KASPER A S L LTD, 10-Q, 1998-08-18

KASPER A S L LTD
10-Q, 1998-08-18
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR

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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 July 4, 1998

[ ] 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)

State of incorporation: Delaware IRS Employer Identification No: 22-3497645

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

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 X No

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of August 14, 1998 was 6,800,000.
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Page No.
-------
Item 1. Financial Statements:

<S> <C>
Condensed Consolidated Balance Sheets at July 4, 1998 and January 3, 1998 ..........................3

Condensed Consolidated/Combined Statements of Operations for the Thirteen weeks
ended July 4, 1998, Four weeks ended July 5, 1997 and Nine weeks ended June 4, 1997..............4

Condensed Consolidated/Combined Statements of Operations for the
Twenty-six weeks ended July 4, 1998, Four weeks ended July 5,
1997 and Twenty-three weeks ended June 4, 1997...................................................5

Condensed Consolidated/Combined Statements of Cash Flows for the
Twenty-six weeks ended July 4, 1998, Four weeks ended July 5,
1997 and Twenty-three weeks ended June 4, 1997...................................................6

Notes to Condensed Consolidated/Combined Financial Statements ......................................8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................12

PART II - OTHER INFORMATION

Item 1. Legal Proceedings ......................................................................................21

Item 6. Exhibits and Reports on Form 8-K........................................................................21

SIGNATURES.......................................................................................................22

EXHIBIT INDEX....................................................................................................23

</TABLE>

-2-

<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>

ASSETS July 4, January 3,
1998 1998
---------------- --------------
(Unaudited)

<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................ $ 2,924 $ 16,677
Accounts receivable-net of allowances for possible losses of
$18,564 and $18,725 respectively.............................. 35,231 30,000
Inventories..................................................... 91,128 78,796
Prepaid expenses and other current assets....................... 6,006 4,462
---------------- --------------
Total Current Assets........................................ 135,289 129,935
---------------- --------------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $4,404 and $2,985,
respectively.................................................... 16,263 14,337
Reorganization value in excess of identifiable assets, net of
accumulated amortization of $3,531 and $1,902, respectively..... 61,650 63,279
Trademarks, net of accumulated amortization of $1,579 and $850,
respectively.................................................... 49,421 50,150
Other Assets, at cost less accumulated amortization of $1,023 and
$596, respectively.............................................. 2,528 2,955
---------------- --------------
Total Assets $265,151 $260,656
================ ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................ $ 15,513 $ 17,637
Accrued expenses and other current liabilities.................. 7,411 6,703
Interest Payable ............................................... 3,574 3,555
Income taxes payable............................................ 482 1,164
---------------- --------------
Total Current Liabilities................................... 26,980 29,059
Long-Term Liabilities:
Deferred Taxes ................................................. 639 639
Long-Term Debt.................................................. 110,000 110,000
Bank Revolver................................................... 4,381 --
Minority Interest............................................... 469 --
---------------- --------------
Total Liabilities........................................... 142,469 139,698
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $0.01 par value; 20,000,000 shares
authorized; 6,800,000 shares issued and outstanding........... 68 68
Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding....................... -- --
Capital in excess of par value.................................. 119,932 119,932
Retained Earnings............................................... 2,755 972
Accumulated Comprehensive Income:
Cumulative Translation Adjustment............................... (73) (14)
---------------- --------------
Total Shareholders' Equity.................................. 122,682 120,958
---------------- --------------
Total Liabilities and Shareholders' Equity...................... $265,151 $260,656
================ ==============

</TABLE>

The accompanying Notes to Condensed Consolidated/Combined Financial
Statements are an integral part of these balance sheets.

-3-

<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
|
|
Reorganized Company | Predecessor
| Company
------------------------------------------- | ------------
Thirteen Weeks Four Weeks | Nine Weeks
Ended Ended | Ended
----- ----- | -----
July 4, July 5, | June 4,
1998 1997 | 1997
-------------------- -------------------- | --------------------
(Unaudited) (Unaudited) | (Unaudited)
<S> <C> <C> <C>
Net Sales...................................... $ 62,371 $ 16,864 | $ 36,876
Cost of Sales.................................. 44,507 12,155 | 27,314
-------------------- -------------------- | --------------------
Gross profit.............................. 17,864 4,709 | 9,562
Operating Expenses: |
Selling, warehouse, general and |
administrative expenses........................ 15,628 4,267 | 8,386
Depreciation and Amortization.................. 2,059 650 | 478
-------------------- -------------------- | --------------------
Total operating expenses.................. 17,687 4,917 | 8,864
-------------------- -------------------- | --------------------
Operating income (loss)........................ 177 (208) | 698
Interest and Financing Costs................... 4,017 1,137 | 205
-------------------- -------------------- | --------------------
(Loss) Income before provision for income |
taxes.......................................... (3,840) (1,345) | 493
Provision for Income Taxes..................... (1,615) 111 | 197
-------------------- -------------------- | --------------------
Net (Loss) Income.............................. $ (2,225) $ (1,456) | $ 296
==================== ==================== | ====================
Basic loss per share........................... (.33) (.21) | --
==================== ==================== |
Diluted loss per share......................... (.33) (.21) | --
==================== ==================== |
Weighted average number of shares used in |
computing Basic loss per share................. 6,800,000 6,800,000 |
Weighted average number of shares used in |
computing Diluted loss per share.............. 6,800,000 6,809,000 |

</TABLE>

The accompanying Notes to Condensed Consolidated/Combined Financial
Statements are an integral part of these financial statements.

-4-

<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
|
Reorganized Company | Predecessor
| Company
------------------------------------------- | --------------------
|
Twenty-six Four | Twenty-three
Weeks Ended Weeks Ended | Weeks Ended
----------- ----------- | -----------
July 4, July 5, | June 4,
1998 1997 | 1997
-------------------- -------------------- | --------------------
(Unaudited) (Unaudited) |
|
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . $ 158,503 $ 16,864 | $ 136,107
Cost of Sales . . . . . . . . . . . . . . 112,467 12,155 | 101,479
-------------------- -------------------- | --------------------
Gross profit . . . . . . . . . . . . 46,036 4,709 | 34,628
Operating Expenses: |
Selling, warehouse, general and |
administrative expenses. . . . . . . . . . 30,717 4,267 | 23,374
Depreciation and Amortization. . . . . . . 4,118 650 | 1,191
-------------------- -------------------- | --------------------
Total operating expenses . . . . . . 34,835 4,917 | 24,565
-------------------- -------------------- | --------------------
Operating income (loss). . . . . . . . . . 11,201 (208) | 10,063
Interest and Financing Costs . . . . . . . 8,128 1,137 | 667
-------------------- -------------------- | --------------------
Income (Loss) before provision for income |
taxes . . . . . . . . . . . . . . . . . . 3,073 (1,345) | 9,396
Provision for Income Taxes. . . . . . . . 1,290 111 | 3,758
-------------------- -------------------- | --------------------
Net Income (Loss) . . . . . . . . . . . . $ 1,783 $ (1,456) | $ 5,638
==================== ==================== | ====================
Basic earnings (loss) per share . . . . . .26 (.21) | --
==================== ==================== |
Diluted earnings (loss) per share . . . . .26 (.21) | --
==================== ==================== |
Weighted average number of shares used in |
computing Basic earnings (loss) per share . . . 6,800,000 6,800,000 | --
|
Weighted average number of shares used in |
computing Diluted earnings (loss) per share . 6,800,000 6,809,000 | --

</TABLE>

The accompanying Notes to Condensed Consolidated/Combined Financial
Statements are an integral part of these financial statements.

-5-

<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
|
Reorganized Company | Predecessor
| Company
------------------------------------------ | --------------------
|
Twenty-six Four | Twenty-three
Weeks Ended Weeks Ended | Weeks Ended
----------- ----------- | -------------
July 4, July 5, | June 4,
1998 1997 | 1997
(Unaudited) (Unaudited) |
|
Cash Flows from Operating Activities: |
|
<S> <C> <C> <C>
Net income (loss).......................................... $ 1,783 $ (1,456) | $ 5,638
Adjustments to reconcile net income to net cash (used in)/ |
provided by operating activities: |
Depreciation and amortization............................ 2,564 341 | 916
Amortization of reorganization value in excess of |
identifiable assets.................................... 1,629 276 | --
Amortization of excess purchase price over net |
assets acquired........................................ -- -- | 275
Excess of cost over fair value of assets acquired........ -- -- | (26)
Income applicable to minority interest................... 469 -- | --
Change in provision for possible losses on accounts |
receivable............................................. (161) (377) | (4,348)
(Increase) decrease in: |
Accounts receivable.................................... (5,070) 7,024 | 9,071
Inventories............................................ (12,332) (9,171) | 24,158
Prepaid expenses and other current assets.............. (1,544) (1,791) | (1,080)
Increase (decrease) in: |
Accounts payable, accrued expenses and other |
current liabilities.................................. (1,416) 4,005 | (1,236)
Interest Payable....................................... 19 1,024 | --
Income taxes payable................................... (682) 108 | 246
-------------------- ------------------- | --------------------
Total adjustments.................................... (16,524) 1,439 | 27,976
-------------------- ------------------- | --------------------
Net cash (used in) / provided by operating activities.... (14,741) (17) | 33,614
-------------------- ------------------- | --------------------
|
Cash Flows from Investing Activities: |
|
Capital expenditures net of proceeds from the sale of |
fixed assets........................................... (3,334) (296) | (2,960)
-------------------- ------------------- | --------------------
Net cash used in investing activities.................... (3,334) (296) | (2,960)
-------------------- ------------------- | --------------------
|
Cash Flows from Financing Activities: |
|
Bank Revolver.............................................. 4,381 39 | --
Net (decrease) in cash invested with Leslie Fay............ -- -- | (30,479)
-------------------- --------------------| --------------------
Net cash provided by / (used in) financing activities... 4,381 39 | (30,479)
-------------------- --------------------| --------------------
Effect of exchange rate changes on cash and cash |
equivalents................................................ (59) -- | --
-------------------- ------------------- | --------------------
|
Net (decrease) increase in cash and cash equivalents.......... (13,753) (274) | 175
|
Cash and cash equivalents, at beginning of period............. 16,677 3,081 | 1,886
-------------------- ------------------- | --------------------
|
Cash and cash equivalents, at end of period................... $ 2,924 $ 2,807 | $ 2,061
==================== =================== | ====================

</TABLE>
The accompanying Notes to Condensed Consolidated/Combined Financial
Statements are an integral part of these financial statements.

-6-
<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)

|
Reorganized Company | Predecessor
| Company
------------------------------------ | --------------------
|
Twenty-six Four | Twenty-three
Weeks Ended Weeks Ended | Weeks Ended
----------- ----------- | -----------
July 4, July 5, | June 4,
1998 1997 | 1997
(Unaudited) (Unaudited) |
<S> <C> <C> <C>
Supplemental schedule of noncash operating, investing and |
financing activities |
|
Noncash operating |
|
Other current assets recorded upon emergence from Bankruptcy $ -- $ (23) | $ --
|
Other current liabilities recorded upon emergence from Bankruptcy -- 4,923 | --
|
Deferred financing costs recorded upon emergence from Bankruptcy -- (2,422) | --
|
Noncash investing |
|
Elimination of divisional equity upon emergence from Bankruptcy -- (132,363) | --
|
Elimination of excess of costs over fair value of assets upon emergence |
from Bankruptcy -- 16,066 | --
|
Establishment of reorganization in excess of identifiable assets upon |
emergence from Bankruptcy -- (65,181) | --
|
Establishment of Trademark valuation upon emergence from |
Bankruptcy -- (51,000) | --
|
Noncash financing |
|
Senior notes issued to creditors upon emergence from Bankruptcy -- 110,000 | --
|
Issuance of Common Stock to creditors upon emergence from |
Bankruptcy -- 120,000 | --

</TABLE>

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

-7-

<PAGE>

KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED/COMBINED FINANCIAL STATEMENTS

NOTE 1. GENERAL

The Condensed Consolidated/Combined Financial Statements included
herein have been prepared by Kasper A.S.L., Ltd. (name legally changed from
Sassco Fashions, Ltd. on November 5, 1997) and subsidiaries (Kasper A.S.L., Ltd.
being sometimes referred to, and together with its subsidiaries collectively
referred to, as the "Company" or "Kasper" as the context may require) without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principals have been condensed or omitted from this report
as is permitted by such rules and regulations; however the Company believes that
the disclosures are adequate to make the information presented not misleading.
These Condensed Consolidated/Combined Financial Statements included herein
should be read in conjunction with the Consolidated/Combined Financial
Statements and the notes thereto included in the Company's Registration
Statement on Form S-1 which was declared effective by the Commission on May 1,
1998.

In the opinion of management, the accompanying interim Condensed
Consolidated/Combined Financial Statements contain all material adjustments
necessary to present fairly the Condensed Consolidated/Combined financial
condition, results of operations, and changes in financial position of
shareholders' equity of Kasper and its subsidiaries for the interim periods
presented.

Due to the Company's Reorganization and implementation of Fresh Start
Reporting (see Note 2), the Condensed Consolidated/Combined Financial Statements
for the new Reorganized Company (period starting June 5, 1997, the effective
date of the Reorganized Company's emergence from bankruptcy) are not comparable
to those of the Predecessor Company.

A black line has been drawn on the accompanying Condensed
Consolidated/Combined Financial Statements to distinguish between the
Reorganized Company and the Predecessor Company.

NOTE 2. FRESH START REPORTING

Kasper was a division of The Leslie Fay Companies, Inc. ("Leslie Fay"),
a Delaware corporation which operated its business as a debtor in possession
subject to the jurisdiction and supervision of the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") until June
4, 1997. The Condensed Consolidated/Combined Financial Statements herein
presented include the operations of three related Hong Kong corporations, Asia
Expert Limited ("AEL"), Tomwell Limited ("Tomwell"), and Viewmon Limited
("Viewmon"), none of which were part of the Leslie Fay bankruptcy proceeding.
These three Hong Kong corporations were subsidiaries of Leslie Fay (upon
emergence from bankruptcy these entities became subsidiaries of Kasper) that
procure and arrange for the manufacture of apparel products in the Far East
solely for the benefit of Kasper. The Condensed Consolidated/Combined Financial
Statements also include the results of Kasper Europe, Ltd., Kasper Canada, ASL
Retail Outlets, Inc. and ASL/K Licensing Corp., all of which are wholly-owned
subsidiaries of the Company. Kasper Canada is a 70% owner of Kasper Partnership.
The portion of Kasper Partnership pertaining to its minority owner is reflected
in the accompanying financial statements as minority interest. The Condensed
Consolidated/Combined Financial Statements of Kasper, AEL, Tomwell and Viewmon
have been prepared on a stand-alone basis in accordance with generally accepted
accounting principles

-8-

<PAGE>

applicable to a going concern. The Predecessor Company financial data reflects
the combined results of Kasper, AEL, Tomwell, and Viewmon. The financial
statements of the Reorganized Company are consolidated as opposed to combined
because as of the date of reorganization, the three Hong Kong corporations
became subsidiaries of Kasper. Prior to the reorganization, these entities were
subsidiaries of Leslie Fay and, accordingly, the financial statements were
combined for those periods. The Company's fiscal year ends on the Saturday
closest to December 31st. The fiscal year ended January 3, 1998 ("1997")
included 53 weeks.

Prior to June 4, 1997, Leslie Fay was operating its business as a
debtor in possession subject to the jurisdiction of the Bankruptcy Court. On
April 5, 1993, Leslie Fay and certain of its wholly-owned subsidiaries filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), as a result of the announcement of accounting
irregularities, numerous stockholder and other party lawsuits filed against the
Company and its directors, and the breach of certain provisions of its financing
agreement at the time. On October 31, 1995, the Debtors and the Committee of
Unsecured Creditors (the "Creditors Committee") filed Leslie Fay's Plan of
Reorganization (the "Plan") pursuant to Chapter 11 of the Bankruptcy Code.

The Plan was subsequently amended on March 13, 1996, December 5, 1996,
February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors filed a
Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to
Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"), which was also
subsequently amended on February 3, 1997 and February 28, 1997. The Plan
provided for, among other things, the separation of the Debtors' estates and
assets into two separate reorganized entities. Under the Plan, stockholders of
the Company would not retain or receive any value for their interest. The
Debtors obtained Bankruptcy Court approval of the Disclosure Statement on
February 28, 1997. The Plan was approved by the creditors and on April 21, 1997,
the Bankruptcy Court confirmed the Plan. Refer to the Condensed Consolidated
Financial Statements of Leslie Fay for the fiscal year ended December 28, 1996,
included in Leslie Fay's Annual Report on Form 10-K, for more information
regarding Leslie Fay's bankruptcy proceedings.

The Plan called for the spin-off of Kasper as a newly organized entity
and which consists of Kasper and its subsidiaries: AEL, Tomwell, Viewmon, Sassco
Europe and ASL Retail.

On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring
the equity interest in both Leslie Fay and Kasper, to its creditors in exchange
for relief from the aggregate amount of the claims estimated at $338,000,000; 2)
assigning to certain creditors the ownership rights to notes aggregating
$110,000,000 payable by Kasper; and 3) transferring the assets (including
$10,963,000 of cash) and liabilities of the then Sassco division to Kasper and
the assets and liabilities of Leslie Fay's Dress and Sportswear divisions to
three wholly-owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company has issued approximately eighty (80%) percent of its 6,800,000 of new
shares to its creditors in July 1997. The remaining shares will be held back
pending the resolutions of certain litigation before the Bankruptcy Court. On
June 4, 1997, Leslie Fay emerged from bankruptcy and Kasper emerged as a newly
organized separate entity.

Pursuant to the guidelines provided by SOP 90-7, the Company adopted
fresh-start reporting with a reorganization value of $120,000,000 and allocated
the reorganization value to its net assets on the basis of the purchase method
of accounting.

The fresh-start reporting reorganization value of $120,000,000 was
based on averaging several valuation methodologies prepared by an independent
appraiser. A five-year analysis of the Company's actual and projected

-9-

<PAGE>

operations (fiscal years ended 1997-2001) was prepared by management and a
discounted cash flow methodology was applied to those numbers. A equity value
was determined by calculating the impact of various assumption changes to the
five year projections and adding the projected cash flows for the first four
years to a "capitalization" of the fifth year's projected cash flow under each
assumption. The fifth year's projected cash flow was capitalized into value and
discounted to the present.

The aggregate cash flow value was then discounted to its present value,
using a discount rate of 14%. The reorganization values were then weighted with
a range between $118,000,000 and $123,000,000, and $120,000,000 was established
as the Company's reorganization value.

The five-year cash flow projections were based on estimates and
assumptions about circumstances and events that have not yet taken place. Such
estimates and assumptions are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company,
including, but not limited to, those with respect to the future course of the
Company's business activity.

NOTE 3. INVENTORIES

Inventories are valued at lower of cost or (first-in, first-out,
"FIFO") market.

Inventories, net of reserves, consist of the following:

July 4, January 3,
1998 1998
---- ----

(in thousands)

Raw materials $ 36,351 $ 32,121
Work in process 6 3
Finished goods 54,771 46,672
------ ------
Total inventories $ 91,128 $ 78,796
========= =========

NOTE 4. INCOME PER SHARE

The computation of income per common share is based upon the weighted
average number of common shares outstanding during the period. The pro forma
weighted average number of common shares outstanding and pro forma net income
per common share for the period ended June 4, 1997 have not been presented
because, due to the restructuring and implementation of Fresh Start Reporting,
they are not comparable to subsequent periods.

NOTE 5. DEBT

At July 4, 1998, there were direct borrowings of $4,381,000 outstanding
under the BankBoston Credit Agreement and approximately $20,411,000 outstanding
in letters of credit under the facility. The Company has approximately
$26,763,000 available for future borrowings as of July 4, 1998.

The Company paid $2,422,000 in commitment and related fees in
connection with the credit facility in June 1997. These fees are included in
other assets and will be amortized over the term of the Credit Agreement (three
years).

-10-

<PAGE>

NOTE 6. COMMITMENTS AND CONTINGENCIES

On April 5, 1993, Leslie Fay and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. All civil litigation commenced against Leslie Fay and those referenced
subsidiaries prior to that date was stayed under the Bankruptcy Code. By an
order dated April 30, 1997 (the "Confirmation Order"), the Bankruptcy Court
confirmed the Plan. The Plan was consummated on June 4, 1997.

The Confirmation Order, inter alia, dismissed with prejudice all
pending litigation's, and released all claims that could have been brought in
litigation. Both prior to and subsequent to the Filing Dates, various class
action suits were commenced on behalf of certain prior stockholders of the
Company. Any claims against the Company arising out of these suits were
discharged as part of, and in accordance with, the terms of the Plan.
Accordingly, whatever the eventual outcome of these cases, there can be no
material financial impact on the Company based on the terms of the Plan.

On November 17, 1997, the Company's wholly-owned subsidiary, Asia
Expert, Ltd. received a letter from the United States Customs Service stating
that a monetary claim in the amount of $694,860 was being contemplated against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor. The trans-shipment in question involved a Hong Kong
contractor who allegedly diverted goods that were to be sewn in Hong Kong to
China. Upon completion, the goods were then returned to Hong Kong for shipment
to the United States without disclosing the diversion, which would be a
violation of U.S. Customs laws. However, it is the Company's position that its
subsidiary did not knowingly or intentionally participate in any violation of
U.S. Custom laws and the Company intends to vigorously pursue all appropriate
legal defenses. The Company has conducted its own investigation through its
customs legal counsel. As a result of the investigation, the Company has
obtained an admission from the contractor that actual trans-shipments had
occurred, but that the contractor acted independently and intentionally
misrepresented its actions to the Company. The contractor further confirmed in a
sworn affidavit that these practices were done entirely without the knowledge of
the Company. Based upon these facts, the Company responded to U.S. Customs in a
letter dated January 8, 1998 requesting termination of the proceeding without
the issuance of any penalties. On May 4, 1998, the Company's customs legal
counsel received a letter from the U.S. Customs Service responding to the
Company's request. In the letter, the U.S. Customs Service stated that it had
decided to close the case against Asia Expert, Ltd., based upon its review of
the January 8, 1998 letter and the documentation submitted therewith, as well as
the statements made by the contractor.

NOTE 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In 1998, AcSEC issued SOP No. 98-5 "Reporting on the Costs of Start-Up
Activities." SOP No. 98-5 establishes standards on accounting for start-up and
organization costs and in general, requires such costs to be expensed as
incurred. This standard is required to be adopted on January 1, 1999. The
Company is currently evaluating the estimated impact of adoption, if any.

-11-

<PAGE>

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 consolidated financial statements and notes thereto. 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 June 4, 1997, Kasper A.S.L., Ltd. (the "Company") was separated from
the Leslie Fay Companies, Inc. ("Leslie Fay"), in accordance with the Fourth
Amended and Restated Joint Plan of Reorganization (the "Reorganization Plan")
approved by the U.S. Bankruptcy Court. On that date, all assets and
corresponding liabilities associated with the operation of the Sassco Fashions
Division of Leslie Fay, including the Nipon Trademarks, were sold to the
Company. Prior to that date, the Company operated as the Sassco Fashions
Division of Leslie Fay, from the time it was acquired by Leslie Fay in 1980. The
Company received the assets and liabilities of the former Sassco Fashions
Division as part of the Reorganization Plan of Leslie Fay. In the aggregate,
$249.6 million of assets, subject to $19.6 million of liabilities, were sold by
Leslie Fay to the creditors in satisfaction of creditor claims of like amount.
The Company in turn transferred to the creditors 6,800,000 shares of its common
stock with a market value of $120 million and 12.75% Senior Notes with an
aggregate principal amount of $110 million in exchange for the net assets. The
Company is one of the largest marketers and manufacturers of career women's
suits in the United States. The Company also markets career dresses, sportswear
and knitwear. The Company has grown through the extension of existing product
lines, the introduction of new brands and the expansion of its retail outlet
operations.

The accompanying financial statements have been prepared to show the
Company as a freestanding entity apart from Leslie Fay. Until 1996, the Company
was totally dependent upon Leslie Fay for all administrative support, including
accounting, credit, collections, legal, etc. As such, the financial statements
reflect an allocation of Leslie Fay administrative expenses to the Company.

As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. Effective June 4, 1997, the Company became subject
to such taxes. The effective tax rate used for the predecessor company financial
statements reflects the rate that would have been applicable had the Company
been independent. Provisions for deferred taxes were not reflected on the
Company's books, but were reflected on Leslie Fay's books and records. Going
forward, the Company will record deferred taxes in accordance with the provision
of Statement of Financial Accounting Standards Number 109, "Accounting for
Income Taxes."

The Company's business is primarily the design, distribution and
wholesale sale of women's career suits, dresses and sportswear to, principally,
major department stores and specialty shops. Over the last five years, the
Company has increased its share of the wholesale market by expanding into all
markets, including the "lower moderate" (Le Suit(TM)), "upper moderate"
(Kasper(R)) and "bridge"(Nipon(R)) markets. The Company has also introduced a
career sportswear label, Kasper and Company(R), and career knitwear under the
name Nina Charles(TM). After analyzing the performance of the knitwear division
and its capital and operational requirements, the Company has decided to
discontinue the Nina Charles(TM) label at the wholesale level in the United
States for the Fall 1998 season. The Company will continue to market the label
in its retail stores and in Canada and Europe. For Fall 1998, the Company will
incorporate its knitwear business into its Dress and Sportswear lines.

-12-

<PAGE>

In July 1995, the Company, then a division of Leslie Fay, started its
retail outlet operations by acquiring 22 lease properties, which were assigned
to the Company by Leslie Fay on June 4, 1997 pursuant to the Reorganization
Plan. As of July 4, 1998, the Company had 53 retail outlet stores throughout the
United States. Sales at the retail outlet stores totaled $38.6 million in the
year ended January 3, 1998. The stores operate under the name Kasper ASL(R), but
also sell the Company's other labels including Nipon(R), Kasper and Company(R),
Nina Charles(TM), Le Suit(TM) and b. bennett(TM).

In connection with the separation from Leslie Fay, Leslie Fay
transferred all rights and title to the Nipon trademarks to the Company. At the
time of the transfer, there were several licensing agreements in effect,
including men's sportswear, dress slacks, ties, ladies coats, etc. In 1997, the
Company received approximately $900,000 in licensing income from licensing
agreements.

On June 4, 1997, the Company acquired the trade name Kasper(R) from
Forecast Designs, Inc., a company owned by Herbert Kasper, for $6 million. Prior
to June 4, the Company paid royalties for the use of the Kasper name to Forecast
Designs, Inc. In accordance with the agreement, Forecast Designs, Inc. will
retain the right to the licensing income from pre-existing licenses, which
licenses will be transferred to the Company upon Mr. Kasper's death. The Company
will be entitled to 50% of the income generated by any new licenses. Pursuant to
the terms of the acquisition agreement, the Company also entered into an
Employment, Consulting and Non- Competition agreement with Herbert Kasper. Such
agreement, which has a term of ten years, provides for the payment to Mr. Kasper
of $300,000 in annual salary and $7,500 for each 1% by which the gross profits
from the Company's sales of Kasper(R) women's apparel, namely suits, dresses and
sportswear in each of the six years 1998 to 2003, exceeds the total gross profit
derived by the Company from the sale of such products in the year 1995. Under
the terms of the agreement, Mr. Kasper may and has been dedicating his business
time to the licensing activities of ASL/K Licensing Corp., which includes
meeting with current and prospective licensees of the Kasper(R) brand name. He
also participates in marketing trips and is involved in the Company's
advertising campaigns, reviews competitor's products and meets with prospective
wholesale buyers on behalf of the Company. Mr. Kasper may also perform such
other tasks as he and Mr. Levine, the Chairman of the Board of Directors and
Chief Executive Officer of the Company, may agree.

The Company launched its advertising campaign in the first half of
1998. Anticipated costs relating to the advertising campaign are $2.0 million.
Costs for advertising are expensed as incurred.

Results of Operations

Thirteen Weeks Ended July 4, 1998 as Compared to Thirteen Weeks ended
July 5, 1997

Net Sales

Net Sales for the thirteen weeks ended July 4, 1998 (the "second
quarter 1998") were $62.4 million as compared to $53.7 for the thirteen weeks
ended July 5, 1997 (the "second quarter 1997"). Wholesale sales increased to
$50.5 million for the second quarter 1998, from $44.7 million in the second
quarter 1997, an increase of approximately 13.0%.

Retail sales increased to $11.9 million in the second quarter 1998 from
$9.0 million in the second quarter 1997, an increase of approximately 32.2% due
primarily to the net addition of 13 retail outlet stores over the last 12
months. Comparable store sales for the second quarter 1998 were $8.8 million as
compared to $7.8 million for the second quarter 1997, an increase of 12.8%.

-13-

<PAGE>

Gross Profit

Gross Profit as a percentage of net sales increased to 28.6% for the
second quarter 1998, compared to 26.6% for the second quarter 1997. The
improvement over the second quarter 1997 can be attributed to the growth in
retail store sales as well as the continued improved performance at the
wholesale level. Wholesale gross profit as a percentage of sales increased to
25.3% in the second quarter 1998 from 23.1% in the second quarter 1997.

Retail gross profit as a percentage of sales decreased to 42.8% in the
second quarter 1998 from 44.2% in the second quarter 1997.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $15.6 million
in the second quarter 1998 as compared to $12.7 million in the second quarter
1997, an increase of $2.9 million. Approximately $900 thousand of this increase
is attributed to increased selling, administrative and occupancy costs related
to the net addition of 13 retail outlet stores.

The remaining increase is associated with wholesale operations.
Advertising expenses increased by approximately $900 thousand primarily as a
result of the new advertising campaign. Administrative expenses increased in the
second quarter 1998 by approximately $1.1 million. Approximately $650 thousand
of this increase is due to the new compensation structure put into place for
fiscal 1998 for the Chief Executive Officer. The remaining increase in
administrative expense relates to additional costs incurred as a result of
becoming an independent, public company. Kasper operations in Canada and the
U.K. contributed approximately $200 thousand in additional selling, general and
administrative expenses, however these increases were offset by a decrease in
royalty expense of approximately the same amount as a result of the trademark
acquisition.

Selling, general and administrative expenses include the following: (i)
design expenses; (ii) production expenses, which includes purchasing of raw
materials, production planning and scheduling and product costing; (iii) selling
and marketing expenses, including showroom sales personnel and sales
representatives outside the showroom; (iv) administrative expenses, which
include all back office functions such as finance, human resources, import
management, accounts receivable and payable, etc.; (v) advertising expenses;
(vi) shipping expenses; and (vii) occupancy expenses, which include costs
related to all owned and or leased facilities, including rent, utilities, etc.
These expenses are expected to remain stable in the near future with the
exception of advertising, which is expected to increase in connection with the
new advertising campaign and continued retail expansion.

Amortization of Reorganization Asset

As a result of the Reorganization, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges for the second quarter 1998 totaling
approximately $825 thousand as opposed to approximately $275 thousand in the
second quarter 1997. The increase is primarily attributable to the three months
of amortization charges for the second quarter 1998 versus only one month for
the second quarter 1997.

-14-

<PAGE>

Depreciation and Amortization

Depreciation and amortization increased to approximately $1.2 million
in the second quarter 1998 from approximately $850 thousand in the second
quarter 1997 as a result of the amortization charges associated with the
trademarks and bank fees associated with the financing agreement. The trademarks
are being amortized over 35 years beginning June 4, 1997 and resulted in
amortization charges in the second quarter 1998 of approximately $365 thousand
compared with $110 thousand in the second quarter 1997. The bank fees are being
amortized over the life of the financing agreement, which is three years,
beginning June 4, 1997, and resulted in approximately $200 thousand of
amortization charges for the second quarter 1998 versus approximately $60
thousand in the second quarter 1997. These increases are primarily attributable
to the three months of depreciation and amortization charges for the second
quarter 1998 versus only one month for the second quarter 1997.

Interest and Financing Costs

Interest and financing costs increased to $4.0 million in the second
quarter 1998 from $1.3 million in the second quarter 1997, an increase of
approximately $2.7 million. The increase is primarily attributable to the three
months of interest expense in the second quarter 1998 on the $110 million Senior
Notes, which were issued on June 4, 1997, versus only one month for the second
quarter 1997. The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable semi-annually on March 31 and September 30.
Interest relating the Senior Notes totaled $3.5 million for the second quarter
1998 compared to approximately $1.1 million in the second quarter 1997. There
are no principal payments due until maturity. To the extent that the Company
elects to undertake a secondary stock offering or elects to prepay certain
amounts, a premium will be required to be paid.

Income Taxes

Provision for income taxes was $(1.6) million for the second quarter
1998. This amount differs from the amount computed by applying the federal
income tax statutory rate of 34% to income before taxes because of state and
foreign taxes, and timing differences relating primarily to customer reserves
and allowances, inventory, depreciation and amortization. Income taxes for
periods prior to June 4, 1997 were computed using the effective tax rate that
would have been applicable, had the Company been an independent entity.

Twenty-six Weeks Ended July 4, 1998 as Compared to Twenty-seven Weeks ended
July 5, 1997

Net Sales

Net Sales for the twenty-six weeks ended July 4, 1998 (the "first half
1998") were $158.5 million as compared to $153.0 for the twenty-seven weeks
ended July 5, 1997 (the "first half 1997"). Wholesale sales increased to $137.7
million for the first half 1998, from $136.3 million in the first half 1997. In
addition, the extra week's wholesale sales for the first half 1997 were $5.4
million, resulting in an overall increase of $6.8 million on a comparable
twenty-six week basis.

Retail sales increased to $20.9 million in the first half 1998 from
$16.6 million in the first half 1997, an increase of approximately 25.9% due
primarily to the net addition of 13 retail outlet stores over the last 12
months. The extra week's retail sales in the first half 1997 amounted to
approximately $0.5 million, resulting in

-15-

<PAGE>

an overall increase of $4.8 million on a comparable twenty-six week basis.
Comparable store sales for the first half 1998 were $15.6 million as compared to
$14.2 million for the first half 1997, an increase of 9.9%.

Gross Profit

Gross Profit as a percentage of net sales increased to 29.0% for the
first half 1998, compared to 25.7% for the first half 1997. The improvement over
the first half 1997 can be attributed to the growth in retail store sales as
well as the continued improved performance at the wholesale level. Wholesale
gross profit as a percentage of sales increased to 27.2% in the first half 1998
from 24.1% in the first half 1997.

Retail gross profit as a percentage of sales increased to 41.5% in the
first half 1998 from 38.5% in the first half 1997.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $30.7 million
in the first half 1998 as compared to $27.6 million in the first half 1997, an
increase of $2.9 million. The extra week in the first half 1997 contributed an
extra $1.1 million in selling, general and administrative expenses, resulting in
an overall increase of $4.0 million on a comparable twenty-six week period.
Approximately $1.8 million of this increase is attributed to increased selling,
administrative and occupancy costs related to the net addition of 13 retail
outlet stores.

The remaining increase is associated with wholesale operations.
Advertising expenses increased by approximately $1.4 million primarily as a
result of the new advertising campaign. Administrative expenses increased by
approximately $1.1 million. Approximately $400 thousand of this can be
attributed to the change in compensation structure for the Chief Executive
Officer. The remaining administrative increase relates to additional expenses
incurred as a result of becoming an independent, public company. Kasper
operations in Canada and the U.K. contributed approximately $500 thousand in
additional selling, general and administrative expenses. These increases were
offset by a decrease in royalty expense of approximately $600 thousand as a
result of the trademark acquisition, as well as a decrease in occupancy costs of
approximately $200 thousand as a result of the new warehouse.

Amortization of Reorganization Asset

As a result of the Reorganization, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges for the first half 1998 totaling
approximately $1.6 million as opposed to approximately $275 thousand in the
first half 1997. The increase is primarily attributable to the six months of
amortization charges for the first half 1998 versus only one month for the first
half 1997.

Depreciation and Amortization

Depreciation and amortization increased to approximately $2.5 million
in the first half 1998 from approximately $1.2 million in the first half 1997
primarily as a result of the amortization charges associated with the trademarks
and bank fees associated with the financing agreement. The trademarks are being
amortized over 35 years beginning June 4, 1997 and resulted in amortization
charges in first half 1998 of approximately $730 thousand compared with $110
thousand in the first half 1997. The bank fees are being amortized over the life

-16-

<PAGE>

of the financing agreement, which is three years, beginning June 4, 1997 and
resulted in approximately $400 thousand of amortization charges for the first
half 1998 versus approximately $60 thousand in the first half 1997. These
increases are primarily attributable to the six months of depreciation and
amortization charges for the first half 1998 versus only one month for the first
half 1997.

Interest and Financing Costs

Interest and financing costs increased to $8.1 million in the first
half 1998 from $1.7 million in the first half 1997, an increase of approximately
$6.4 million. The increase is primarily attributable to the six months of
interest expense in the first half 1998 on the $110 million Senior Notes, which
were issued on June 4, 1997, versus only one month in the first half of 1997.
The Senior Notes bear interest at 12.75% per annum and mature on March 31, 2004.
Interest is payable semi-annually on March 31 and September 30. Interest
relating to the Senior Notes totaled $7.0 million for the first half 1998
compared to approximately $1.1 million in the first half 1997. There are no
principal payments due until maturity. To the extent that the Company elects to
undertake a secondary stock offering or elects to prepay certain amounts, a
premium will be required to be paid.

Income Taxes

Provision for income taxes was $ 1.3 million for the first half 1998.
This amount differs from the amount computed by applying the federal income tax
statutory rate of 34% to income before taxes because of state and foreign taxes,
and timing differences relating primarily to customer reserves and allowances,
inventory, depreciation and amortization. Income taxes for periods prior to June
4, 1997 were computed using the effective tax rate that would have been
applicable, had the Company been an independent entity.

Liquidity and Capital Resources

Net cash used in operating activities was $14.7 million during the
first half 1998 as compared to cash provided by operations of $33.6 million for
the first half 1997, primarily as a result of the increase in inventory and
accounts receivable. The increase in inventories is primarily due to higher
levels of finished goods necessary to stock the expanding Quick Response
replenishment program and the growing retail outlet store operations, as well as
to ensure timely shipments to our customers. Accounts receivable increased as a
result of the higher sales for the period.

The Company's main sources of liquidity historically have been cash
flows from operations and credit facilities. Prior to June 4, 1997, as a
division of Leslie Fay, the Company either borrowed from, or invested its excess
cash with Leslie Fay. The Company's capital requirements primarily result from
working capital needs, retail expansion and renovation of department store
boutiques and other corporate activities.

Effective June 5, 1997, the Company entered into a $100 million working
capital facility with BankBoston, N.A. as the agent bank for a consortium of
lending institutions. The facility provides for a sub-limit for letters of
credit of $50 million. The working capital facility is secured by substantially
all the assets of the Company. The working capital facility expires in fiscal
2000 and provides for various borrowing rate options, including rates based upon
a fixed spread over LIBOR. The facility provides for the maintenance of certain
financial ratios and covenants and sets limits on the amount of capital
expenditures and dividends to shareholders. Availability under the facility is
limited to a borrowing base calculated upon eligible accounts receivable,
inventory and letters of credit. As of July 4, 1998, there were direct
borrowings of $4.4 million outstanding, $20.4 million in letters of credit
outstanding and $26.8 million available for future borrowings.

-17-

<PAGE>

Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes. The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable semi-annually on March 31 and September 30.
Interest relating the Senior Notes for the first half 1998 totaled $7.0 million.
There are no principal payments due until maturity. To the extent that the
Company elects to undertake a secondary stock offering or elects to prepay
certain amounts, a premium will be required to be paid.

The Company assumed from Leslie Fay a factoring/financing agreement
with Heller Financial ("Heller"). The agreement was for the sole purpose of
supporting the Sassco Fashions Division of Leslie Fay. The agreement had a
two-year term expiring in February 1998. It provided for Heller to act as the
credit and collection arm of the Company. The Company would receive funds from
Heller as the receivables were collected. Any amounts unpaid after 120 days
would be guaranteed and paid to the Company by the factor. The cost was .4% for
the first $240 million in sales and .35% for sales above that amount. The
agreement was amended in January, 1998 to add an additional 18 months to the
term of the arrangement and lower the rate to .35% for the first $250 million in
sales and .3% on the excess over that amount.

Capital expenditures were $3.3 million for both the first half 1998 and
first half 1997, respectively. Capital expenditures for the first half 1998
represent spending associated with the relocation to a new sales, production and
design office, continued retail outlet store development, overseas facilities
development and computer system improvements. Capital expenditures for 1998 are
anticipated to total approximately $5.5 million.

Year 2000 Compliance

The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000"
problem. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. The Company uses software developed and
supported by third parties for all mission critical applications including order
entry, distribution, shipping, electronic data interchange ("EDI") and for its
retail operations. Each of these software vendors has assured the Company in
writing that the current version of their software has been tested and is Year
2000 compliant. The Company has initiated a testing project that will verify
each of the vendor's claims. This testing is expected to be completed by the
early part of the second quarter 1999. The Company does not believe the cost of
this testing to be material.

The Company is also highly dependent on its customers' ability to
transmit and receive EDI documents such as purchase orders, invoices and advance
shipping notices. The Company is in the process of testing the exchange of
electronic information with a number of retailers in order to ensure Year 2000
compliance and expects this evaluation to be completed by the early part of the
second quarter 1999. As an additional precaution, the Company is in the process
of developing contingency plans, which are also expected to be completed during
the second quarter 1999. Despite all efforts, however, there is no guarantee
that these systems will be Year 2000 compliant under all the circumstances and
volume stresses that may actually be required. The failure of one or more
critical systems to be Year 2000 compliant could have a material adverse effect
on the results of the Company's operations.

-18-

<PAGE>

Recently Issued Accounting Pronouncements

In 1998, AcSEC issued SOP No. 98-5 "Reporting on the Costs of Start-Up
Activities." SOP No. 98-5 establishes standards on accounting for start-up and
organization costs and, in general, requires such costs to be expensed as
incurred. This standard is required to be adopted on January 1, 1999. The
Company is currently evaluating the estimated impact of adoption, if any.

Change in Method of Accounting

The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to such principles, the
Company's assets, upon emergence from Chapter 11, are stated at "reorganization
value", which is defined as the value of the entity before considering
liabilities on a going-concern basis following the reorganization and represents
the estimated amount a willing buyer would pay for the assets of the Company
immediately after the reorganization. The reorganization value for the Company
was determined by reference to the remaining liabilities plus the estimated
value of shareholders' equity of the outstanding shares of the Common Stock. The
reorganization value of the Company was allocated to the assets of the Company
in conformity with the procedures specified by Accounting Principles Board
Opinion No. 16, Business Combinations, for transactions reported on the basis of
the purchase method of accounting. In this allocation, identifiable assets were
valued at estimated fair values, and any excess reorganization value has been
recorded as "reorganization value in excess of amounts allocated to identifiable
assets" (a long-term intangible asset similar to "goodwill").

Impact of Asian Financial and Currency Crisis

To date, the Company has not experienced any difficulty in obtaining
needed raw material from its primary sources of supply in the Far East which are
located in Japan, nor has it experienced any problems with its sewing
contractors in Taiwan, the Philippines, Hong Kong and China. Over the past year,
the region has suffered extreme volatility in its local financial markets and
currency exchanges. As a result, no assurance can be given that the Company will
continue to have an uninterrupted source of supply from the region. The
inability of certain suppliers to provide needed items on a timely basis could
materially adversely affect the Company's operations, business and financial
condition.

Disclosure Regarding Forward-Looking Information

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and section 21E of the Securities Act
of 1934, as amended. Forward-looking statements are typically identified by the
words "believe", "expect", "intend", "estimate" and similar expressions. Those
statements appear in an number of places in this report and include statements
regarding the intent, belief or current expectation of the Company or its
directors or officers with respect to, among other things, trends affecting the
Company's financial conditions and results of operations and the Company's
business and growth strategies. Such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors (such factors are
referred to herein as "Cautionary Statements"), including but not limited to the
following: (i) the Company's limited operating history, (ii) potential
fluctuations in the Company's quarterly operating results, (iii) the Company's
concentration of revenues, (iv) challenges facing the Company

-19-

<PAGE>
related to its rapid growth, (v) the Company's dependence on a limited number of
suppliers and (vi) the ability of the Company and third parties, including
customers or suppliers, to adequately address Year 2000 issues. The accompanying
information contained in this report, including the information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", identifies important factors that could cause such differences.
Such forward-looking statements speak only as of the date of this report, and
the Company cautions potential investors not to place undue reliance on such
statements. The Company undertakes no obligation to update or revise any
forward-looking statements. 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.

-20-

<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

27 Financial Data Schedule

(b) Reports on Form 8-K:

None.

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<PAGE>

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)

/s/ Lester E. Schreiber
---------------------------------
Lester E. Schreiber
Chief Operating Officer

Dated: August 18, 1998 /s/ Dennis P. Kelly
----------------------------------
Dennis P. Kelly
Chief Financial Officer

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<PAGE>

EXHIBIT INDEX
-------------

Exhibit
Number Description
- ------- -----------

27 Financial Data Schedule

<ARTICLE> 5
<CIK> 0001037067
<NAME> Kasper A.S.L., LTD
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> APR-05-1998
<PERIOD-END> JUL-04-1998
<CASH> 2,924
<SECURITIES> 0
<RECEIVABLES> 53,795
<ALLOWANCES> 18,564
<INVENTORY> 91,128
<CURRENT-ASSETS> 135,289
<PP&E> 20,667
<DEPRECIATION> 4,404
<TOTAL-ASSETS> 265,151
<CURRENT-LIABILITIES> 26,980
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 122,614
<TOTAL-LIABILITY-AND-EQUITY> 265,151
<SALES> 62,371
<TOTAL-REVENUES> 62,371
<CGS> 44,507
<TOTAL-COSTS> 16,035
<OTHER-EXPENSES> 1,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,017
<INCOME-PRETAX> (3,840)
<INCOME-TAX> (1,615)
<INCOME-CONTINUING> (2,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,225)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)

</TABLE>