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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 24, 1999
KASPER A.S.L., LTD.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-24179 22-3497645
- ---------------------------- ------------------------ ----------------------
(State of Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification Number)
77 METRO WAY
SECAUCUS, NEW JERSEY 07094
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(201) 864-0328
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
55745.0005
<PAGE>
EXPLANATORY NOTE
This Current Report on Form 8-K/A amends and restates in its entirety
Item 7 of the Current Report on Form 8-K of Kasper A.S.L., Ltd. (the "Company"),
filed with the Securities and Exchange Commission on December 8, 1999 (the
"Original 8-K").
FORWARD-LOOKING STATEMENTS
The statements contained in this Current Report on Form 8-K/A 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 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 general economic conditions;
o the ability of the Company to adapt to changing consumer preferences and
tastes;
o the Company's limited operating history;
o potential fluctuations in the Company's operating costs and results;
o the Company's concentration of revenues;
o challenges facing the Company related to its rapid growth;
o the Company's dependence on a limited number of suppliers; and
o the ability of the Company to successfully integrate the businesses
acquired from Fashions of Seventh Avenue, Inc. and Affiliates into the
Company's existing businesses.
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.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The following financial statements for the acquired business are filed herewith:
Report of Independent Public Accountants on Fashions of Seventh
Avenue, Inc. and Affiliates for the Year ended December 31, 1998
Fashions of Seventh Avenue, Inc. and Affiliates Combined Balance
Sheet as of December 31, 1998
Fashions of Seventh Avenue, Inc. and Affiliates Combined Statements
of Operations and Accumulated Deficit and Statement of Cash Flows for
the Fiscal Year ended December 31, 1998
Notes to Combined Financial Statements
Fashions of Seventh Avenue, Inc. and Affiliates Unaudited Condensed
Balance Sheet as of September 27, 1999
Fashions of Seventh Avenue, Inc. and Affiliates Unaudited Condensed
Statement of Operations and Unaudited Condensed Statement of Cash
Flows for the Thirty-nine weeks ended September 27, 1999
Notes to Unaudited Condensed Financial Statements
(b) Pro Forma Financial Information
The following unaudited pro forma combined condensed consolidated financial
statements are filed herewith:
Pro Forma Combined Condensed Consolidated Balance Sheet as of October
2, 1999
Pro Forma Combined Condensed Consolidated Statement of Operations for
the Thirty-nine Weeks ended October 2, 1999
Pro Forma Combined Condensed Consolidated Statement of Operations for
the Fiscal Year ended January 2, 1999
Notes to the Pro Forma Combined Condensed Consolidated Financial
Statements
3
<PAGE>
(c) Exhibits
Exhibit No. Description
----------- -----------
2 Asset Purchase Agreement, dated as of November 24, 1999,
among Kasper A.S.L., Ltd. and A.S.L. Retail Outlet, Inc.,
as buyers, and Fashions of Seventh Avenue, Inc., Fashions
of Destin, Inc., Fashions of Michigan, Inc., Fashions of
Reno, Inc., Fashions of Vero Beach, Inc., Anne Klein of
Massachusetts, Inc. and Fashions of Clinton, Inc., as
sellers*
99 Press Release dated November 30, 1999 *
----------------------------------------------
*Previously filed as part of the Original 8-K.
4
<PAGE>
Report of Independent Public Accountants
To the Management of Fashions of Seventh Avenue, Inc. and Affiliates:
We have audited the accompanying combined balance sheet of Fashions
of Seventh Avenue, Inc. and Affiliates (an S corporation) (the
"Company") as of December 31, 1998, and the related combined
statements of operations and accumulated deficit and cash flows for
the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Company as of December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
November 30, 1999
New York, New York
5
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
1998
------------
<S> <C>
Current assets:
Cash and cash equivalents ............................................. $ 250
Accounts receivable ................................................... 144
Inventory ............................................................. 4,702
Prepaid expenses and other current assets ............................. 102
--------
Total current assets ........................................................ 5,198
Equipment and leasehold improvements, net of
accumulated depreciation of $3,354 .................................... 1,296
Other Assets ................................................................ 48
--------
Total Assets .......................................................... $ 6,542
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ................................. $ 268
Accounts payable due to related party ................................. 4,926
Taxes payable ......................................................... 114
Current portion of notes payable - stockholders ....................... 700
Accrued interest - stockholders ....................................... 224
Current portion of lease obligations .................................. 109
Notes payable - bank .................................................. 2,000
--------
Total current liabilities ................................................... 8,341
Long-Term Liabilities:
Lease obligations, net of current portion ............................. 241
Notes payable - stockholders, net of current portion .................. 1,700
--------
Total liabilities ........................................................... 10,282
Commitments and Contingencies
Shareholders' Deficit:
Common stock, no par value; 1,200 shares authorized, issued and outstanding,
and additional paid in capital............................................... 85
Accumulated deficit ......................................................... (3,825)
--------
Total shareholders' deficit ........................................... $ (3,740)
--------
Total liabilities and shareholders' deficit ........................... $ 6,542
========
</TABLE>
See notes to combined financial statements.
6
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(in thousands)
YEAR ENDED
------------
DECEMBER 31,
1998
Net Sales ..................................................... $ 24,382
Cost of goods sold ............................................ 16,166
--------
Gross profit .................................................. 8,216
Selling, general and administrative expenses .................. 10,968
Depreciation and amortization ................................. 355
--------
Operating loss ................................................ (3,107)
Interest expense, net ......................................... 480
--------
Net loss before provision for income taxes .................... (3,587)
Provision for income taxes .................................... 33
--------
Net loss ...................................................... (3,620)
Accumulated deficit - beginning of year ....................... (205)
--------
Accumulated deficit - end of year ............................. (3,825)
========
See notes to combined financial statements.
7
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
YEAR ENDED
------------
DECEMBER 31,
1998
------------
OPERATING ACTIVITIES
Net loss .................................................... $(3,620)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ............................ 355
Changes in operating assets and liabilities:
Accounts receivable ...................................... 58
Inventories .............................................. 1,685
Prepaid expenses and other current assets ................ (82)
Other assets ............................................. 10
Accounts payable and accrued expenses .................... 2,553
Taxes and other payables ................................. 46
-------
Net cash provided by operating activities ................... 1,005
-------
INVESTING ACTIVITIES
Purchase of fixed assets, net ............................ (605)
-------
Net cash used in investing activities ....................... (605)
-------
FINANCING ACTIVITIES
Repayment of note payable - bank ......................... (500)
Capital lease obligation ................................. 350
-------
Net cash used in financing activities ....................... (150)
Increase in cash and cash equivalents ....................... 250
Cash and cash equivalents at beginning of year .............. --
-------
Cash and cash equivalents at end of year .................... $ 250
=======
Supplemental cash flow information:
Interest paid ............................................ $ 485
=======
Taxes paid ............................................... $ 10
=======
See notes to combined financial statements.
8
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
A. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Fashions of Seventh Avenue, Inc. and Affiliates sells women's high fashion
apparel and accessories through its own factory retail stores under the name
Anne Klein. The combined financial statements include the accounts of Fashions
of Seventh Avenue, Inc. (a New Jersey corporation), Fashions of Destin, Inc. (a
Florida corporation) Fashions of Reno, Inc. (a Nevada corporation), Anne Klein
of Massachusetts, Inc. (a Massachusetts corporation), Fashions of Lahaska, Inc.
(a Pennsylvania corporation), Fashions of Michigan, Inc. (a Michigan
corporation), Fashions of Vero Beach, Inc. (a Florida corporation) and Fashions
of Clinton, Inc. (a Connecticut corporation), collectively "Fashions of Seventh
Avenue, Inc. and Affiliates" or the "Company". All of the above mentioned
entities are owned by the same stockholders and operate as Anne Klein factory
retail stores. All intercompany transactions and balances have been eliminated
in combination.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the time of acquisition are classified as cash and cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, fixtures and equipment are carried at cost. Depreciation is computed
using the straight-line method over five to seven years for financial reporting
purposes and accelerated methods for federal income tax purposes.
Leasehold improvements are carried at cost and amortized over the life of the
lease.
Major expenditures for renewals and betterments are capitalized and are subject
to depreciation. When assets are retired or disposed of, the cost and related
accumulation are eliminated from the accounts, and the resulting gains or losses
are reflected in earnings for the period. Expenditures for maintenance and
repairs are charged to expense as incurred.
INCOME TAXES
The combined Companies, with the consent of their stockholders, have elected
under the Internal Revenue Code to be S Corporations for federal income tax
purposes. In lieu of federal corporation income taxes, the stockholders of an S
Corporation are taxed on their proportionate share of the Company's taxable
income.
Tax provisions have been recorded at the current prevailing state corporate tax
rates in those states in which the Company operates retail stores and where the
Company is responsible for such taxes.
9
<PAGE>
A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments requires disclosure of the fair value of certain
financial instruments. Cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are reflected at fair value because of the short
term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company has adopted Statement No. 121 and believes that no significant
impairment of long-lived assets has occurred at December 31, 1998.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company incurred $321,880 in
advertising costs during 1998.
B. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are summarized by major classifications as
follows at December 31, 1998.
December 31,
1998
------------
Furniture and fixtures $ 2,953
Equipment 1,008
Leasehold improvements 689
-------
4,650
-------
Less: Accumulated depreciation (3,354)
-------
$ 1,296
=======
10
<PAGE>
C. RELATED PARTY TRANSACTIONS
PURCHASES
Two of the Company's stockholders are principals of the Company's major supplier
from which management estimates it obtains approximately 60% of its merchandise.
The Company's purchases from this supplier are substantially at the same prices
and terms as offered to unaffiliated customers of this supplier. Total
accounts payable due to this related party was $4,926,000 as of December 31,
1998.
NOTES PAYABLE TO STOCKHOLDERS
From time to time, certain stockholders are called upon to loan the Company
funds necessary for working capital purposes. These loans are subordinate to the
notes payable to the bank and, therefore, have no set repayment terms. Amounts
classified as current represent management's estimate of amounts to be repaid to
stockholders during 1999. These loans bear interest at 1% above the prime rate.
The interest rate ranged from 8.75% to 9.5% for the year ended December 31,
1998. Total notes payable to stockholders and related accrued interest were
$2,400,000 and $224,000, respectively, as of December 31, 1998. Accrued interest
was paid in full as of November 9, 1999.
D. NOTES PAYABLE - BANK
The Company had an uncommitted line of credit from a bank ("the Credit Line") in
an amount not to exceed $3,000,000, which expired on June 30, 1998. The Credit
Line remained open through November 10, 1998 when it was replaced with a Master
Grid Note (the "Note"), which expires on December 31, 1998. The Note was in the
amount of $2,000,000. Both the Credit Line and the Note were collateralized by
the Company's Anne Klein inventory. Amounts drawn are payable upon demand and
bear interest at 1% above the prime rate. The interest rate was 9.09% at
December 31, 1998. During 1998, $500,000 was repaid. As of December 31, 1998,
Note payable to bank totaled $2,000,000. The Note remained outstanding until
November 24, 1999, when it was paid in full as part of the Kasper transaction.
(See Note H).
E. COMMITMENTS AND CONTINGENCIES
The Company leases its stores, office and warehouse space under long-term
operating leases that expire on various dates through 2005. Most of these leases
have renewal options.
During 1998 rental expense under such leases was $3,109,000, including
contingent rent of $731,000, which is based on sales volume.
Equipment leases that meet the criteria for capitalization are recorded in the
accompanying financial statements as equipment and leasehold improvements, and
the related obligations are recorded as lease obligations at the present value
of future minimum rental payments.
11
<PAGE>
At December 31, 1998, minimum rental payments due under noncancellable operating
leases consisted of the following:
1999 $ 1,796,022
2000 1,254,521
2001 933,131
2002 720,145
2003 386,721
Thereafter 150,706
--------------
Total minimum lease payments $ 5,241,246
==============
F. RETIREMENT BENEFITS
In 1994, the Company adopted the Anne Klein Factory Stores Retirement Plan (the
"Plan") under section 401(k) of the Internal Revenue Code. Employees that have
completed one (1) year of service and have attained 21 years of age are eligible
to participate in the Plan. Under the Plan, employees may elect to have a
percentage of their salary deferred and deposited with a qualified trustee, that
in turn invests the money.
The Company matches 25% of employee contributions to a maximum of 8% of an
employee's annual salary subject to the limitations imposed by the Internal
Revenue Code. The Company may, at its sole discretion, contribute additional
amounts on behalf of all employees on a pro rata basis. All employees'
contributions into the Plan are 100% vested, while the Company's matching
contributions vest over a five-year period. The Company contributed
approximately $35,000 to the Plan during 1998.
G. YEAR 2000 MATTERS (UNAUDITED)
Like most corporations, the Company is reliant on technology to conduct its
business. As the millennium approaches, the Company is preparing its computer
systems to be Year 2000 compliant. The Company will be reviewing its systems to
ensure that they do not malfunction as a result of the Year 2000. The current
cost of this effort is still being evaluated.
The Company will initiate formal communications with its suppliers and customers
to determine the extent to which the Company's systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
H. SUBSEQUENT EVENT
Through April 30, 1999, the Company closed 10 of its Anne Klein factory outlet
stores. There were no store closing costs accrued as of December 31, 1998.
On November 24, 1999, Kasper A.S.L., Ltd. ("Kasper") acquired for $300,000 cash,
substantially all of the assets, and assumed certain liabilities, of twenty-five
Anne Klein factory outlet stores of the Company pursuant to an Asset Purchase
Agreement. The assets acquired included store fixtures and inventory of the
factory outlet stores. Liabilities assumed include the note payable to the bank,
certain other inventory related liabilities and lease obligations. The aggregate
purchase price for the acquired assets and assumed liabilities was approximately
$4.0 million.
12
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
UNAUDITED CONDENSED COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 27,
1999
----
<S> <C>
Current assets:
Cash and cash equivalents .............................................. $ 1,354
Accounts receivable .................................................... 368
Inventory .............................................................. 2,170
Prepaid expenses and other current assets .............................. 12
--------
Total current assets ........................................................ 3,904
Equipment and leasehold improvements, net ................................... 1,079
Other Assets ................................................................ 44
--------
Total assets ................................................................ 5,027
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ................................. $ 1,503
Accounts payable due to related party ................................. 5,296
Taxes payable ......................................................... 149
Current portion of notes payable - stockholders ....................... 700
Accrued interest - stockholders ....................................... 224
Current portion of lease obligation ................................... 70
Notes payable - bank .................................................. 2,000
--------
Total current liabilities ................................................... 9,942
Long-Term Liabilities:
Lease obligation, net of current portion ............................. 182
Notes payable - stockholders, net of current portion ................. 1,700
--------
Total liabilities ........................................................... 11,824
Commitments and Contingencies
Shareholders' Deficit:
Common stock, no par value; 1,200 shares authorized, issued and outstanding,
and additional paid in capital .............................................. 85
Accumulated deficit ......................................................... (6,882)
--------
Total shareholders' deficit ........................................... $ (6,797)
--------
Total liabilities and shareholders' deficit ........................... $ 5,027
========
</TABLE>
See notes to condensed combined financial statements.
13
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands)
THIRTY-NINE
WEEKS ENDED
-----------
SEPTEMBER 27,
1999
Net Sales ..................................................... $ 12,648
Cost of goods sold ............................................ 8,994
--------
Gross profit .................................................. 3,654
Selling, general and administrative expenses .................. 6,353
Depreciation and amortization ................................. 252
--------
Operating Loss ................................................ (2,951)
Interest expense, net ......................................... 110
--------
Net loss before provision for income taxes .................... $ (3,061)
Income tax benefit ............................................ (4)
--------
Net loss ...................................................... $ (3,057)
========
See notes to condensed combined financial statements.
14
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
-------------
SEPTEMBER 27,
-------------
1999
-------------
OPERATING ACTIVITIES
<S> <C>
Net loss.............................................................. $(3,057)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization...................................... 252
Changes in operating assets and liabilities:
Accounts receivable................................................ (224)
Inventories........................................................ 2,532
Prepaid expenses and other current assets.......................... 90
Other assets....................................................... 4
Accounts payable and accrued expenses.............................. 1,605
Taxes payable...................................................... (35)
------------
Net cash provided by operating activities............................. 1,167
------------
INVESTING ACTIVITIES
Disposal of fixed assets, net...................................... 35
------------
Net cash provided by investing activities............................. 35
------------
FINANCING ACTIVITIES
Capital lease obligation........................................... (98)
------------
Net cash used in financing activities................................. (98)
Increase in cash and cash equivalents................................. 1,104
Cash and cash equivalents at beginning of year........................ 250
------------
Cash and cash equivalents at end of year.............................. $ 1,354
============
</TABLE>
See notes to condensed combined financial statements.
15
<PAGE>
FASHIONS OF SEVENTH AVENUE, INC. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
SEPTEMBER 27, 1999
NOTE 1. GENERAL
The Condensed Combined Financial Statements included herein have been prepared
by Fashions of Seventh Avenue, Inc. and Affiliates ("FSA") without audit.
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; however FSA believes the
disclosures are adequate to make the information presented not misleading. These
condensed combined financial statements should be read in conjunction with the
combined financial statements for the year ended December 31, 1998 and the notes
thereto included herein this Form 8-K.
In the opinion of FSA's management, the accompanying interim condensed combined
financial statements contain all material adjustments necessary to present
fairly the condensed combined financial condition, results of operations and
changes in financial position of FSA for the interim period presented.
NOTE 2. KASPER TRANSACTION
On November 24, 1999, Kasper A.S.L., Ltd. ("Kasper") acquired, for $300,000
cash, substantially all of the assets, and assumed certain liabilities, of
twenty-five Anne Klein factory outlet stores of the Company pursuant to an Asset
Purchase Agreement. The assets acquired included store fixtures and inventory of
the factory outlet stores acquired. Liabilities assumed include the note payable
to the bank and certain other inventory related liabilities. The aggregate
purchase price for the acquired assets and assumed liabilities was approximately
$4.0 million.
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed consolidated
financial statements give effect to the purchase of substantially all the assets
of 25 retail outlet stores (the "Purchase") of Fashions of Seventh Avenue, Inc.
and Affiliates ("FSA") and the assumption of certain liabilities by Kasper
A.S.L., Ltd. (the "Company") and A.S.L. Retail Outlets, Inc. (a wholly owned
subsidiary of the Company) under the purchase method of accounting. The Purchase
was consummated pursuant to an Asset Purchase Agreement dated as of November 24,
1999, by and among the Company and A.S.L. Retail Outlets, Inc, as buyers, and
Fashions of Seventh Avenue, Inc., Fashions of Destin, Inc., Fashions of
Michigan, Inc., Fashions of Reno, Inc., Fashions of Vero Beach, Inc., Anne Klein
of Massachusetts, Inc. and Fashions of Clinton, Inc., as sellers. The Purchase
price was funded by cash provided by operations. The Company utilizes a 52-53
week fiscal year ending on the Saturday nearest December 31, whereas FSA
utilizes a calendar year end. For purposes of the pro forma financials
statements, the Company's year end and thirty-nine weeks ended January 2, 1999
and October 2, 1999, respectively were used. FSA's year end and thirty-nine
weeks ended December 31, 1998 and September 27, 1999 would not have resulted in
any material differences.
The pro forma combined condensed consolidated balance sheet as of
October 2, 1999 assumes the Purchase took place on that date and is based on the
unaudited historical condensed consolidated balance sheet, reported on the
Company's Form 10-Q, filed with the SEC and the unaudited condensed combined
balance sheet of FSA. The pro forma adjustments record the purchase price of
$3,963,000, which includes professional fees, financing fees and other costs,
and allocate the pro forma purchase price to the assets acquired and liabilities
assumed. The pro forma adjustments relating to the Purchase and integration of
FSA represent the Company's preliminary determinations of these adjustments and
preliminary allocation to the assets acquired and liabilities assumed. A final
determination of the required purchase accounting adjustments has not been made.
Accordingly, the purchase accounting adjustments made in connection with the
preparation of the unaudited pro forma financial information reflect the
Company's best estimate based upon currently available information. Final
amounts could differ from those set forth herein.
The pro forma combined condensed consolidated statements of
operations for the thirty nine weeks ended October 2, 1999 and for the fiscal
year ended January 2, 1999 ("Fiscal 1998") assume that the transaction was
consummated at the beginning of Fiscal 1998, and are based on the historical
consolidated statements of operations, reported on the Company's Form 10-Q and
Form 10-K and the historical statements of operations of FSA.
The unaudited pro forma financial information and related notes are
provided for informational purposes only and are not necessarily indicative of
what the Company's actual financial position or results of operations would have
been had the foregoing transaction been consummated on such dates, nor does it
give effect to the synergies, cost savings and other charges expected to result
from the Purchase. Accordingly, the pro forma financial information does not
purport to be indicative of the Company's financial position or results from
operations as of the date hereof or for any period ended on the date hereof or
as of or for any other future dates or periods.
The pro forma combined condensed consolidated balance sheet and
statements of operations should be read in conjunction with the accompanying
notes to financial statements included herein.
17
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES AND FASHIONS OF SEVENTH AVENUE, INC.
AND AFFILIATES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 2, 1999
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -------------------------------
ASSETS
KASPER FSA ADJUSTMENTS* COMBINED
--------- --------- ------------ --------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................... $ 3,987 $ 1,354 $ (4,133) (a) $ 1,208
Accounts receivable ..................................... 60,410 368 (368) (b) 60,410
Inventories ............................................. 78,140 2,170 (205) (c) 80,105
Prepaid expenses and other current assets ............... 6,675 12 (12) (b) 6,675
--------- --------- --------- ---------
Total Current Assets .................................... 149,212 3,904 (4,718) 148,398
--------- --------- --------- ---------
Property, plant and equipment, net .......................... 16,337 1,079 (78) (d) 17,338
Reorganization value in excess of identifiable assets, net .. 57,577 -- -- 57,577
Trademarks, net ............................................. 110,381 -- -- 110,381
Other assets, net ........................................... 5,245 44 953 (e) 6,242
--------- --------- --------- ---------
Total Assets ............................................. $ 338,752 $ 5,027 $ (3,843) $ 339,936
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ......................................... $ 19,495 $ 1,172 $ (620) (f) $ 20,047
Accounts payable due to related party .................... -- 5,296 (5,296) (g) --
Accrued expenses and other current liabilities ........... 8,689 331 49 (h) 9,069
Note Payable - stockholders .............................. -- 700 (700) (g) --
Interest Payable ......................................... 275 224 (224) (g) 275
Taxes payable ............................................ 1,885 149 (149) (g) 1,885
Current portion of lease obligations ..................... -- 70 -- 70
Notes payable - bank ..................................... -- 2,000 (2,000) (i) --
--------- --------- --------- ---------
Total Current Liabilities ................................ 30,344 9,942 (8,940) 31,346
Long-Term Liabilities:
Deferred Taxes ........................................... 1,630 -- -- 1,630
Lease obligations, net of current portion ................ -- 182 -- 182
Long-Term Debt ........................................... 110,000 -- -- 110,000
Bank Revolver ............................................ 69,158 -- -- 69,158
Notes payable - stockholders, net of current portion ..... -- 1,700 (1,700) (g) --
Other liabilities ........................................ 250 -- -- 250
Minority Interest ........................................ 590 -- -- 590
--------- --------- --------- ---------
Total Liabilities ........................................ 211,972 11,824 (10,640) 213,156
Commitments and Contingencies
Shareholders' Equity / (Deficit):
Common Stock ............................................. 68 85 (85) (j) 68
Capital in excess of par value ........................... 119,932 -- -- 119,932
Retained Earnings / (Accumulated Deficit) ................ 6,958 (6,882) 6,882 (j) 6,958
Cumulative Other Comprehensive Income .................... (178) -- -- (178)
--------- --------- --------- ---------
Total Shareholders' Equity / (Deficit) ................... 126,780 (6,797) 6,797 126,780
--------- --------- --------- ---------
Total Liabilities and Shareholders' Equity ............... $ 338,752 $ 5,027 $ (3,843) $ 339,936
========= ========= ========= =========
</TABLE>
* All letter references correspond to Note 1.
18
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES AND FASHIONS OF SEVENTH AVENUE, INC.
AND AFFILIATES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- -----------------------
KASPER FSA ADJUSTMENTS* COMBINED
-------- -------- ------------- --------
<S> <C> <C> <C> <C>
Net Sales .......................................................... $242,008 $ 12,648 $ (1,106) (a) $253,550
Royalty Income, net ................................................ 3,394 -- -- 3,394
Cost of Sales ...................................................... 166,228 8,994 (822) (a) 174,400
-------- -------- -------- --------
Gross Profit ....................................................... 79,174 3,654 (284) 82,544
Operating Expenses:
Selling, general and administrative expenses ....................... 52,786 6,353 (1,400) (b) 57,739
Depreciation and Amortization ...................................... 6,641 252 135 (c) 7,028
-------- -------- -------- --------
Total operating expenses ........................................... 59,427 6,605 (1,265) 64,767
-------- -------- -------- --------
Operating income (loss) ............................................ 19,747 (2,951) 981 17,777
Interest and Financing Costs, net .................................. 14,885 110 (110) (d) 14,885
-------- -------- -------- --------
Income (Loss) before provision for income taxes ................... 4,862 (3,061) 1,091 2,892
Provision for Income Taxes ........................................ 2,046 (4) (827) (e) 1,215
-------- -------- -------- --------
Net Income (Loss) ................................................. $ 2,816 (3,057) 1,918 1,677
======== ======== ======== ========
Basic earnings per common share .................................... .41 .25
======== ========
Diluted earnings per common share ................................. .41 .25
======== ========
Weighted average number of shares used in computing Basic
earnings per share ................................................. 6,800 6,800
Weighted average number of shares used in computing Diluted
earnings per share ................................................. 6,800 6,800
</TABLE>
* All letter references correspond to Note 2.
19
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES AND FASHIONS OF SEVENTH AVENUE, INC.
AND AFFILIATES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- -----------------------
KASPER FSA ADJUSTMENTS* COMBINED
-------- -------- ------------- --------
<S> <C> <C> <C> <C>
Net Sales ........................................................ $312,089 $ 24,382 $ (6,176) (a) $330,295
Cost of Sales .................................................... 219,060 16,166 (4,312) (a) 230,914
-------- -------- -------- --------
Gross Profit ..................................................... 93,029 8,216 (1,864) 99,381
Operating Expenses:
Selling, general and administrative expenses ..................... 61,984 10,968 (3,689) (b) 69,263
Depreciation and Amortization .................................... 8,602 355 164 (c) 9,121
-------- -------- -------- --------
Total operating expenses ......................................... 70,586 11,323 (3,525) 78,384
-------- -------- -------- --------
Operating income (loss) .......................................... 22,443 (3,107) 1,661 20,997
Interest and Financing Costs, net ................................ 16,981 480 (480) (d) 16,981
-------- -------- -------- --------
Income (loss) before provision for income taxes .................. 5,462 (3,587) 2,141 4,016
Provision for Income Taxes ....................................... 2,292 33 (638) (e) 1,687
-------- -------- -------- --------
Net Income (loss) ................................................ $ 3,170 $ (3,620) 2,779 2,329
======== ======== ======== ========
Basic earnings per common share .................................. .47 .34
======== ========
Diluted earnings per common share ................................ .47 .34
======== ========
Weighted average number of shares used in computing Basic
earnings per share ............................................... 6,800 6,800
Weighted average number of shares used in computing Diluted
earnings per share ............................................... 6,800 6,800
</TABLE>
* All letter references correspond to Note 3.
20
<PAGE>
26
KASPER A.S.L., LTD. AND SUBSIDIARIES AND FASHIONS OF SEVENTH AVENUE, INC. AND
AFFILIATES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In thousands)
NOTE 1 - PRO FORMA ADJUSTMENTS AS OF OCTOBER 2, 1999 - BALANCE SHEET
The pro forma adjustments to the unaudited pro forma combined condensed
consolidated balance sheet reflect the Purchase and the preliminary allocation
of the purchase price to the assets acquired and liabilities assumed.
PURCHASE PRICE DETERMINATION:
Repayment Note Payable - Bank $2,000
Accounts Payable Assumed 552
Accrued Expenses Assumed 192
Lease Obligation Assumed 252
Liabilities Paid at Closing 479
Cash Paid to FSA 300
Accrued Acquisition Costs 188
---------
Net Purchase Price $ 3,963
=========
PURCHASE PRICE ALLOCATION:
Inventory $ 1,965
Fixed Assets 1,001
Goodwill 997
---------
Net Purchase Price $ 3,963
=========
(a) Cash repayment of Note Payable - Bank $ (2,000)
Cash paid to FSA (300)
Cash payment of liabilities at closing (479)
Elimination of FSA Cash (1,354)
-----------
$ (4,133)
(b) Elimination of assets not acquired as part of the acquisition.
(c) Adjustment for subsequent FSA inventory activity from the date of
these interim financial statements through the date of acquisition to
reflect inventory acquired.
(d) Adjustment to reflect subsequent depreciation through the date of
acquisition to reflect the fair market value of fixed assets
acquired.
<TABLE>
<S> <C>
(e) Elimination of FSA other assets not assumed $ (44)
Adjustment to reflect the goodwill recorded in connection with the acquisition. 997
-----------
$ 953
</TABLE>
(f) FSA accounts payable $ (1,172)
Accounts payable assumed 552
-------------
$ (620)
(g) Elimination of FSA liabilities not assumed as part of the
acquisition.
(h) FSA accrued expenses and other current liabilities $ (331)
Accrued expenses assumed 192
Accrued acquisition costs 188
-----------
$ 49
(i) Cash repayment of Note Payable - Bank by the Company simultaneously
with the acquisition.
(j) Elimination of FSA shareholders equity not acquired.
21
<PAGE>
NOTE 2 - PRO FORMA ADJUSTMENTS FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 -
STATEMENT OF OPERATIONS
The adjustments to the unaudited pro forma combined condensed consolidated
statement of operations reflect the Purchase and the conforming of FSA financial
statement presentation to that of the Company.
(a) The Company has made pro forma adjustments to eliminate the revenue and
expenses relating to 12 stores that were not part of the Purchase, as they
were closed during 1999. There is no balance sheet impact as these stores
are not included in FSA's historical balance sheet at September 27, 1999.
(b) The Company has made pro forma adjustments to eliminate the salaries and
related benefits of FSA employees who were not retained by the company
along with the rent expense of FSA's home office and distribution center,
which was closed as a result of the Purchase.
<TABLE>
<S> <C>
Elimination of closed stores selling, general and administrative expense $ (559)
Elimination of salaries - personnel not retained (771)
Elimination of home office and distribution center rent expense (70)
-----------
$ (1,400)
</TABLE>
(c) Goodwill Amortization (4 years - average life of leases) $ 187
Elimination of closed stores depreciation (52)
------------
$ 135
(d) As the Company did not assume the Note Payable - stockholders and repaid
the Note Payable - bank simultaneously with the Purchase, the Company would
not have incurred interest expense as a result of the Purchase. As such
FSA's interest has been eliminated.
(e) The Company has applied its effective tax rate of 42% to the pro forma
combined income before provision for taxes in determining the pro forma
adjustment necessary.
22
<PAGE>
NOTE 3 - PRO FORMA ADJUSTMENTS FOR THE FISCAL YEAR ENDED JANUARY 2, 1999 -
STATEMENT OF OPERATIONS
The adjustments to the unaudited pro forma combined condensed consolidated
statement of operations reflect the Purchase of FSA and the conforming of FSA
financial statement presentation to that of the Company.
(a) The Company has made pro forma adjustments to eliminate the revenue and
expenses relating to 19 stores that were not part of the Purchase, as they
were closed prior to the Purchase.
(b) The Company has made pro forma adjustments to eliminate the salaries and
related benefits of FSA employees who were not retained by the company
along with the rent expense of FSA's home office and distribution center,
which was closed as a result of the Purchase.
<TABLE>
<S> <C>
Elimination of closed stores selling, general and administrative expense $ (2,568)
Elimination of salaries - personnel not retained (1,027)
Elimination of home office and distribution center rent expense (94)
------------
$ ( 3,689)
</TABLE>
(c) Goodwill Amortization (4 years - average life of leases) $ 249
Elimination of closed stores depreciation (85)
------------
$ 164
(d) As the Company did not assume the Note Payable - stockholders and repaid
the Note Payable - bank simultaneously with the Purchase, the Company would
not have incurred interest expense as a result of the Purchase. As such
FSA's interest has been eliminated.
(e) The Company has applied its effective tax rate of 42% to the pro forma
combined income before provision for taxes in determining the pro forma
adjustment necessary.
23
<PAGE>
SIGNATURE
---------
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: February 7, 2000
By: /s/ Mary Ann Domuracki
--------------------------------
Mary Ann Domuracki
Executive Vice President -
Finance and Administration
24
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2 Asset Purchase Agreement, dated as of November 24, 1999,
among Kasper A.S.L., Ltd. and A.S.L. Retail Outlet, Inc.,
as buyers, and Fashions of Seventh Avenue, Inc., Fashions
of Destin, Inc., Fashions of Michigan, Inc., Fashions of
Reno, Inc., Fashions of Vero Beach, Inc., Anne Klein of
Massachusetts, Inc. and Fashions of Clinton, Inc., as
sellers*
99 Press Release dated November 30, 1999 *
---------------------------------------------
*Previously filed as part of the Original 8-K
25
