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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    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: 000-20201
 HAMPSHIRE GROUP, LIMITED
 (Exact name of registrant as specified in its charter)
 Delaware
    
    06-0967107(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1924 Pearman Dairy Road Anderson, South Carolina
    
    29625-1303(Address of principal executive offices)
    
    (Zip Code)
 (864) 231-1200
(Registrants telephone number, including area code)
 o þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




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EXPLANATORY NOTE
  Restatements and Related Matters




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##### 



HAMPSHIRE GROUP, LIMITED
 QUARTERLY REPORT ON FORM 10-Q
 For the Quarterly Period Ended March 31, 2007
 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
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART IIOTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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




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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
 (In thousands, except par value and shares)
    
    March 31, 2007
    
    
    December 31, 2006Current assets:Cash and cash equivalents
    
    $
    56,500
    
    
    $
    70,210Accounts receivable, net
    
    
    30,215
    
    
    
    33,456Other receivables
    
    
    6,709
    
    
    
    2,442Inventories, net
    
    
    24,879
    
    
    
    22,139Deferred tax assets
    
    
    8,701
    
    
    
    7,586Other current assets
    
    
    4,601
    
    
    
    5,217Total current assets
    
    
    131,605
    
    
    
    141,050Fixed assets, net
    
    
    2,074
    
    
    
    1,964Goodwill
    
    
    8,392
    
    
    
    8,392Intangible assets
    
    
    2,173
    
    
    
    2,190Other assets
    
    
    4,265
    
    
    
    2,309Total assets
    
    $
    148,509
    
    
    $
    155,905Current liabilities:Current portion of long-term debt
    
    $
    74
    
    
    $
    49Accounts payable
    
    
    12,530
    
    
    
    16,826Accrued expenses and other liabilities
    
    
    25,765
    
    
    
    30,916Total current liabilities
    
    
    38,369
    
    
    
    47,791Long-term debt less current portion
    
    
    57
    
    
    
    12Other long term liabilities
    
    
    7,305
    
    
    
    525Total liabilities
    
    
    45,731
    
    
    
    48,328Commitments and contingencies (Notes 6 and 8)
    
    
    
    
    
    
    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 March 31, 2007 and December 31, 2006
    
    
    824
    
    
    
    824Additional paid-in capital
    
    
    35,974
    
    
    
    35,747Retained earnings
    
    
    74,426
    
    
    
    79,452Treasury stock, 384,279 shares at cost at March 31, 2007 and December 31, 2006
    
    
    (8,446
    )
    
    
    (8,446
    )Total stockholders equity
    
    
    102,778
    
    
    
    107,577Total liabilities and stockholders equity
    
    $
    148,509
    
    
    $
    155,905
   1




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Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
 For the Three Months Ended(In thousands, except per share data)
    
    March 31, 2007
    
    
    April 1, 2006Net sales
    
    $
    50,878
    
    
    $
    67,488Cost of goods sold
    
    
    36,989
    
    
    
    51,749Gross profit
    
    
    13,889
    
    
    
    15,739Selling, general, and administrative expenses
    
    
    19,059
    
    
    
    17,448Investigation, restatement, and related expenses
    
    
    2,101
    
    
    
    Loss from operations
    
    
    (7,271
    )
    
    
    (1,709
    )Other income (expense):Interest income
    
    
    814
    
    
    
    542Interest expense
    
    
    (10
    )
    
    
    (18
    )Other, net
    
    
    78
    
    
    
    141Loss before income taxes
    
    
    (6,389
    )
    
    
    (1,044
    )Income tax benefit
    
    
    (2,622
    )
    
    
    (631
    )Net loss
    
    $
    (3,767
    )
    
    $
    (413
    )Net loss per share:Basic
    
    $
    (0.48
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.48
    )
    
    $
    (0.05
    )Weighted average number of shares outstanding:Basic weighted average number of common shares outstanding
    
    
    7,860
    
    
    
    7,869Diluted weighted average number of common shares outstanding
    
    
    7,860
    
    
    
    7,869
   2




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Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statement of Stockholders Equity
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury Stock
    
    
    Stockholders'(In thousands, except shares)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at December 31, 2006
    
    
    8,243,784
    
    
    $
    824
    
    
    $
    35,747
    
    
    $
    79,452
    
    
    
    384,279
    
    
    $
    (8,446
    )
    
    $
    107,577FIN 48 cumulative effect of change in accounting
(See Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,259
    )
    
    
    
    
    
    
    
    
    
    
    (1,259
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,767
    )
    
    
    
    
    
    
    
    
    
    
    (3,767
    )Tax benefits from share-based payment arrangements
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227Balance at March 31, 2007
    
    
    8,243,784
    
    
    $
    824
    
    
    $
    35,974
    
    
    $
    74,426
    
    
    
    384,279
    
    
    $
    (8,446
    )
    
    $
    102,778
   3




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Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
 For the Three Months Ended(In thousands)
    
    March 31, 2007
    
    
    April 1, 2006Cash flows from operating activities:Net loss
    
    $
    (3,767
    )
    
    $
    (413
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    336
    
    
    
    413Loss (gain) on disposition of fixed assets
    
    
    (18
    )
    
    
    14Deferred income tax (benefit) provision, net
    
    
    (269
    )
    
    
    1,671Deferred compensation expense, net
    
    
    4
    
    
    
    614Excess tax benefits from share-based arrangements
    
    
    (227
    )
    
    
    (214
    )Changes in operating assets and liabilities, net
of effects of acquisition:Receivables, net
    
    
    (127
    )
    
    
    (11,017
    )Inventories, net
    
    
    (2,740
    )
    
    
    3,725Other assets
    
    
    643
    
    
    
    (625
    )Liabilities
    
    
    (7,431
    )
    
    
    (13,907
    )Net cash provided by (used in) operating activities
    
    
    (13,596
    )
    
    
    (19,739
    )Cash flows from investing activities:Proceeds from the sale of short-term investments
    
    
    
    
    
    
    25Purchase of securities for deferred compensation
    
    
    
    
    
    
    (431
    )Cash used for business acquisition, net of cash acquired
    
    
    
    
    
    
    (1,990
    )Intangible asset acquired
    
    
    (99
    )
    
    
    Capital expenditures
    
    
    (245
    )
    
    
    (180
    )Proceeds from the sale of fixed assets
    
    
    18
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (326
    )
    
    
    (2,576
    )Cash flows from financing activities:Advances repaid to factor
    
    
    
    
    
    
    (12,775
    )Purchase of treasury stock, net
    
    
    
    
    
    
    (331
    )Repayment of long-term debt
    
    
    (15
    )
    
    
    (11
    )Excess tax benefits from share-based arrangements
    
    
    227
    
    
    
    214Proceeds from issuance of stock under Company stock plans
    
    
    
    
    
    
    26Net cash provided by (used in) financing activities
    
    
    212
    
    
    
    (12,877
    )Net decrease in cash and cash equivalents
    
    
    (13,710
    )
    
    
    (35,192
    )Cash and cash equivalents at beginning of period
    
    
    70,210
    
    
    
    65,791Cash and cash equivalents at end of period
    
    $
    56,500
    
    
    $
    30,599
   4




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Note 1  Basis of Presentation
   Intangible Assets  ®
 Stock Options
 Recent Accounting Standards
  Presentation of Prior Years Data
 Note 2  Inventories
  (In thousands)
    
    March 31, 2007
    
    
    December 31, 2006Finished goods
    
    $
    28,700
    
    
    $
    25,366Work-in-process
    
    
    1,144
    
    
    
    225Raw materials and supplies
    
    
    548
    
    
    
    984Total cost
    
    
    30,392
    
    
    
    26,575Less: reserves
    
    
    (5,513
    )
    
    
    (4,436
    )Inventories, net
    
    $
    24,879
    
    
    $
    22,139
  5




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Note 3  Investigation, restatement, and related expenses
      Note 4  Revolving Credit Facility
     6




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Report For Period Ended
    
    Extended Delivery DateMarch 31, 2007
    
    October 31, 2007June 30, 2007
    
    November 19, 2007September 29, 2007
    
    December 10, 2007
  Note 5  Earnings (Loss) Per Share
  Numerator
    
    
    Denominator
    
    
    Per Share(In thousands, except per share data)
    
    Income (Loss)
    
    
    Shares
    
    
    AmountThree months ended March 31, 2007:Basic net loss
    
    $
    (3,767
    )
    
    
    7,860
    
    
    $
    (0.48
    )Effect of dilutive securities: stock options
    
    
    
    
    
    
    
    
    
    
    Diluted net loss
    
    $
    (3,767
    )
    
    
    7,860
    
    
    $
    (0.48
    )Three 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
    )
   7




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Note 6  Commitments and Contingencies
      Note 7  Taxes
 FASB Interpretation No. 48
  8




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Other Tax Matters
   Note 8  Subsequent Events
 Marisa Christina, Incorporated
 New Facility Lease and Related Credit Facility Amendment
 (In thousands)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterFacility lease
    
    $
    59,830
    
    
    $
    
    
    
    $
    2,905
    
    
    $
    3,486
    
    
    $
    3,646
    
    
    $
    3,678
    
    
    $
    46,115
   9




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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 retailers 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, our suppliers, 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 and Shane Hunter businesses or any other
businesses we may acquire;
 
    
    An ongoing dispute with our former Chief Executive Officer and Chairman;
 
    
    Ownership of a significant portion of our common stock by our former Chief Executive
Officer and Chairman could determine the outcome of matters presented to stockholders
for approval;
 
    
    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;
 
    
    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); and
 
    
    Potential future restatements of our prior financial statements.
   10




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OVERVIEW
 ®
       AUDIT COMMITTEE INVESTIGATION AND RELATED MATTERS
     11




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Legal and Compliance Matters
        12




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Delisting
  Revolving Credit Facility Extension
   Rescheduled Credit Facility Reporting Requirements
    Report For Period Ended
    
    Extended Delivery DateMarch 31, 2007
    
    October 31, 2007June 30, 2007
    
    November 19, 2007September 29, 2007
    
    December 10, 2007
   13




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OTHER MATTERS
 New Facility Lease and Related Credit Facility Amendment
  (in thousands)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterFacility lease
    
    $
    59,830
    
    
    $
    
    
    
    $
    2,905
    
    
    $
    3,486
    
    
    $
    3,646
    
    
    $
    3,678
    
    
    $
    46,115
   Acquisitions, Dispositions, and Related Matters
 ®
     14




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RESULTS OF OPERATIONS  Three Months Ended March 31, 2007 and April 1, 2006
  Net Sales
 
    
    Net sales of Shane Hunter, our mass merchant division, declined by approximately $10.9
million in the current quarter as compared with the same period in the prior year. Over 30%
of Shane Hunters annual net sales occurred during the first quarter of 2006. The majority
of the decline over the prior period was attributed to lower shipments to one customer.
 
    
    Net sales of Item-Eyes, our womens related separates division, declined by
approximately $8.9 million in the first quarter of 2007 as compared with the same period in
the prior year. A decrease in shipments to several customers primarily for private label
products accounted for a majority of the reduction. The balance of the decrease in net
sales was primarily the result of a decline in off price sales to discounters during the
current quarter as compared with the same period in the prior period.
   Gross Profit
   Selling, General, and Administrative Expenses
  15




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Investigation, Restatement, and Related Expenses
 Income Taxes
 LIQUIDITY AND CAPITAL RESOURCES
          16




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OFF-BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENT ACCOUNTING PRONOUNCEMENTS
 FASB Interpretation No. 48
       17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
   
    
    Controls Over the Financial Statement Preparation and Disclosure Process
  
    
    Aggregation of Control Deficiencies at our Shane Hunter Subsidiary
  Changes in Internal Control Over Financial Reporting
  18




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Remediation of Material Weaknesses in Internal Controls Over Financial Reporting
   
    
    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 enhanced procedures and controls around acquisition accounting and management
expense reports.
 
    
    Implemented enhanced procedures and controls at the Shane Hunter division around the
accounting and financial reporting process as well as the financial review process at the
corporate level. These enhancements include but are not limited to formalization of the
procedures for the financial statement close process and providing more corporate oversight in
both the areas of accounting and information technology. In addition, the Company has
evaluated the divisions information technology infrastructure and will upgrade these systems.
   19




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PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Commitments and Contingencies Legal and Compliance 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  Feb. 3, 2007
    
    
    
    
    
    $
    
    
    
    
    Feb. 4  March 3, 2007
    
    
    
    
    
    
    
    
    
    
    Mar. 4  March 31, 2007
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,036,490
  
 Item 3. Defaults Upon Senior Securities.
 Revolving Credit Facility Subsequent Events , Revolving Credit Facility Extension Rescheduled Credit
Facility Reporting Requirements New Facility Lease and Related Credit Facility Amendment
 
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
   20




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Item 6. Exhibits.
 (a)
    
    The following exhibits are filed as part of this Report:
            21




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SIGNATURES
  Hampshire Group, LimitedDate: October 30, 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)
  22




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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