##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 (Amendment No. 2)
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period April 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
 For the transition period from  to
 Commission File Number: 000-20201
 HAMPSHIRE GROUP, LIMITED
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    06-0967107
(I.R.S. Employer
Identification No.)1924 Pearman Dairy Road Anderson, South Carolina
(Address of principal executive offices)
    
    29625-1303
(Zip Code)
 (864) 231-1200  Registrants telephone number, including area code)
 o þ
  o þ o
 o þ




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##### Table of Contents



EXPLANATORY STATEMENT TO FORM 10-Q AMENDMENT NO. 2  10-Q/A  (Restatement)
   Restatements and Related
Matters Explanatory Statement to Form 10-K Amendment No. 1  10K/A 
(Restatement) Restatements and Related Matters
  
    
    Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
    
    Part I, Item 1. Financial Statements.
    
    Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    Part I, Item 4. Controls and Procedures.
    
    Part II, Item 1. Legal Proceedings.
    
    Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    Part II, Item 3. Defaults Upon Senior Securities.
    
    Part II, Item 6. Exhibits.




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##### 



HAMPSHIRE GROUP, LIMITED
 QUARTERLY REPORT ON FORM 10-Q/A
 For the Quarterly Period Ended April 1, 2006
 SAFE HARBOR STATEMENT
    
    
    iiPART I. FINANICIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    29Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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SAFE HARBOR STATEMENT
 UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
      ii




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##### Table of Contents



PART I. FINANICIAL INFORMATION
 
 Item 1. Financial Statements.
 Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
 (Restated,see Note 2)(In thousands, except par value and share data)
    
    April 1, 2006
    
    
    December 31, 2005Current assets:Cash and cash equivalents
    
    $
    30,599
    
    
    $
    65,791Short-term investments
    
    
    10,029
    
    
    
    10,054Accounts receivable, net
    
    
    48,604
    
    
    
    27,997Other receivables
    
    
    2,443
    
    
    
    864Inventories, net
    
    
    19,935
    
    
    
    13,960Deferred tax assets
    
    
    7,599
    
    
    
    9,468Other current assets
    
    
    1,424
    
    
    
    1,121Total current assets
    
    
    120,633
    
    
    
    129,255Fixed assets, net
    
    
    2,116
    
    
    
    2,056Goodwill
    
    
    8,392
    
    
    
    8,392Deferred compensation funds invested in trading securities
    
    
    2,824
    
    
    
    2,243Other assets
    
    
    3,656
    
    
    
    568Total assets
    
    $
    137,621
    
    
    $
    142,514Current liabilities:Current portion of long-term debt
    
    $
    46
    
    
    $
    46Accounts payable
    
    
    9,930
    
    
    
    9,337Accrued expenses and other liabilities
    
    
    21,605
    
    
    
    27,142Total current liabilities
    
    
    31,581
    
    
    
    36,525Long-term debt less current portion
    
    
    50
    
    
    
    61Deferred tax liabilities
    
    
    
    
    
    
    198Deferred compensation
    
    
    3,529
    
    
    
    2,765Total liabilities
    
    
    35,160
    
    
    
    39,549Commitments and contingencies (Note 7)
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.10 par value, 1,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $0.10 par value, 10,000,000 shares authorized; 8,243,784 shares
issued at April 1, 2006 and December 31, 2005
    
    
    824
    
    
    
    824Additional paid-in capital
    
    
    35,038
    
    
    
    34,824Retained earnings
    
    
    74,998
    
    
    
    75,481Treasury stock, 381,279 shares and 370,679 shares at cost at April 1, 2006 and
December 31, 2005, respectively
    
    
    (8,399
    )
    
    
    (8,164
    )Total stockholders equity
    
    
    102,461
    
    
    
    102,965Total liabilities and stockholders equity
    
    $
    137,621
    
    
    $
    142,514
   1




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##### Table of Contents



Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
 For the Three Months Ended(Restated,
    
    
    (Restated,see Note 2)
    
    
    see Note 2)(In thousands, except per share data)
    
    April 1, 2006
    
    
    April 2, 2005Net sales
    
    $
    67,488
    
    
    $
    58,077Cost of goods sold
    
    
    51,749
    
    
    
    43,726Gross profit
    
    
    15,739
    
    
    
    14,351Selling, general, and administrative expenses
    
    
    17,448
    
    
    
    13,533Income (loss) from operations
    
    
    (1,709
    )
    
    
    818Other income (expense):Interest income
    
    
    542
    
    
    
    388Interest expense
    
    
    (18
    )
    
    
    (147
    )Other, net
    
    
    141
    
    
    
    13Income (loss) before income taxes
    
    
    (1,044
    )
    
    
    1,072Provision (benefit) for income taxes
    
    
    (631
    )
    
    
    440Net income (loss)
    
    $
    (413
    )
    
    $
    632Net income (loss) per share:Basic
    
    $
    (0.05
    )
    
    $
    0.08Diluted
    
    $
    (0.05
    )
    
    $
    0.08Weighted average number of shares outstanding: (1)Basic weighted average number of common shares
outstanding
    
    
    7,869
    
    
    
    8,206Diluted weighted average number of common
shares outstanding
    
    
    7,869
    
    
    
    8,230
 (1)
    
    Weighted average number of shares outstanding and net income (loss) per share reflects the
two-for-one stock split effective June 28, 2005.
   2




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##### Table of Contents



Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
 For the Three Months Ended(Restated,
    
    
    (Restated,see Note 2)
    
    
    see Note 2)(In thousands)
    
    April 1, 2006
    
    
    April 2, 2005Cash flows from operating activities:Net (loss) income
    
    $
    (413
    )
    
    $
    632Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    413
    
    
    
    230Loss (gain) on disposition of fixed assets
    
    
    14
    
    
    
    Deferred income tax (benefit) provision, net
    
    
    1,671
    
    
    
    3,537Deferred compensation expense, net
    
    
    614
    
    
    
    171Tax benefit of stock options exercised
    
    
    214
    
    
    
    317Changes in operating assets and liabilities, net
of effects of acquisition:Receivables, net
    
    
    (11,231
    )
    
    
    (3,513
    )Inventories, net
    
    
    3,725
    
    
    
    (1,658
    )Other assets
    
    
    (625
    )
    
    
    (133
    )Current liabilities
    
    
    (13,907
    )
    
    
    (6,610
    )Net cash provided by (used in) operating activities
    
    
    (19,525
    )
    
    
    (7,027
    )Cash flows from investing activities:Purchases of short-term investments
    
    
    
    
    
    
    (27,427
    )Proceeds from the sale of short-term investments
    
    
    25
    
    
    
    30,056Purchase of securities for deferred compensation
    
    
    (431
    )
    
    
    (402
    )Cash used for business acquisition, net of cash acquired
    
    
    (1,990
    )
    
    
    Capital expenditures
    
    
    (180
    )
    
    
    (374
    )Net cash provided by (used in) investing activities
    
    
    (2,576
    )
    
    
    1,853Cash flows from financing activities:Advances repaid to factor
    
    
    (12,775
    )
    
    
    Purchase of treasury stock, net
    
    
    (331
    )
    
    
    (252
    )Repayment of long-term debt
    
    
    (11
    )
    
    
    (15
    )Proceeds from issuance of stock under the Company stock
plans
    
    
    26
    
    
    
    118Net cash provided by (used in) financing activities
    
    
    (13,091
    )
    
    
    (149
    )Net increase (decrease) in cash and cash equivalents
    
    
    (35,192
    )
    
    
    (5,323
    )Cash and cash equivalents at beginning of period
    
    
    65,791
    
    
    
    31,214Cash and cash equivalents at end of period
    
    $
    30,599
    
    
    $
    25,891Supplementary disclosure of cash flow information:Cash paid during the period for:Income taxes
    
    $
    3,289
    
    
    $
    3,793Interest
    
    
    15
    
    
    
    1
   3




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##### Table of Contents



Note 1  Basis of Presentation
   Stock Options
 
 Recent Accounting Standards
 Restatement of Previously Issued Consolidated
Financial Statements
   4




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##### Table of Contents



Note 2  Restatement of Previously Issued Financial Statements
     Restatement Adjustments for the Quarters Ended April 1, 2006 and April 2, 2005
 Allowances
 Note 8  Acquisition
  Inventory
  Tax (non-income) Liabilities
   5




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##### Table of Contents



Expense Accruals
  Acquisition Accounting
  Income Taxes
  Restatement Adjustments Impact to Net Income (Loss)
   6




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##### Table of Contents



Unaudited Condensed Consolidated Statements of Operations Adjustments
  As Previously
    
    
    Restatement(In thousands, except per share data)
    
    Reported
    
    
    Adjustments
    
    
    RestatedNet sales
    
    $
    68,111
    
    
    $
    (623
    )
    
    $
    67,488Cost of goods sold
    
    
    51,880
    
    
    
    (131
    )
    
    
    51,749Gross profit
    
    
    16,231
    
    
    
    (492
    )
    
    
    15,739Selling, general, and administrative expenses
    
    
    17,048
    
    
    
    400
    
    
    
    17,448Loss from operations
    
    
    (817
    )
    
    
    (892
    )
    
    
    (1,709
    )Other income (expense):Interest income
    
    
    542
    
    
    
    
    
    
    
    542Interest expense
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Other, net
    
    
    (8
    )
    
    
    149
    
    
    
    141Loss before income taxes
    
    
    (301
    )
    
    
    (743
    )
    
    
    (1,044
    )Benefit for income taxes
    
    
    (125
    )
    
    
    (506
    )
    
    
    (631
    )Net loss
    
    $
    (176
    )
    
    $
    (237
    )
    
    $
    (413
    )Net loss per share:Basic
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )Weighted average number of shares outstanding:Basic weighted average number of common
shares outstanding (a)
    
    
    7,871
    
    
    
    (2
    )
    
    
    7,869Diluted weighted average number of
common shares outstanding (a)
    
    
    7,871
    
    
    
    (2
    )
    
    
    7,869
  (a)
    
    The basic and diluted weighted average number of common shares outstanding have been
reduced by approximately 2,000 shares to correct an error in the amounts previously
reported.
  7




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##### Table of Contents



As Previously
    
    
    Restatement(In thousands, except per share data)
    
    Reported
    
    
    Adjustments
    
    
    RestatedNet sales
    
    $
    58,077
    
    
    $
    
    
    
    $
    58,077Cost of goods sold
    
    
    43,726
    
    
    
    
    
    
    
    43,726Gross profit
    
    
    14,351
    
    
    
    
    
    
    
    14,351Selling, general, and administrative
expenses
    
    
    13,357
    
    
    
    176
    
    
    
    13,533Income from operations
    
    
    994
    
    
    
    (176
    )
    
    
    818Other income (expense):Interest income
    
    
    388
    
    
    
    
    
    
    
    388Interest expense
    
    
    (147
    )
    
    
    
    
    
    
    (147
    )Other, net
    
    
    13
    
    
    
    
    
    
    
    13Income before income taxes
    
    
    1,248
    
    
    
    (176
    )
    
    
    1,072Provision for income taxes
    
    
    500
    
    
    
    (60
    )
    
    
    440Net income
    
    $
    748
    
    
    $
    (116
    )
    
    $
    632Net income per share:Basic
    
    $
    0.09
    
    
    $
    (0.01
    )
    
    $
    0.08Diluted
    
    $
    0.09
    
    
    $
    (0.01
    )
    
    $
    0.08Weighted average number of shares
outstanding: (a)Basic weighted average number of common
shares outstanding
    
    
    8,206
    
    
    
    
    
    
    
    8,206Diluted weighted average number of
common shares outstanding (b)
    
    
    8,250
    
    
    
    (20
    )
    
    
    8,230
  (a)
    
    Weighted average number of shares outstanding and net income per share reflects the
two-for-one stock split effective June 28, 2005.(b)
    
    Approximately 39,100 options that expired in May of 2004 were improperly included as
part of the diluted weighted average number of common shares outstanding.
  8




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Unaudited Condensed Consolidated Balance Sheet Adjustments
  Restatement AdjustmentsAs Previously
    
    
    Form 10-K/A

    
    
    Quarter Ended(In thousands)
    
    Reported
    
    
    December 31, 2005

    
    
    April 1, 2006

    
    
    Restated(a)
    
    
    (b)Assets:Cash and cash equivalents
    
    $
    30,599
    
    
    $
    
    
    
    $
    
    
    
    $
    30,599Short-term investments
    
    
    10,029
    
    
    
    
    
    
    
    
    
    
    
    10,029Accounts receivable, net
    
    
    48,635
    
    
    
    443
    
    
    
    (474
    )
    
    
    48,604Other receivables
    
    
    1,443
    
    
    
    17
    
    
    
    983
    
    
    
    2,443Inventories, net
    
    
    20,395
    
    
    
    
    
    
    
    (460
    )
    
    
    19,935Deferred tax assets
    
    
    
    
    
    
    2,574
    
    
    
    5,025
    
    (c)
    
    7,599Other current assets
    
    
    8,752
    
    
    
    
    
    
    
    (7,328
    )
    (d)
    
    1,424Total current assets
    
    
    119,853
    
    
    
    3,034
    
    
    
    (2,254
    )
    
    
    120,633Fixed assets, net
    
    
    2,116
    
    
    
    
    
    
    
    
    
    
    
    2,116Goodwill
    
    
    8,020
    
    
    
    372
    
    
    
    
    
    
    
    8,392Deferred compensation funds
invested in trading securities
    
    
    2,824
    
    
    
    
    
    
    
    
    
    
    
    2,824Other assets
    
    
    2,963
    
    
    
    (1,317
    )
    
    
    2,010
    
    
    
    3,656Total assets
    
    $
    135,776
    
    
    $
    2,089
    
    
    $
    (244
    )
    
    $
    137,621Liabilities:Current portion of long-term debt
    
    $
    46
    
    
    $
    
    
    
    $
    
    
    
    $
    46Accounts payable
    
    
    9,886
    
    
    
    
    
    
    
    44
    
    
    
    9,930Accrued expenses and other
liabilities
    
    
    12,229
    
    
    
    9,827
    
    
    
    (451
    )
    
    
    21,605Total current liabilities
    
    
    22,161
    
    
    
    9,827
    
    
    
    (407
    )
    
    
    31,581Long-term debt less current portion
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Deferred tax liabilities, net
    
    
    
    
    
    
    198
    
    
    
    (198
    )
    
    
    Deferred compensation
    
    
    3,941
    
    
    
    (993
    )
    
    
    581
    
    (e)
    
    3,529Total liabilities
    
    
    26,152
    
    
    
    9,032
    
    
    
    (24
    )
    
    
    35,160Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    824Additional paid-in capital
    
    
    34,266
    
    
    
    755
    
    
    
    17
    
    
    
    35,038Retained earnings
    
    
    82,933
    
    
    
    (7,698
    )
    
    
    (237
    )
    
    
    74,998Treasury stock
    
    
    (8,399
    )
    
    
    
    
    
    
    
    
    
    
    (8,399
    )Total stockholders equity
    
    
    109,624
    
    
    
    (6,943
    )
    
    
    (220
    )
    
    
    102,461Total liabilities and
shareholders equity
    
    $
    135,776
    
    
    $
    2,089
    
    
    $
    (244
    )
    
    $
    137,621
  (a)
    
    This column reflects balance sheet restatement adjustments resulting from periods prior
to the quarter ended April 1, 2006. These restatement adjustments were recorded in the
Companys restated financial statements for the period ended December 31, 2005 and affect
the Companys restated balance sheet as of April 1, 2006. For additional information on the
restatement adjustments affecting the restated April 1, 2006 balance sheet, see our Form
10-K/A for the period ended December 31, 2005 filed on May 31, 2007.(b)
    
    This column reflects balance sheet restatement adjustments associated with the quarter
ended April 1, 2006.(c)
    
    Deferred tax assets of $7,177 were reclassified into a separate balance sheet line item
to conform to the 2005 10-K/A presentation and were adjusted to reflect the tax effect of
the restatement adjustments;(d)
    
    Other current assets decreased by the reclassification of current deferred taxes of
$7,177 into a separate balance sheet line item to conform to the 2005 10-K/A presentation
and by an acquisition adjustment; and,(e)
    
    Deferred compensation was reclassified to a current liability to conform to the 2005
10-K/A presentation.
  9




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##### Table of Contents



Unaudited Condensed Consolidated Statements of Cash Flows Adjustments
  As Previously
    
    
    Restatement(In thousands)
    
    Reported
    
    
    Adjustments
    
    
    RestatedCash flows from operating activities:Net income
    
    $
    (176
    )
    
    $
    (237
    )
    
    $
    (413
    )Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    298
    
    
    
    115
    
    
    
    413Loss on sale of fixed assets (a)
    
    
    
    
    
    
    14
    
    
    
    14Deferred income tax benefit (a)
    
    
    
    
    
    
    1,671
    
    
    
    1,671Deferred compensation expense, net
    
    
    34
    
    
    
    580
    
    
    
    614Tax benefit of stock options exercised (a)
    
    
    
    
    
    
    214
    
    
    
    214Changes in operating assets and liabilities:Receivables, net
    
    
    (10,594
    )
    
    
    (637
    )
    
    
    (11,231
    )Inventories, net
    
    
    3,757
    
    
    
    (32
    )
    
    
    3,725Other assets
    
    
    38
    
    
    
    (663
    )
    
    
    (625
    )Current liabilities (a)
    
    
    (12,786
    )
    
    
    (1,121
    )
    
    
    (13,907
    )Net cash provided by (used in) operating activities
    
    
    (19,429
    )
    
    
    (96
    )
    
    
    (19,525
    )Cash flows from investing activities:Proceeds from the sale of short-term investments
    
    
    25
    
    
    
    
    
    
    
    25Purchase of securities in deferred compensation fund
    
    
    (432
    )
    
    
    1
    
    
    
    (431
    )Cash used for business acquisition, net of cash acquired (b)
    
    
    (2,099
    )
    
    
    109
    
    
    
    (1,990
    )Capital expenditures (a)
    
    
    (166
    )
    
    
    (14
    )
    
    
    (180
    )Net cash provided by (used in) investing activities
    
    
    (2,672
    )
    
    
    96
    
    
    
    (2,576
    )Cash flows from financing activities:Advances repaid to factor
    
    
    (12,775
    )
    
    
    
    
    
    
    (12,775
    )Purchase of treasury stock, net
    
    
    (331
    )
    
    
    
    
    
    
    (331
    )Repayment of long-term debt
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Proceeds from issuance of treasury stock
    
    
    26
    
    
    
    
    
    
    
    26Net cash provided by (used in) financing activities
    
    
    (13,091
    )
    
    
    
    
    
    
    (13,091
    )Net increase (decrease) in cash and cash equivalents
    
    
    (35,192
    )
    
    
    
    
    
    
    (35,192
    )Cash and cash equivalents at beginning of period
    
    
    65,791
    
    
    
    
    
    
    
    65,791Cash and cash equivalents at end of period
    
    $
    30,599
    
    
    $
    
    
    
    $
    30,599
  (a)
    
    Reclassifications made to correct for items previously shown on a net basis.(b)
    
    The acquisition accounting for Shane Hunter was corrected, resulting in a reduction of
the purchase price.
  10




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##### Table of Contents



As Previously
    
    
    Restatement(In thousands)
    
    Reported
    
    
    Adjustments
    
    
    RestatedCash flows from operating activities:Net income
    
    $
    748
    
    
    $
    (116
    )
    
    $
    632Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    230
    
    
    
    
    
    
    
    230Deferred income tax provision (b)
    
    
    
    
    
    
    3,537
    
    
    
    3,537Deferred compensation expense, net
    
    
    171
    
    
    
    
    
    
    
    171Tax benefit of stock options exercised (a)
    
    
    
    
    
    
    317
    
    
    
    317Changes in operating assets and liabilities:Receivables, net (b)
    
    
    (300
    )
    
    
    (3,213
    )
    
    
    (3,513
    )Inventories, net
    
    
    (1,658
    )
    
    
    
    
    
    
    (1,658
    )Other assets
    
    
    (133
    )
    
    
    
    
    
    
    (133
    )Current liabilities (a)
    
    
    (6,085
    )
    
    
    (525
    )
    
    
    (6,610
    )Net cash provided by (used in) operating activities
    
    
    (7,027
    )
    
    
    
    
    
    
    (7,027
    )Cash flows from investing activities:Purchases from the sale of short-term investments
    
    
    (27,427
    )
    
    
    
    
    
    
    (27,427
    )Proceeds of short-term investments
    
    
    30,056
    
    
    
    
    
    
    
    30,056Purchase of securities in deferred compensation fund
    
    
    (402
    )
    
    
    
    
    
    
    (402
    )Capital expenditures
    
    
    (374
    )
    
    
    
    
    
    
    (374
    )Net cash provided by (used in) investing activities
    
    
    1,853
    
    
    
    
    
    
    
    1,853Cash flows from financing activities:Purchase of treasury stock, net
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )Repayment of long-term debt
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Proceeds from issuance of treasury stock
    
    
    118
    
    
    
    
    
    
    
    118Net cash provided by (used in) financing activities
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )Net increase (decrease) in cash and cash equivalents
    
    
    (5,323
    )
    
    
    
    
    
    
    (5,323
    )Cash and cash equivalents at beginning of period
    
    
    31,214
    
    
    
    
    
    
    
    31,214Cash and cash equivalents at end of period
    
    $
    25,891
    
    
    $
    
    
    
    $
    25,891
  (a)
    
    Reclassifications made to correct for items previously shown on a net basis.(b)
    
    Adjustments to correct the period end income tax refunds receivable balance and
deferred tax assets balance.
  11




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Note 3  Inventories
  (In thousands)
    
    April 1, 2006
    
    
    December 31, 2005Finished goods
    
    $
    20,733
    
    
    $
    17,347Work-in-process
    
    
    1,928
    
    
    
    Raw materials and supplies
    
    
    1,130
    
    
    
    70Total cost
    
    
    23,791
    
    
    
    17,417Less: reserves
    
    
    (3,856
    )
    
    
    (3,457
    )Inventory, net
    
    $
    19,935
    
    
    $
    13,960
 Note 4  Revolving Credit Facility
 Subsequent Events
  Subsequent Events
 Note 5  Earnings (Loss) Per Share
  Numerator
    
    
    Denominator
    
    
    Per Share(In thousands, except per share data)
    
    Income (Loss)
    
    
    Shares(1)
    
    
    AmountThree months ended April 1, 2006:Basic net loss
    
    $
    (413
    )
    
    
    7,869
    
    
    $
    (0.05
    )Effect of dilutive securities: stock options
    
    
    
    
    
    
    
    
    
    
    Diluted net loss
    
    $
    (413
    )
    
    
    7,869
    
    
    $
    (0.05
    )Three months ended April 2, 2005:Basic net income
    
    $
    632
    
    
    
    8,206
    
    
    $
    0.08Effect of dilutive securities: stock options
    
    
    
    
    
    
    24
    
    
    
    Diluted net income
    
    $
    632
    
    
    
    8,230
    
    
    $
    0.08
 (1)
    
    The number of shares of common stock and per share income has been adjusted for the
two-for-one stock split effective June 28, 2005.
   12




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Note 6  Stock Split
  Note 7  Commitments and Contingencies
    Note 8  Acquisition
  (In thousands)
    
    January 5, 2006AssetsCash and cash equivalents
    
    $
    1Accounts receivable, net
    
    
    10,955Inventories, net
    
    
    9,700Other current assets
    
    
    802Fixed assets
    
    
    123Identified intangibles (1)
    
    
    2,148Total assets acquired
    
    $
    23,729LiabilitiesAdvances due factor
    
    $
    12,775Accounts payable
    
    
    8,096Accrued expenses and other liabilities
    
    
    867Total liabilities assumed
    
    $
    21,738Purchase price (net assets acquired)
    
    $
    1,991
 (1)
    
    The identified intangibles relate primarily to
non-competition agreements, which will be amortized over six
years.
  13




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Note 9  Subsequent Events
 Audit Committee Investigation and Related Matters
          14




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##### Table of Contents



Report For Period Ended
    
    Extended Delivery DateApril 1, 2006 (Restated)
    
    August 15, 2007July 1, 2006
    
    August 15, 2007September 30, 2006
    
    August 15, 2007December 31, 2006
    
    August 31, 2007March 31, 2007
    
    September 28, 2007June 30, 2007
    
    October 31, 2007
   Other Matters
   15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion contains statements that are forward-looking. These statements are based
on expectations and assumptions that are subject to risks and uncertainties. Actual results could
differ materially because of factors discussed elsewhere in this report.  This discussion
should be read in conjunction with the discussion of forward-looking statements, the financial
statements, and the related notes and the other statistical information included in this report.
 DISCUSSION OF FORWARD-LOOKING STATEMENTS
 Risk Factors
 
    
    Decreases in business from or the loss of any one of our key customers;
    
    Financial instability experienced by our customers;
    
    Loss or inability to renew certain licenses;
    
    Change in consumer preferences and fashion trends, which could negatively affect
acceptance of our products by retails and consumers;
    
    Use of foreign suppliers for raw materials and manufacture of our products;
    
    Failure of our manufacturers to use acceptable ethical business practices;
    
    Failure to deliver quality products in a timely manner;
    
    Problems with our distribution system and our ability to deliver products;
    
    Labor disruptions at port or our suppliers or manufacturers or distribution facilities;
    
    Chargebacks and margin support payments;
    
    Failure, inadequacy, interruption or security lapse of our information technology;
    
    Failure to compete successfully in a highly competitive and fragmented industry;
    
    Challenges integrating the David Brooks, Shane Hunter, and Marisa Christina
businesses or any other businesses we may acquire;
    
    Unanticipated expenses beyond the amount reserved on our balance sheet or
unanticipated cash payments related to the ultimate resolution of income and other
possible tax liabilities;
    
    Ownership of a significant portion of our common stock by Mr. Kuttner could
determine the outcome of matters presented to stockholders for approval;
    
    Future defaults under our credit facility;
    
    Loss of certain key personnel which could negatively impact our ability to manage our business;
    
    Material weaknesses in our internal control over financial reporting;
    
    Investigations by the SEC and the United States Attorney of the Southern District of
New York (U.S. Attorneys Office);
    
    Potential future restatements of our prior financial statements; and
    
    The Companys dispute with Mr. Kuttner.
   16




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RESTATEMENTS AND RELATED MATTERS
           17




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Restatement Adjustments for the Quarters Ended April 1, 2006 and April 2, 2005
 Allowances
 Note 8  Acquisition
  Inventory
  Tax (non-income) Liabilities
  Expense Accruals
  Acquisition Accounting
 Restatement of Previously Issued Financial Statements
 Income Taxes
   18




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Restatement Adjustments Impact to Net Income (Loss)
  Legal and Compliance Matters
    Delisting
  OTHER MATTERS
 Indemnification Obligations
   19




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Acquisitions
    Revolving Credit Facility Extension
  Related Party Transaction
  New Facility Lease and Related Credit Facility Amendment
   20




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(in thousands)
    
    Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterFacility lease
    
    $
    59,815
    
    
    $
    2,904
    
    
    $
    3,485
    
    
    $
    3,645
    
    
    $
    3,677
    
    
    $
    3,677
    
    
    $
    42,427
   Rescheduled Credit Facility Reporting Requirements
  Report For Period Ended
    
    Extended Delivery DateApril 1, 2006 (Restated)
    
    August 15, 2007July 1, 2006
    
    August 15, 2007September 30, 2006
    
    August 15, 2007December 31, 2006
    
    August 31, 2007March 31, 2007
    
    September 28, 2007June 30, 2007
    
    October 31, 2007
  OVERVIEW
    21




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RESULTS OF OPERATIONS
  Three Months Ended April 1, 2006 and April 2, 2005
 Net Sales
  Gross Profit
   22




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Selling, General, and Administrative Expenses
  Interest Income
  Interest Expense
  Income Taxes
  Net Income (Loss)
  LIQUIDITY AND CAPITAL RESOURCES
     23




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24




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OFF-BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENT ACCOUNTING PRONOUNCEMENTS
 Restatement of Previously Issued
Consolidated Financial Statements
   25




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
     
    
    Control EnvironmentCertain of the Companys controls including certain entity level controls within its control
environment were not effectively designed or applied to prevent certain members of former
management, including Mr. Kuttner and Mr. Clayton, from having the ability, which in certain
instances was utilized, to circumvent or override certain controls and affect preparation of
accounting entries and certain transactions including expense reimbursements to certain employees.
In addition, discussion and thorough legal, accounting, or other professional analysis did not
occur in all instances. This material weakness contributed to the restatement of the Companys
financial statements and increased the likelihood of a material misstatement occurring within the
Companys interim and annual financial statements not being prevented or detected.
    
    Controls Over the Financial Statement Preparation and Disclosure ProcessThe Companys design and operation of controls with respect to the process of preparing and
reviewing the annual and interim financial statements are ineffective. Deficiencies identified
include the lack of appropriate review of the footnotes, reconciliations, and supporting
schedules. The Company also lacked adequate controls related to complying with disclosure
requirements such as the use of disclosure checklists, lacked adequate controls over spreadsheets
used in the financial close and reporting process, and lacked an independent review of journal
entries. This material weakness contributed to the restatement of the Companys provision for
income taxes, accrued expenses and other liabilities, as well as expense reimbursements to certain
employees.
  26




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##### Table of Contents




    
    Controls Over the Provision for Income TaxesThe Company failed to maintain effective controls to provide reasonable assurance that the
provision for income taxes was appropriately determined, including adequate reserves for certain
tax liabilities. The Company had potential tax liabilities for deductions related to
highly-compensated executive officers of a publicly-held company related to Internal Revenue Code
Section 162(m) for incentive compensation, deductions for non-accountable plan expense
reimbursements under IRS regulations, certain executive deferred compensation plans that may not
have conformed to federal regulations due to actions by Mr. Kuttner and Mr. Clayton, and certain
other tax matters, including state and local income tax nexus issues.
    
    Controls Over Accrued Expenses and Other LiabilitiesThe Company failed to maintain effective internal controls related to the review of accrued
liabilities. Accordingly, accruals related to employee bonuses, certain employee benefit plans,
and receipt of vendor products were recorded in periods prior or subsequent to the period in which
the liability was incurred. In addition, the Company had unrecorded payroll tax liabilities
related to, among other things, certain employee deferred compensation plans.
 Changes in Internal Control Over Financial Reporting
  Remediation of Material Weaknesses in Internal Controls Over Financial Reporting
  
    
    With respect to the control environment material weakness, the
Company terminated the employment of three members of former
management who were responsible for the preparation of financial
statements.
    
    Implemented enhanced procedures and controls around the financial
statement preparation and disclosure process as well as the
financial review process at the corporate level. These
enhancements include but are not limited to dedicating personnel
with technical knowledge of SEC reporting to the financial
statement preparation process; providing such personnel access to
applicable training; obtaining database software to assist in the
research of complex accounting and disclosure matters; and
formalization of the procedures for tracking disclosure matters.
    
    Implemented extensive procedures and controls around the income
tax provision process. These enhancements include but are not
limited to dedicating personnel to the tax provision process with
technical knowledge of the Companys tax filings and FAS 109 
Accounting for Income Taxes; providing such personnel access to
applicable training; obtaining database software to assist in the
research of complex tax matters; and formalization of the
procedures for preparation of the tax provision.
    
    Implemented enhanced procedures and controls around acquisition
accounting, accrued liabilities, management for and accounting of
benefit plans, and management expense reports.
   27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Subsequent Events Legal and Compliance Matters Restatements and Related Matters
 
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK, $0.10 PAR VALUE
 MaximumTotal Number of
    
    
    Number of SharesTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    that May Yet beNumber of
    
    
    Average
    
    
    as Part of Publicly
    
    
    Purchased UnderShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Such Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsJan. 1  Jan. 28, 2006
    
    
    
    
    
    $
    
    
    
    
    Jan. 29  Feb. 25, 2006
    
    
    15,000
    
    
    
    22.10
    
    
    
    15,000Feb. 26  April 1, 2006
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    15,000
    
    
    $
    22.10
    
    
    
    15,000
    
    
    
    57,721
  
 Item 3. Defaults Upon Senior Securities.
 Subsequent Events Revolving Credit Facility Extension Restatements and Related Matters
 
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
   28




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Item 6. Exhibits.
 (a)
    
    The following exhibits are filed as part of this Report:
       29




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SIGNATURES
  Hampshire Group, LimitedDate: August 9, 2007
    
    By:
    
    /s/ Michael S. CulangMichael S. CulangInterim Chief Executive Officer and President/s/ Jonathan W. NorwoodJonathan W. NorwoodVice President and Chief Financial Officer(principal financial and accounting officer)
  30




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INDEX TO EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification of Interim Chief Executive Officer pursuant to Item 601(b) (31) of
Regulation S-K as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Item 601(b) (31) of Regulation S-K
as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 200232.1
    
    Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002