first quarter 2003 declines offset partially by second quarter 2003 improvement. Royalty revenue increased to approximately $8.2 million in the first half 2003 from $7.7 million in the first half 2002 as a result of renegotiated royalty percentage rates and higher licensee sales volume. GROSS PROFIT Gross profit as a percentage of total revenue decreased slightly to 39.3% for the first half 2003, compared to 40.0% for the first half 2002. Wholesale gross profit, as a percentage of sales, decreased to 33.1% in the first half 2003 from 34.9% in the first half 2002. As discussed above, during the first half 2002 the Company reversed a $9.7 million reserve relating to certain allowance reserves established at the end of 2001, benefiting gross profit for the first half 2002. During the second quarter of 2002, the Company determined that, due to improved sell-through in its wholesale segment, certain allowance reserves amounting to $9.7 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve which benefited gross profit for the first half 2002. During the second quarter of 2002, the Company determined that, due primarily to improved margins of its wholesale off-price sales, certain inventory reserves amounting to $2.0 million as of December 29, 2001 were no longer required. As a result of this change in estimate, the Company reversed this reserve, which benefited gross profit for the first half 2002. During the first half of 2002, the Company utilized in its production process certain raw materials that were aged as of December 29, 2001 that, as part of the Company's normal valuation process, had been reserved. As a result of the utilization of the previously reserved raw materials, the Company recognized this change in estimate as a benefit to gross profit of $1.7 million in the first half of 2002. Additionally, the Company obtained a favorable decision with respect to a severance dispute with certain union employees in which the arbitrator ruled that the Company is not obligated to pay severance to any of the permanently laid off employees as a result of its 2001 reductions in force. As a result, the Company realized a benefit relating to cost of sales of approximately $450,000 in the first half 2002. Excluding these reversals, first half 2002 consolidated gross profit, as a percentage of total revenue, would have been 34.4% and wholesale gross margins would have been 27.6%. Retail gross profit as a percentage of sales increased to 56.4% in the first half 2003 from 50.0% in the first half 2002, due to the closing of under performing stores and lower product costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $51.0 million in the first half 2003 as compared to $47.8 million in the first half 2002, an increase of $3.2 million. As a result of the additional 8 retail stores open from year to year, Retail incurred an additional $1.2 million in SG&A. International operations added approximately $1.2 million in expenses as a result of the growth of the Anne Klein lines in Canada and Europe. Wholesale and licensing SG&A increased approximately $800,000 as a result of severance paid during the second quarter 2003 and overall increases associated with higher sales volume. Additionally, the Company obtained a favorable decision with respect to a severance dispute with certain union employees in which the arbitrator ruled that the Company is not obligated to pay severance to any of the permanently laid off employees as a result of its 2001 reductions in force. As a result, The Company realized a benefit relating to selling, general and administrative expenses of approximately $150,000 in the first half 2002. 17 RESTRUCTURING AND OTHER CREDITS The Company recorded a $1.9 million restructuring credit in the first half 2002. During the fourth quarter of 2001, the Company recorded a charge of $4.9 million for lease cancellation costs and asset write-downs in connection with the decision to exit certain retail store leases and certain office space in fiscal 2002. During the second quarter 2002, the Company reevaluated its decision to exit certain office space and as a result, recognized a restructuring credit of $2.5 million. This credit was partially offset by approximately $592,000 in restructuring charges related primarily to professional fees. DEPRECIATION AND AMORTIZATION Depreciation and amortization totaled $3.0 million in the first half 2003 and $2.1 million in the first half 2002. The increase in depreciation relates to the implementation of the Company's new management information systems and capital expenditures relating to department store boutiques and new retail stores. INTEREST AND FINANCING COSTS Interest and financing costs decreased to $1.7 million in the first half 2003 from $5.1 million in the first half 2002, a decrease of approximately $3.4 million. As a result of the Chapter 11 Cases, interest on the Senior Notes stopped accruing as of February 5, 2002. Accordingly, the Company did not incur interest on the Senior Notes in the first half 2003 compared to $1.7 million for the first half 2002. Included in Senior Notes interest expense for the first half 2002 was approximately $300,000 in unpaid default interest on the Senior Notes. Interest under the Chase Facility (defined elsewhere), Chase DIP and Citicorp DIP Credit Agreement, as applicable, totaled approximately $939,000 in the first half 2003 and $3.3 million in the first half 2002 as a result of the decrease in borrowings and lower interest rates. In the first quarter 2003, the Company paid approximately $1.6 million in bank fees related to the Citicorp DIP Credit Agreement resulting in approximately $225,000 of amortization charges in the first half 2003. Factoring fees were approximately $549,000 in the first half 2003 and $627,000 in the first half 2002. Offsetting interest expense in the first half 2002 was the increase in market valuation of the Company's interest rate swap of approximately $508,000. As of June 30, 2002, the interest rate swap expired. REORGANIZATION CHARGES The Company recorded $5.1 million and $2.5 million in reorganization charges in the first half 2003 and first half 2002, respectively. During the first half 2003, the Company incurred approximately $2.4 million in costs relating to the surrender of leased office space. The remaining costs related primarily to professional fees and, in 2002, bank fees associated with the Company's reorganization as a result of the Chapter 11 Cases. INCOME TAXES Provision for income taxes was $6.9 million for the first half 2003 compared to $8.4 million for the first half 2002. These amounts differ from the amount computed by applying the federal income tax statutory rate of 34% to income before taxes primarily because of state and foreign taxes. NET INCOME (LOSS) Net income was $9.5 million in the first half 2003 compared to a loss of $18.8 million in the first half 2002, an increase of approximately $28.2 million. The increase is the result of reduced interest and financing costs, along with the cumulative effect of change in accounting principle recorded in the first half 2002, partially offset by the increased reorganization costs and the reserve reversals that occurred in the second quarter 2002. See Note 4 of Notes to Condensed Consolidated Financial Statements for more information on the cumulative effect of change in accounting principle. 18 LIQUIDITY AND CAPITAL RESOURCES The Company's main sources of liquidity historically have been cash flows from operations, vendor credit terms and credit facilities. The Company's capital requirements primarily result from working capital needs, department store boutiques, retail stores including full price shops and other corporate activities. Net cash used in operating activities was $8.7 million during the first half 2003 compared to cash provided of $68.4 million during the first half 2002. The decrease in cash flows from the prior year is partly the result of the $20.0 million royalty prepayment received during the first quarter of 2002. In addition, as a result of the Chapter 11 Cases, in 2002 the Company benefited from the non-payment of pre-petition liabilities, which are generally not settled until a plan of reorganization has been approved. Inventory levels at the beginning of 2003 were leaner than at the beginning of 2002, resulting in a small increase for the first half 2003 as compared to a large decrease in the first half 2002. The increase in accounts receivable is primarily the result of increased sales and a shift in the timing of shipments. The decrease in cash used in investing activities resulted from less capital expenditures in the first half 2003 compared to the first half 2002. Cash flows from financing activities decreased as a result of decreased borrowings during the first half 2003. On January 30, 2003, the Company obtained a $100 million debtor-in-possession financing facility (the "Citicorp DIP Credit Agreement") from its new bank group led by Citicorp USA, Inc. ("Citicorp"). The Citicorp DIP Credit Agreement replaced the $35 million DIP Revolving Credit Agreement from its then existing bank group (the "Chase DIP", formerly the "Chase Facility") and permits up to $60.0 million available for issuance of letters of credit, of which $15.0 million will be available for stand-by letters of credit and up to $10.0 million for discretionary swing loans. The Citicorp DIP Credit Agreement, as amended, provides, among other things, for the maintenance of certain financial ratios and covenants, and set limits on capital expenditures and dividends to shareholders. The Citicorp DIP Credit Agreement, as amended, has a term ending on the earliest to occur of (i) December 31, 2003, (ii) the effective date of the Plan, or (iii) the occurrence of an Event of Default. Availability under the Citicorp DIP Credit Agreement is limited to a borrowing base calculated upon eligible accounts receivable, eligible inventory, eligible documentary letters of credit and trademarks, in each case, less appropriate reserves. Interest on outstanding borrowings is determined based on stated margins above the Base Rate Loans and Eurodollar Rate Loans maintained by Citicorp on the terms and subject to the conditions of the agreement. The Company paid approximately $1.6 million in commitment and related fees in connection with the Citicorp DIP Credit Agreement in January 2003. On March 14, 2003 the Company obtained an amendment to the Citicorp DIP Credit Agreement, which allowed the DIP portion of the credit agreement to be extended to December 31, 2003 as well as amended certain financial covenants. There were no incremental bank fees associated with this amendment. As of June 28, 2003, there were no direct borrowings and $31.5 million outstanding in letters of credit under the Citicorp DIP Credit Agreement. In addition to $13.4 million of unrestricted cash and cash equivalents on hand, the Company had approximately $39.8 million available for future borrowings as of June 28, 2003. Pursuant to the Leslie Fay reorganization plan, the Company issued $110 million in Senior Notes. The Senior Notes initially bore interest at 12.75% per annum and mature on March 31, 2004. Beginning January 1, 2000, the interest rate increased to 13.75%. The Company stopped accruing interest on the Senior Notes on the Filing Date. Interest relating the Senior Notes totaled $1.7 million for the first half 2002, including $300,000 in default interest. At June 28, 2003, the Senior Notes have been classified as liabilities subject to compromise. On October 4, 1999, the Company entered into a factoring agreement with the CIT Group/Commercial Services, Inc. ("CIT"). CIT collects the Company's receivables and in turn remits the funds to the Company. Any amounts unpaid after 90 days on approved sales are guaranteed to be paid to the Company by CIT. The agreement has no expiration date but may be terminated upon 90 days written notice by the Company and upon 60 days written notice by CIT. On November 10, 2000, the 19 factoring agreement was amended to change the fee structure from a flat rate monthly fee to a floating rate monthly fee based on a percentage of the amount of each account factored. For its services, CIT charges the Company 0.30% of the gross face amount of each account factored and an additional 0.25% of the gross face amount of each account whose terms exceed 60 days. In addition, for each six-month period beginning December 1, 2000, there is a minimum factoring fee of $675,000. On February 5, 2002, the Company entered into an amended agreement with CIT. The terms of the amended agreement remained substantially the same with the exception of the reduction of the six-month minimum factoring fee to $500,000 and the requirement of a 90-day termination notice by CIT, except upon the occurrence of default by the Company, including a default under the Chase DIP or failure to pay any obligation under the CIT agreement, for which no notice is needed. On January 30, 2003, the Company, in connection with the replacement of the Chase DIP by Citicorp DIP Credit Agreement, entered into an amendment with CIT. The terms of this amendment were to incorporate the Citicorp DIP Credit Agreement as part of the factoring agreement, change the fees charged by CIT for its services to 0.25% of the gross face amount of each account factored and reduce each six-month period minimum factoring fee to $375,000 as of February 1, 2003. Capital expenditures were $3.0 million and $3.6 million for the first half 2003 and first half 2002, respectively. Capital expenditures represent spending associated with information systems, new retail stores, department store boutiques, warehouse and showroom improvements, overseas facilities development and general improvements. On March 12, 2002, the Company received a prepayment of royalties of $20.0 million from one of its licensees. The royalty prepayment is non refundable and is to be applied to guaranteed minimum royalty payments and excess royalties due through December 31, 2006. The Company currently anticipates that it will be in a position to satisfy its ongoing cash requirements, in the near term, through cash from operations, borrowings under the Citicorp DIP Credit Agreement and, from time to time, amounts received in connection with strategic transactions, including, among other things, licensing arrangements. Events that may impact the Company's ability to meet its ongoing cash requirements in the near term include, but are not limited to, failure to have the Plan approved by the Bankruptcy Court, future events that may have the effect of reducing available cash balances (such as unexpected operating losses, or increased capital or other expenditures), and future circumstances that might reduce or eliminate the availability of external financing. In addition, the ongoing promotional environment of department stores has impacted the industry. If the current trend persists, the Company's financial results could continue to be negatively impacted. 20 DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Those statements appear in a number of places in this report, including in "Management's Discussion and Analysis of Financial Conditions and Results of Operations," and include all discussions of trends affecting the Company's financial conditions and results of operations and the Company's business and growth strategies as well as statements that contain such forward-looking statements as "believes," "anticipates," "could," "estimates," "expects," "intends," "may," "plans," "predicts," "projects," "will," and similar terms and phrases, including the negative thereof. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Furthermore, forward-looking statements may be included in our other filings with the Securities and Exchange Commission as well as in press releases or oral statements made by or with the approval of the Company's authorized executive officers. We caution you to bear in mind that forward-looking statements, by their very nature, involve assumptions and expectations and are subject to risks and uncertainties. Although we believe that the assumptions and expectations reflected in the forward-looking statements contained in this report are reasonable, no assurance can be given that those assumptions or expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include but are not limited to, the following cautionary statements ("Cautionary Statements"): o the success of the Company's overall business strategy, including successful implementation of the Company's restructuring plan and successful implementation of the Company's plan of reorganization; o the impact that the continuation of the Company's Chapter 11 proceedings may have on the Company's relationships with its principal customers and suppliers; o the risk that the bankruptcy court overseeing the Company's Chapter 11 proceedings may not confirm any reorganization plan proposed by the Company; o actions that may be taken by creditors and other parties-in-interest that may have the effect of preventing or delaying confirmation of a plan of reorganization in connection with the Company's Chapter 11 proceedings; o the risk that the cash generated by the Company from operations and the cash received by the Company under its Citicorp DIP Credit Facility (defined elsewhere herein) will not be sufficient to fund the operations of the Company until such time as the Company's plan of reorganization is approved by the bankruptcy court, and that the Company will be able to obtain any extensions as may be necessary should a delay in the confirmation of a plan cause the plan to be consummated subsequent to the expiration on December 31, 2003; o the ability of the Company to achieve its covenants under the Citicorp DIP Credit Agreement; o the ability of the Company to adapt to changing consumer preferences and tastes; o the risk of global political unrest including terrorism and war and its impact on consumer confidence and spending and disruption in the receipt and delivery of merchandise; o the risk of work stoppages by any Company suppliers or service providers; o the risk of significant disruption in the Company's relationships with its suppliers, manufacturers and employees; o potential fluctuations in the Company's operating costs and results; o the risk that the Internal Revenue Service will prevail in its proposed adjustment resulting in additional income taxes and interest in prior years thereby necessitating a reduction in net operating loss carryforwards, the write-down of certain tax assets, and the payment of interest; o potential exchange rate fluctuations; o the Company's concentration of revenues in department stores located in the United States, including the decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease the amount of merchandise purchased from us; o the Company's dependence on a limited number of suppliers; and o unforeseen difficulties or significant delays resulting from the Company's implementation or operation of existing or new management information systems, including the integration of management and other personnel or the training of personnel. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. 21 ITEM 4. CONTROLS AND PROCEDURES (a) The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this quarterly report on Form 10-Q, the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's principal executive officer and the Company's principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on such evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective. (b) There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this quarterly report on Form 10-Q. 22 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Amendment to Employment Agreement, between the Company and Lee Sporn, dated July 16, 2003 10.2 Amendment to Employment Agreement, between the Company and Joseph B. Parsons, dated July 16, 2003 99.1 Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C.ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C.ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: On April 16, 2003, the Company filed a current report on Form 8-K attaching the press release announcing its financial results for the fourth quarter and fiscal year ended December 28, 2002. On May 14, 2003, the Company filed a current report on Form 8-K attaching the press release announcing its financial results for the quarter ended March 29, 2003. On June 13, 2002 the Company filed a current report on Form 8-K to disclose that it had signed a definitive agreement to be acquired by Kellwood Company. 23 SIGNATURES 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. KASPER A.S.L., LTD. (Registrant) Dated: August 18, 2003 /s/ John D. Idol -------------------------------------------------- John D. Idol Chairman and Chief Executive Officer /s/ Joseph B. Parsons -------------------------------------------------- Joseph B. Parsons Executive Vice President - Chief Financial Officer 24 CERTIFICATIONS -------------- I, John D. Idol, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kasper A.S.L., Ltd.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 18, 2003 /s/ John D. Idol ---------------------------- John D. Idol Chief Executive Officer I, Joseph B. Parsons, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Kasper A.S.L., Ltd.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 18, 2003 /s/ Joseph B. Parsons ------------------------------- Joseph B. Parsons Chief Financial Officer EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.1 Amendment to Employment Agreement, between the Company and Lee Sporn, dated July 16,2003 10.2 Amendment to Employment Agreement, between the Company and Joseph B. Parsons, dated July 16,2003 99.1 Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C.ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C.ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

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