<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                             FORM 10-K/A (NUMBER 1)
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                          EXCHANGE ACT OF 1934
                    For the fiscal year ended June 30, 1998
                                       or
 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
                            EXCHANGE ACT OF 1934
                       For the transition period from to

                         Commission file number 1-9169

                              BERNARD CHAUS, INC.
             (Exact name of registrant as specified in its charter)

              New York                                 13-2807386
    (State or other jurisdiction of    (I.R.S. employer identification number)
    incorporation or organization)

      1410 Broadway, New York, New York                 10018
   (Address of principal executive offices)           (Zip Code)

               Registrant's telephone number, including area code
                                 (212) 354-1280

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

        Title of each class        Name of each exchange on which registered
   Common Stock, $0.01 par value             New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  None

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant on September 2,1998 was $25,914,028.

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                 Date                                         Class                              Shares Outstanding
                 ----                                         -----                              ------------------
<S>                                                    <C>                                   <C> 

         September 2, 1998                                    Common Stock, $0.01 par value            27,115,907

</TABLE>

<TABLE>
                                                                        LOCATION IN FORM 10-K IN
         DOCUMENTS INCORPORATED BY REFERENCE                                WHICH INCORPORATED
         -----------------------------------                                 -----------------
<S>                                                                 <C>    

Portions of registrant's Proxy Statement for the Annual                          Part III
 Meeting of Stockholders to be held November 17, 1998.

</TABLE>


                                                           

<PAGE>




PART I

ITEM 1.  BUSINESS.

GENERAL

         Bernard Chaus, Inc. (the "Company" or "Chaus") designs, arranges for
the manufacture of and markets an extensive range of women's career and casual
sportswear which are marketed principally under the CHAUS(R), CHAUS SPORT(R)
and NAUTICA(R) trademarks. Beginning in late fiscal 1994, the Company
repositioned its Chaus product line at the high end of the "upper moderate"
through the opening price points of the "better" categories. See "-- Products."
By August 1997, the Company had successfully repositioned its Chaus product
line into the opening price points of the "better" category. In September 1995
the Company entered into a license agreement (the "Nautica License Agreement")
with Nautica Apparel Inc. ("Nautica"), a leading name in men's apparel,
pursuant to which the Company has obtained an exclusive license to design,
contract for the manufacture of and market a new women's apparel line under the
Nautica brand name. The Company commenced sales of products in its licensed
Nautica product line in August 1996, with such Nautica product line being
positioned in the "better" to "bridge" categories. See "-- License Agreement
With Nautica."

         In fiscal 1998 the Company completed a restructuring program. Pursuant
to the restructuring program, the Company raised $20.0 million of equity
through a rights offering, converted $40.6 million of the Company's
indebtedness to Josephine Chaus into 10,510,910 shares of Common Stock of the
Company, entered into a new revolving credit facility with BNY Financial
Corporation and closed all of its retail outlet stores (other than the retail
outlet located at the Company's Secaucus facility).

PRODUCTS

         The Company's products currently are divided into two principal
product categories: (i) career sportswear and (ii) weekend casual sportswear.
In late fiscal 1994 the Company shifted its product focus from single,
fashion-driven items to full collections with an emphasis on traditional
styling. With this repositioning, the Company also has enhanced its design and
quality and, by August 1997, the Company had successfully positioned its Chaus
product line into the opening price points of the "better" category. The
Company's career and weekend casual sportswear are marketed as coordinated
groups of jackets, skirts, pants, blouses, sweaters and related accessories
which, while sold as separates, are coordinated by styles, color schemes and
fabrics and are designed to be merchandised and worn together. The Company
believes that the target consumers for its products are women aged 24 to 64.

         The Company produces collections of each of these product lines for
each of its five principal selling seasons: Spring, Summer, Fall I, Fall II and
Holiday. Spring and Fall traditionally have been the Company's major selling
seasons.

         The Company's major product categories and associated brand names are
summarized in the following table:

<TABLE>
<CAPTION>
                                                                                  WEEKEND CASUAL
                                    CAREER SPORTSWEAR                               SPORTSWEAR
                                    -----------------                              -------------
<S>                             <C>                                          <C>

         BRAND NAMES                Chaus                                       Chaus Sport
                                    Chaus Woman                                 Nautica
                                    Chaus Petite
                                    Nautica

         PRODUCT OFFERINGS          Jackets, Skirts, Pants,                     Casual Jackets
                                    Shorts, Blouses, Shirts,                    Sweaters, Skirts, Pants,
                                    Knit Tops, Sweaters                         Shirts, Knit Tops, Outerwear

         INDUSTRY CATEGORIES        Chaus -- Better                              Chaus -- Better
                                    Nautica -- Better and Bridge                 Nautica -- Better and Bridge

</TABLE>
                                      2

<PAGE>




         Women's apparel is generally divided into five price categories,
namely (listed from lowest to highest) "mass merchandise," "moderate,"
"better," "bridge" and "designer." These categories are distinguished
principally by differences in price and, as a general matter, by differences in
quality.

         During fiscal 1998, the suggested retail prices of the Company's Chaus
products ranged between $24.00 and $280.00. The Company's jackets ranged in
price between $120.00 and $280.00, its blouses and sweaters ranged in price
between $40.00 and $140.00, its skirts and pants ranged in price between $28.00
and $120.00, and its knit tops and bottoms ranged in price between $24.00 and
$120.00.

         The following table sets forth a breakdown by percentage of the
Company's net sales by product category for fiscal 1996 through fiscal 1998:
<TABLE>
<CAPTION>

                                                                         Fiscal Year Ended June 30,
                                                                         --------------------------
                                                                    1998              1997             1996
                                                                    ----              ----             ----
<S>                                                            <C>                <C>              <C>

                       Career Sportswear
                         Chaus                                         39%               37%              41%
                         Chaus Woman                                   12                11               11
                         Chaus Petite                                  10                 6                5
                                                                   ------             -----            -----
                         Total                                         61                54               57

                       Weekend Casual -  Sportswear                    29                30               33
                       Nautica                                          8                15               --
                       Dresses                                         --                --                8
                       Other (1)                                        2                 1                2
                                                                    -----             -----            -----
                       Total                                          100%              100%             100%
</TABLE>


--------------
                       (1) Includes sales by outlet stores, offset by
intercompany eliminations.

         Career Sportswear. The Company markets an extensive line of career
sportswear under the CHAUS label for misses sizes, the CHAUS WOMAN label for
larger sizes and the CHAUS PETITE label for smaller sizes. These product lines
offer a full collection of sportswear geared primarily for the working woman.
Each sportswear collection typically includes a broad selection of jackets,
skirts, pants, blouses and sweaters, as well as more casual apparel such as
shorts, shirts and knit tops.

         Weekend Casual Sportswear. The CHAUS SPORT label offers casual
jackets, sweaters, skirts, pants, shirts and knit tops. This product line
offers soft career, weekend and leisure sportswear intended for an informal
working environment as well as for casual wear.

LICENSE AGREEMENT WITH NAUTICA

         In September 1995, the Company entered into the Nautica License
Agreement under which the Company has an exclusive license to manufacture,
market, distribute and sell licensed product for women under the Nautica(R)
brand name in the United States and Puerto Rico. The Company currently
distributes its licensed Nautica product line in major department and specialty
stores, at "better" to "bridge" price points. Nautica has developed significant
brand-name recognition with its men's apparel lines. The Company's relationship
with Nautica provides the Company with exposure to "better" to "bridge"
departments, while creating an alliance with a leading company in the apparel
industry. The

                                       3

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Company's first sales of its licensed Nautica products occurred in August 1996.
The Company's license from Nautica is limited to women's sportswear collections
including coordinating knits, blouses, wovens, sweaters, pants, skirts,
jackets, and outerwear and sportswear dresses bearing the Nautica brand names
and marks. The Company's license from Nautica excludes business dresses, suits,
coats and raincoats that are not part of a sportswear collection. The license
also excludes shoes, scarves, socks, stockings or accessories for ladies
bearing the Nautica brand names and marks.

         The initial term of the Nautica License Agreement runs through
December 31, 1999 and is thereafter renewable, at the option of the Company,
for up to two periods of three years each, provided that certain conditions are
met (including the successful attainment of certain sales targets and the
requirement that Andrew Grossman continue in his position as Chief Executive
Officer during the term of the Nautica License Agreement). The Company's
obligations include minimum royalty and advertising payments. A separate
showroom was constructed for the display of the Company's licensed Nautica
products and a full operational merchandising and retail development group has
been dedicated to its licensed Nautica product line.

         Pursuant to the terms of the Nautica License Agreement, the Company
has granted Nautica a ten-year option to purchase up to 15,000 shares of the
Company's Common Stock at a purchase price of $50.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement, giving effect to the
Company's 1-for-10 reverse stock split during fiscal 1998).

         In August 1996, the Company commenced sales of its licensed NAUTICA
label. As initially launched, the Nautica product line encompassed both career
sportswear and weekend casual sportswear. In view of the disappointing
performance of the Company's Nautica product line, in October 1997 the Company
hired Lynn Buechner as President of the Nautica Women's Wear Division to manage
and reposition the product line. In contrast to the previous Nautica product
line, the repositioned line has a narrow focus on casual sportswear items -- a
focus that is consistent with the Nautica men's line.

         The Company continues to be disappointed with the performance of its
Nautica division and is currently in negotiations with regard to an exit from
its relationship with Nautica.

CUSTOMERS

         The Company's products are sold nationwide in an estimated 1,800
individual stores operated by approximately 160 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.

         The Company extends credit to its customers based upon an evaluation
of the customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1998 and 1997, approximately 87% and 62%, respectively, of
the Company's accounts receivable were due from department store customers
owned by four single corporate entities. During fiscal 1998, approximately 82%
of the Company's net sales were made to department store customers owned by
four single corporate entities, as compared to 63% in fiscal 1997 and 60% in
fiscal 1996. Sales to Dillard's Department Stores accounted for 43% of net
sales in fiscal 1998, 33% of net sales in fiscal 1997 and 29% of net sales in
fiscal 1996. Sales to nine department store companies owned by The May
Department Stores Company accounted for approximately 29% of the Company's net
sales in fiscal 1998, 16% of net sales in fiscal 1997 and 10% of net sales in
fiscal 1996. Sales to eight department store companies owned by Federated
Department Stores accounted for approximately 7% of net sales in fiscal 1998,
8% of net sales in fiscal 1997 and 5% of net sales in fiscal 1996. Sales to two
department store customers owned by TJX Companies, Inc. accounted for
approximately 3% of net sales in fiscal 1998, 6% of net sales in fiscal 1997
and 16% of net sales in fiscal 1996. The percentages of net sales are based
upon stores owned by the four corporate entities at the end of fiscal 1998. As
a result of the Company's dependence on its major customers, they may have the
ability to influence the Company's business

                                       4

<PAGE>



decisions. The loss of or significant decrease in business from any of its
major customers would have a material adverse effect on the Company's financial
position and results of operations.

SALES AND MARKETING

         The Company's selling operation is highly centralized. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms. The Company has an in-house sales force
of 28, all of whom are located in the New York City showrooms. Senior
management, principally Josephine Chaus, Chairwoman of the Board and principal
stockholder of the Company, and Andrew Grossman, Chief Executive Officer of the
Company, actively participate in the planning of the Company's marketing and
selling efforts. The Company does not employ independent sales representatives
or operate regional sales offices, but it does participate in various regional
merchandise marts. This sales structure enables management to control the
Company's selling operation more effectively, to limit travel expenses, as well
as to deal directly with, and be readily accessible to, major customers.

         Products are marketed to department and specialty store customers
during "market weeks," generally four to five months in advance of each of the
Company's selling seasons. The Company assists its customers in allocating
their purchasing budgets among the items in the various product lines to enable
consumers to view the full range of the Company's offerings in each collection.
During the course of the retail selling seasons, the Company monitors its
product sell-through at retail in order to directly assess consumer response to
its products.

         The Company emphasizes the development of long-term customer
relationships by consulting with its customers concerning the style and
coordination of clothing purchased by the store, optimal delivery schedules,
floor presentation, pricing and other merchandising considerations. Frequent
communications between the Company's senior management and other sales
personnel and their counterparts at various levels in the buying organizations
of the Company's customers is an essential element of the Company's marketing
and sales efforts. These contacts allow the Company to closely monitor retail
sales volume to maximize sales at acceptable profit margins for both the
Company and its customers. The Company's marketing efforts attempt to build
upon the success of prior selling seasons to encourage existing customers to
devote greater selling space to the Company's product lines and to penetrate
additional individual stores within the Company's existing customers. The
Company's largest customers discuss with the Company retail trends and their
plans regarding their anticipated levels of total purchases of Company products
for future seasons. These discussions are intended to assist the Company in
planning the production and timely delivery of its products.

         The Company maintains a cooperative advertising program under which it
reimburses, in certain circumstances, a portion of a customer's advertising
expenditures promoting the Company's products up to a maximum percentage of the
customer's purchases. Except for this cooperative advertising program, the
Company has not engaged in any direct advertising to the public with respect to
its Chaus product line. There was no direct advertising for the Company's
Nautica product line in fiscal 1998 and limited direct advertising in 1997.
Cooperative advertising expenditures for the Company were approximately $1.8
million for fiscal 1998, $1.1 million for fiscal 1997 and $0.8 million for
fiscal 1996.

DESIGN

         The Company's products and certain of the fabrics from which they are
made are designed by an in-house staff of fashion designers. The 23 person
design staff, headed by Judith Leech, monitors current fashion trends and
changes in consumer preferences. Ms. Chaus and Mr. Grossman, who are
instrumental in the design function, meet regularly with the design staff to
create, develop and coordinate the seasonal collections. The Company believes
that its design staff is well regarded for its distinctive styling and its
ability to contemporize fashion classics. Emphasis is placed on the
coordination of outfits and quality of fabrics to encourage the purchase of
more than one garment.


                                       5

<PAGE>



MANUFACTURING AND DISTRIBUTION

         The Company does not own any manufacturing facilities; all of its
products are manufactured in accordance with its design specifications and
production schedules through arrangements with independent manufacturers. The
Company believes that outsourcing its manufacturing maximizes its flexibility
while avoiding significant capital expenditures, work-in-process buildup and
the costs of a large workforce. A substantial amount (approximately 80%) of its
product is manufactured by approximately 35 key independent suppliers located
primarily in South Korea, Hong Kong, Taiwan, China, Indonesia and elsewhere in
the Far East. Approximately 20% of the Company's products are manufactured in
the United States and the Caribbean Basin. No contractual obligations exist
between the Company and its manufacturers except on an order-by-order basis.
During fiscal 1998, the Company purchased approximately 75% of its finished
goods from its ten largest manufacturers, including approximately 17% of its
purchases from its largest manufacturer. Contracting with foreign manufacturers
enables the Company to take advantage of prevailing lower labor rates and to
use a skilled labor force to produce high quality products.

         Generally, each manufacturer agrees to produce finished garments on
the basis of purchase orders from the Company, specifying the price and
quantity of items to be produced and supported by a letter of credit naming the
manufacturer as beneficiary to secure payment for the finished garments.

         The Company's technical production support staff, located in New York
City, produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design staff, and marks and grades
the patterns in anticipation of production. While the factories have the
capability to perform these services, the Company believes that its personnel
can best express its design concepts and efficiently supervise production to
better ensure that a quality product is produced. Once production fabric is
shipped to them, the manufacturers produce finished garments in accordance with
the production samples and obtain necessary quota allocations and other
requisite customs clearances. Branch offices of the Company's subsidiaries in
Korea and Hong Kong monitor production at each manufacturing facility to
control quality, compliance with the Company's specifications and timely
delivery of finished garments, and arrange for the shipment of finished
products to the Company's New Jersey distribution center. Almost all finished
goods are shipped to the Company's New Jersey distribution center for final
inspection, assembly into collections, allocation and shipment to customers.

         The Company believes that the number and geographical diversity of its
manufacturing sources minimize the risk of adverse consequences that would
result from termination of its relationship with any of its larger
manufacturers. The Company also believes that it would have the ability to
develop, over a reasonable period of time, adequate alternate manufacturing
sources should any of its existing arrangements terminate. However, should any
substantial number of such manufacturers become unable or unwilling to continue
to produce apparel for the Company or to meet their delivery schedules, or if
the Company's present relationships with such manufacturers were otherwise
materially adversely affected, there can be no assurance that the Company would
find alternate manufacturers of finished goods on satisfactory terms to permit
the Company to meet its commitments to its customers on a timely basis. In such
event, the Company's operations could be materially disrupted, especially over
the short-term. The Company believes that relationships with its major
manufacturers are satisfactory.

         The Company uses a broad range of fabrics in the production of its
clothing, consisting of synthetic fibers (including polyester and acrylic),
natural fibers (including cotton and wool), and blends of natural and synthetic
fibers. The Company does not have any formal, long-term arrangements with any
fabric or other raw material supplier. During fiscal 1998, virtually all of the
fabrics used in the Company's products manufactured in the Far East were
ordered from the Company's five largest suppliers in the Far East, which are
located in Japan, Taiwan and Korea, and virtually all of the fabric used in the
Company's products manufactured in the United States and the Caribbean Basin
were ordered by three major suppliers from these regions. The Company selects
the fabrics to be purchased, which are generally produced for

                                       6

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it in accordance with its own specifications. To date, the Company has not
experienced any significant difficulty in obtaining fabrics or other raw
materials and considers its sources of supply to be adequate.

         The Company operates under substantial time constraints in producing
each of its collections. Orders from the Company's customers generally precede
the related shipping period by up to five months. However, proposed production
budgets are prepared substantially in advance of the Company's initial
commitments for each collection. In order to make timely delivery of
merchandise which reflects current style trends and tastes, the Company
attempts to schedule a substantial portion of its fabric and manufacturing
commitments relatively late in a production cycle. However, in order to secure
adequate amounts of quality raw materials, especially greige (i.e., "undyed")
goods, the Company must make substantial advance commitments to suppliers of
such goods, often as much as seven months prior to the receipt of firm orders
from customers for the related merchandise. Many of these early commitments are
made subject to changes in colors, assortments and/or delivery dates.

IMPORTS AND IMPORT RESTRICTIONS

         The Company's arrangements with its manufacturers and suppliers are
subject to the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances, the imposition of
export duties, political and social instability, currency revaluations, and
restrictions on the transfer of funds. Bilateral agreements between exporting
countries, including those from which the Company imports substantially all of
its products, and the United States' imposition of quotas, limits the amount of
certain categories of merchandise, including substantially all categories of
merchandise manufactured for the Company, that may be imported into the United
States. Furthermore, the majority of such agreements contain "consultation
clauses" which allow the United States to impose at any time restraints on the
importation of categories of merchandise which, under the terms of the
agreements, are not subject to specified limits. The bilateral agreements
through which quotas are imposed have been negotiated under the framework
established by the Arrangement Regarding International Trade in Textiles, known
as the Multifiber Arrangement ("MFA") which has been in effect since 1974. The
United States has concluded international negotiations known as the "Uruguay
Round" in which a variety of trade matters were reviewed and modified. Quotas
established under the MFA will be gradually phased out over a ten year
transition period, after which the textile and clothing trade will be fully
integrated into the General Agreement on Trade and Tariffs ("GATT") and will be
subject to the same disciplines as other sections. The GATT agreement provides
for expanded trade, improved market access, lower tariffs and improved
safeguard mechanisms.

         The United States and the countries in which the Company's products
are manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, with the result that the Company's operations and its ability to
continue to import products at current or increased levels could be adversely
affected. The Company cannot now predict the likelihood or frequency of any
such events occurring. The Company monitors duty, tariff and quota-related
developments, and seeks continually to minimize its potential exposure to
quota-related risks through, among other measures, geographical diversification
of its manufacturing sources, allocation of production of merchandise
categories where more quota is available and shifts of production among
countries and manufacturers. The expansion in the past few years of the
Company's varied manufacturing sources and the variety of countries in which it
has potential manufacturing arrangements, although not the result of specific
import restrictions, have had the result of reducing the potential adverse
effect of any increase in such restrictions. In addition, substantially all of
the Company's products are subject to United States customs duties.

RETAIL OUTLET STORES

         The Company closed all of its retail outlet stores (other than the
retail outlet located at the Company's Secaucus facility, the space for which
is leased by the Company as part of its warehouse lease) during fiscal 1998 and
does not intend to open any new stores in the foreseeable future.


                                       7

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BACKLOG

         As of August 31, 1998 and 1997, the Company's order book reflected
unfilled customer orders for approximately $73.4 and $74.0 million of
merchandise, respectively. Order book data at any date are materially affected
by the timing of the initial showing of collections to the trade, as well as by
the timing of recording of orders and of shipments. The order book represents
customer orders prior to discounts. The Company does not believe that
cancellations, rejections or returns will materially reduce the amount of sales
realized from such backlog.

TRADEMARKS

         CHAUS(R), CHAUS ESSENTIAL(R), CHAUS SPORT(R), CHAUS WOMAN(R) and 
MS. CHAUS(R) are registered trademarks of the Company in the United States for 
use on ladies' garments. These trademarks are renewable in the years 2004,
2008, 2002, 2004 and 2005, respectively. JOSEPHINE(R) is also a registered
trademark of the Company in the United States, renewable in the year 2001, for
use on ladies' blouses and sweaters. The Company considers its trademarks to
be strong and highly recognized and, to have significant value in the marketing
of its products. See " -- License Agreement with Nautica" for certain
information concerning the Company's Nautica License Agreement.

         The Company has also registered its CHAUS, CHAUS SPORT, CHAUS WOMAN,
and JOSEPHINE marks for women's apparel in certain foreign countries and has
legal trademarks in certain foreign countries for selected women's accessories
including handbags, small leather goods and footwear.

COMPETITION

         The women's apparel industry is highly competitive, both within the
United States and abroad. The Company competes with many apparel companies,
some of which are larger, and have better established brand names and greater
resources than the Company. In some cases the Company also competes with
private-label brands of its department store customers. The Company's Nautica
product line has experienced intense competition from other designer labels.

         The Company believes that an ability to effectively anticipate, gauge
and respond to changing consumer demand and taste relatively far in advance, as
well as an ability to operate within substantial production and delivery
constraints (including obtaining necessary quota allocations), is necessary to
compete successfully in the women's apparel industry. Consumer and customer
acceptance and support, which depend primarily upon styling, pricing, quality
(both in material and production), and product identity, are also important
aspects of competition in this industry. The Company believes that its success
will depend upon its ability to remain competitive in these areas.

         Furthermore, the Company's traditional department store customers,
which account for a substantial portion of the Company's business, encounter
intense competition from so-called "off-price" and discount retailers, mass
merchandisers and specialty stores. The Company believes that its ability to
increase its present levels of sales will depend on such customers' ability to
maintain their competitive position and the Company's ability to increase its
market share of sales to department stores.

EMPLOYEES

         At June 30, 1998, the Company employed 334 employees as compared with
482 employees (of which 178 were retail store employees) at June 30, 1997. This
total includes 69 in managerial and administrative positions, approximately 107
in production, production administration and design, 35 in marketing,
merchandising and sales and 66 in distribution. Of the Company's total
employees, 57 were located in the Far East. The Company is a party to a
collective bargaining agreement with the Amalgamated Workers Union, Local 88,
covering 86 full-time employees. This agreement expires in August 1999.

                                       8

<PAGE>



         The Company considers its relations with its employees to be
satisfactory and has not experienced any business interruptions as a result of
labor disagreements with its employees.

EXECUTIVE OFFICERS

The executive officers of the Company are:

<TABLE>
<CAPTION>
         NAME              AGE      POSITION
         ----              ---      --------
<S>                   <C>         <C>   


Josephine Chaus            47       Chairwoman of the Board and member, Office of the Chairman
Andrew Grossman            39       Chief Executive Officer and member, Office of the Chairman
Stuart S. Levy             56       Chief Financial Officer and Secretary
Barton Heminover           44       Vice President-- Corporate Controller and Assistant Secretary
</TABLE>

Executive officers serve at the discretion of the Board of Directors.

         Josephine Chaus has been an employee of the Company in various
capacities since its inception. She has been a director of the Company since
1977, President from 1980 through February 1993, Chief Executive Officer from
July 1991 through September 1994, Chairwoman of the Board since 1991 and member
of the Office of the Chairman since September 1994.

         Andrew Grossman was appointed a director of the Company on September
13, 1994. He has been employed by the Company as its Chief Executive Officer
and member of the Office of the Chairman since September 28, 1994. Prior to
September 1994, Mr. Grossman was President from 1991 to 1994 and Executive Vice
President from 1990 to 1991 of Jones Apparel Group, a manufacturer of women's
apparel, and Vice President of Merchandising for Jones New York from 1987 to
1990. Prior to joining Jones, Mr. Grossman was employed by Willie Wear Ltd.,
Herbert Grossman Enterprises, the Ralph Lauren Womenswear division of Bidermann
Industries, Corp., and the Evan Picone division of Palm Beach, Inc.

         Stuart S. Levy joined the Company as Chief Financial Officer on
September 8, 1998. He was Vice President -- Finance and the Chief Financial
Officer of Donnkenny, Inc. from 1996 to 1998. From January 1993 to July 1996,
Mr. Levy was Vice President of Finance and Chief Financial Officer of Xpedite
Systems, Inc., a publicly-held provider of enhanced fax services. From August
1996 through October 1996, Mr. Levy provided services to Xpedite Systems, Inc.,
in connection with the completion and integration of international
acquisitions.

         Barton Heminover joined the Company as Vice President -- Corporate
Controller and Assistant Secretary in July 1996. From January 1983 to July 1996
he was employed by Petrie Retail, Inc. (formerly Petrie Stores Corporation), a
woman's retail apparel chain, in various capacities, serving as Vice
President/Treasurer from 1986 to 1994 and as Vice President/Financial
Controller from 1994 to 1996.

         On September 15, 1997, the Company announced the resignation of Wayne
Miller, the Company's Chief Financial Officer. From September 15, 1997 through
September 8, 1998, Mr. Heminover, together with the Company's financial
advisors, were responsible for all of Mr. Miller's duties.

ITEM 2.   PROPERTIES.

         The Company's principal executive offices are located at 1410 Broadway
in New York City, where the Company currently leases approximately 29,000
square feet, which represents a reduction of approximately 12,000 square feet
from the aggregate space occupied under several leases that terminated in July
1996. These facilities also house the Company's showrooms and its sales,
design, production and merchandising staffs. This space is occupied under a
lease expiring in July

                                       9

<PAGE>



1999. Net base rental expense aggregated approximately $0.7 million in fiscal
1998 and 1997, and $2.3 million in fiscal 1996. Chaus also leases approximately
19,000 square feet of space at 520 Eighth Avenue in New York City, which houses
its technical production support facilities (including its sample and pattern
makers). Net base rental expense for this space aggregated approximately $0.2
million in each of fiscal 1998, 1997 and 1996. The lease for this facility
expires in January 1999.

         The Company's distribution centers are located in Secaucus, New Jersey
where the Company leases approximately 275,000 square feet. This facility also
houses the Company's administrative and finance personnel, its computer
operations, and one retail outlet store. This space is occupied under a lease
expiring June 30, 2000. Base rental expense for the Secaucus facilities
aggregated approximately $1.1 million in fiscal 1998 and $1.3 million in each
of fiscal 1997 and 1996.

         Office locations are also leased in Hong Kong and Korea, with annual
aggregate rental expense of approximately $0.2 million for fiscal 1998 and $0.3
million for fiscal 1997 and 1996.

         In prior years the company leased space for its outlet stores
operation, with the average store utilizing approximately 3,000 square feet in
fiscal 1997. The Company closed all of its retail outlet stores (other than the
retail outlet store located at the Company's Secaucus facility, the space for
which is leased by the Company as part of its warehouse lease) during fiscal
1998. The annual aggregate base rental expense for the outlet stores was
approximately $0.7 million for fiscal 1998 and $1.7 million for each of fiscal
1997 and 1996.

ITEM 3.   LEGAL PROCEEDINGS.

         Without admitting any liability, the Company settled, in July 1998, an
action brought by the Equal Employment Opportunity Commission on behalf of
three former patternmakers, each of whom was terminated by the Company in late
1995. The amount of the settlement was not material and was provided for in
selling, general and administrative expenses in the fiscal 1997 financial
statements.

         There are no other material pending legal proceedings to which the
Company is a party or to which any of its properties is subject.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None.



                                       10

<PAGE>



PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.

         The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CHS." The following table sets forth for each of the
Company's fiscal periods indicated the high and low sales prices for the Common
Stock as reported on the NYSE.

<TABLE>
<CAPTION>
                                                                           HIGH              LOW
                                                                           ----              ---
<S>                                                                    <C>                <C>
 
          Fiscal 1997
                       First Quarter..................................   $36.250           $20.000
                       Second Quarter.................................    28.750            16.250
                       Third Quarter..................................    17.500             5.000
                       Fourth Quarter.................................    15.000             6.870

          FISCAL 1998
                       First Quarter..................................   $21.250            $8.125
                       Second Quarter.................................    11.250             6.250
                       Third Quarter...................................    5.250             1.625
                       Fourth Quarter..................................    5.750             3.438
</TABLE>

All share and per share data reflects the 1 for 10 reverse stock split, which
was effected December 9,1997.

As of September 2, 1998, the Company had approximately 441 stockholders of
record.

         The Company has not declared or paid cash dividends or made other
distributions on its Common Stock since prior to its 1986 initial public
offering. The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend on the Company's earnings,
its capital requirements and financial condition. It is the present intention
of the Board of Directors to retain all earnings, if any, for use in the
Company's business operations and, accordingly, the Board of Directors does not
expect to declare or pay any dividends in the foreseeable future. In addition,
the New Financing Agreement prohibits the Company from declaring dividends or
making other distributions on its capital stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition, Liquidity and Capital Resources."



                                       11

<PAGE>



ITEM 6.   SELECTED FINANCIAL DATA.

         The following financial information is qualified by reference to, and
should be read in conjunction with, the Financial Statements of the Company and
the notes thereto, as well as Management's Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere herein.

STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
                                       
                                                                           FISCAL YEAR ENDED JUNE 30,
                                                        --------------------------------------------------------------
                                                             1998         1997          1996         1995         1994
                                                             ----         ----          ----         ----         ----
                                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>            <C>          <C>          <C>           <C>   

Net sales ............................................    $191,546     $160,100      $170,575     $181,697     $206,332
Cost of goods sold ...................................     142,175      125,422(4)    147,994      149,097      186,594
                                                           -------      -------      --------     --------     --------
Gross profit .........................................      49,371       34,678        22,581       32,600       19,738  
Selling, general and administrative expenses .........      38,462       40,924        40,162       44,794       55,400
Restructuring expenses................................         --         2,250 (3)       --         1,200(1)     5,300(1)
Unusual expenses .....................................         --            --           --         8,333(2)     1,900(2)
Interest expense .....................................       6,411        8,030         6,560        5,976        3,439
Other income (expense), net..........................           58          113            56           91         (190)
                                                       -----------   ----------       ---------- ---------- -------------
Income (loss) before income tax
   provision .........................................       4,556      (16,413)      (24,085)     (27,612)     (46,491)
Income tax provision .................................         245           50           301          301          264
                                                        ----------  -----------     ---------    ---------   ----------
Net income (loss) ....................................   $   4,311    $ (16,463)     $(24,386)    $(27,913)    $(46,755)
                                                         =========    ==========     ========     ========     ========
Basic and diluted earnings (loss) per share (5) ......   $    0.28    $   (2.46)     $  (3.91)    $  (5.17)    $  (9.24)
                                                        ==========   ==========     =========    =========    =========
Weighted average number of common and
  common equivalent shares outstanding (6)............      15,296        6,687         6,239        5,399        5,061
                                                         =========    =========     =========    ==========   =========

BALANCE SHEET DATA:
                                                                                   AS OF JUNE 30,
                                                          -------------------------------------------------------------
                                                            1998          1997          1996         1995         1994
                                                            ----          ----          ----         ----         ----
Working capital (deficiency) .............................$18,679      $(32,729)    $ (19,483)    $(13,914)     $ 3,342
Total assets ............................................  39,012        34,138        32,742       28,660       51,619
Short-term debt, including current portion
  of long-term debt ....................................    1,000        37,756        26,077       18,698       21,365
Long-term debt ..........................................  13,500        26,374        23,588       21,066       18,789
Stockholders' equity (deficiency) ......................    7,015       (57,060)      (40,610)     (32,379)     (13,614)
</TABLE>
-------------------

(1)      Includes, in fiscal 1995, $1.2 million of employee severance and, in
         fiscal 1994, $2.1 million for closing selected outlet stores, $2.5
         million for consolidation of office and warehouse space, and $0.7
         million for employee severance.

(2)      Includes, in fiscal 1995, $7.8 million primarily relating to the costs
         associated with the signing of the Company's new Chief Executive
         Officer and $0.5 million related to certain legal matters and, in
         fiscal 1994, expenses relating primarily to abandonment of fixed
         assets, certain legal matters and the winding down of the Company's
         Canadian joint venture.

(3)      The Company recorded a $2.3 million restructuring charge in the fourth
         quarter of fiscal 1997 for costs to be incurred in connection with the
         Restructuring, which was announced in June 1997. The costs incurred
         relate to the closing of the Company's outlet stores (such as
         professional fees, lease termination expenses, and write-off of fixed
         assets), in addition to professional fees and other expenses
         associated with the implementation of the Company's restructuring
         program which was completed on January 29, 1998. Refer to Note 7 to
         the Consolidated Financial Statements.

(4)      Includes $1.1 million for liquidation of inventory as a result of
         closing the Company's outlet stores.

(5)      Computed by dividing net income (loss) by the weighted average number
         of shares of Common Stock outstanding during the years.

(6)      All share data reflects the 1 for 10 reverse stock split which was
         effected December 9, 1997 and reflects the retroactive adjustment for
         the bonus element of the Rights Offering, which was consummated on
         January 26, 1998.


                                       12

<PAGE>



ITEM 7.  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

         The following table sets forth, for the years indicated, certain items
expressed as a percentage of net sales.
<TABLE>
<CAPTION>

                                                                                       Fiscal Year Ended June 30
                                                                                --------------------------------------- 
                                                                                 1998           1997              1996
                                                                                 ----           ----              ----
<S>                                                                        <C>             <C>               <C>    

              Net sales .............................................        100.0%           100.0%            100.0%
              Gross profit ..........................................         25.8             21.7              13.2
              Selling, general and administrative expenses ..........         20.0             25.6              23.5

              Restructuring expenses ................................          --               1.4               --
              Interest expense .....................................           3.3              5.0               3.8
              Net income (loss) ....................................           2.3            (10.3)            (14.3)
</TABLE>

Fiscal 1998 Compared to Fiscal 1997

         In fiscal 1998, net sales increased by $31.4 million, or 19.6%,
compared to the prior year. The increase in net sales is primarily due to
increased sales at regular and incentive prices of the Company's Chaus product
lines partially offset by a decrease in sales associated with the Company's
Nautica licensed product line and lower retail store sales. Retail store sales
decreased as a result of the liquidation of the Company's retail outlet stores
during the second quarter of fiscal 1998. In fiscal 1998, exclusive of sales
associated with the retail outlet stores, units shipped increased by 11.6% with
a 14.3% increase in average selling prices from the prior year. The increase in
average selling prices resulted from the Company's ability to increase its
selling price per unit and decrease its sales to off-price customers.

         Gross profit as a percentage of net sales was 25.8% as compared to
21.7% in the previous year. The increase in gross profit as a percentage of net
sales was primarily due to improved gross margins on the Chaus product lines,
partially offset by a decrease in gross margins associated with the Nautica
licensed product line.

         Selling, general and administrative expenses decreased by $2.5 million
compared to the prior year. Approximately $2.2 million of this decrease was
attributable to the closing of the Company's retail outlet stores during the
second quarter of fiscal 1998. Selling, general and administrative expenses as
a percent of net sales decreased from 25.6% in fiscal 1997 to 20.0% in fiscal
1998. The decrease in selling, general and administrative expenses as a percent
of net sales was primarily the result of the Company's ability to keep its
expenses, exclusive of the retail operations, relatively constant as its net
sales, exclusive of the retail operations, increased.

         The Company recorded a $2.3 million restructuring charge in the fourth
quarter of fiscal 1997 for costs to be incurred in connection with the
Company's restructuring program, which was announced in June 1997. The costs
incurred relate to the closing of the Company's outlet stores (such as
professional fees, lease termination expenses and write-off of fixed assets),
in addition to professional fees and other expenses associated with the
implementation of the Company's restructuring program. In addition, the Company
recorded a $1.1 million charge to cost of goods sold related to the liquidation
of the retail outlet store inventory. The restructuring was completed in the
third quarter of fiscal 1998.

         At the end of fiscal 1997, the remaining balance of the restructuring
reserve was $1.9 million. During fiscal 1998, $1.9 million was charged against
such remaining reserve, consisting of outlet store closing costs and
professional fees

                                       13

<PAGE>



related to the Company's restructuring. Costs relating to the liquidation of
the retail outlet store inventory totaled $1.2 million, of which $1.1 million
was provided for in fiscal 1997.

Fiscal 1997 Compared to Fiscal 1996

         In fiscal 1997, net sales decreased by $10.5 million, or 6.1%,
compared to the prior year. The decrease in net sales was due predominantly to
a reduction in off-price sales, and the discontinuation of dresses as a product
category in March 1996. The decrease in net sales was partially offset by sales
of the Company's licensed Nautica product of approximately $25.0 million, which
commenced in August 1996. Sales by the Company's outlet stores decreased by
$1.2 million, or 6.5%, as compared to the prior year. This decrease was due to
the closing of nine outlet stores during the past two years.

         Gross profit as a percentage of net sales was 21.7% as compared to
13.2% in the previous year. The increase in gross profit as a percentage of net
sales was primarily the result of a decrease in off-price sales volume and the
impact of the elimination of dresses as a product category in February 1996.

         Selling, general and administrative expenses increased by $0.8
million, to 25.6% of net sales in fiscal 1997 from 23.5% of net sales in fiscal
1996. This increase was primarily due to costs associated with the licensed
Nautica product line such as payroll, advertising, sample expense, and royalty
fees. The increase in such expenses was partially offset by a decrease in
payroll expenses throughout other areas of the Company, and a decrease in
occupancy costs. The decrease in occupancy costs was due to a decrease in
occupancy costs at the corporate headquarters which resulted from a decrease in
the space leased and the reduction in the number of outlet stores and the
attendant leases.

         The Company recorded a $2.3 million restructuring charge in the fourth
quarter of fiscal 1997 for costs to be incurred in connection with the
Company's restructuring program, which was announced in June 1997. The costs
incurred related to the closing of the Company's outlet stores (such as
professional fees, lease termination expenses and write-off of fixed assets),
in addition to professional fees and other expenses associated with the
implementation of the Company's restructuring program. In addition, the Company
recorded a $1.1 million charge to cost of goods sold related to the liquidation
of the retail outlet store inventory.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

General

         Net cash used in operating activities was $5.8 million for fiscal
1998, $11.0 million for fiscal 1997, and $22.7 million for fiscal 1996. The net
cash used in operating activities for fiscal 1998 resulted primarily from net
income of $4.3 million, inclusive of $2.3 million of non-cash charges,
increases in accounts receivable of $9.8 million and decreases in accounts
payable of $6.8 million, partially offset by decreases in inventory of $6.3
million.

         Historically, the Company has not required major capital expenditures.
In fiscal 1998 and 1997, purchases of fixed assets were $0.3 and $0.2 million,
respectively, consisting primarily of purchases of computer software systems
and improvements in the Company's New Jersey warehouse facilities and New York
design and showroom facilities. In fiscal 1998 and 1997, the Company incurred
expenditures of $0.4 million for "in store" fixtures and signs purchased in
connection with the Nautica product line. In fiscal 1999, the Company
anticipates capital expenditures of approximately $0.5 million consisting
primarily of expenditures for the Company's New Jersey warehouse facility and
New York Design and showroom facilities.


                                       14

<PAGE>



Financing Agreements

         The Company and BNY Financial Corporation, a wholly owned subsidiary
of The Bank of New York ("BNYF"), entered into a financing agreement in July
1991, which was amended and restated on several occasions (as amended, the "Old
Bank Debt Agreement"). See Note 6 to Consolidated Financial Statements.

         On October 10, 1997, the Company and BNYF entered into a new revolving
credit facility (the "New Revolving Facility") and a new term loan facility
(the "New Term Loan" and, together with the New Revolving Facility, the "New
Financing Agreement"). The New Financing Agreement consisted of two facilities:
(i) the New Revolving Facility which was a $66.0 million five-year revolving
credit line with a $20.0 million sublimit for letters of credit, and (ii) the
New Term Loan which was a $15.0 million term loan facility. On June 3, 1998,
the Company and BNYF amended the New Revolving Facility to provide for a $45.5
million five-year revolving credit line with $34.0 million sublimit for letters
of credit and amended the New Term Loan to provide for a $14.5 million term
loan facility. Each facility matures on December 31, 2002. See Note 6 to
Consolidated Financial Statements. At June 30, 1998, the Company had
availability of approximately $7.6 million (inclusive of overadvance
availability) under the New Financing Agreement.

         The New Financing Agreement contains financial covenants requiring,
among other things, the maintenance of minimum levels of tangible net worth,
working capital and maximum permitted loss (minimum permitted profit).

Credit Support and Subordinated Indebtedness

         Josephine Chaus had arranged for letters of credit in various amounts
since April 1994 in return for which BNYF had increased the availability under
the Old Bank Debt Agreement. Ms. Chaus received certain cash payments and
warrants for her credit support to the Company. In connection with the
Restructuring (as defined below), the Company caused its subordinated
indebtedness to Ms. Chaus, together with $12.5 million in cash collateral of
Ms. Chaus, which had been pledged to BNYF, to be converted into 10,510,910
shares of Common Stock of the Company. In connection with the Restructuring,
Ms. Chaus also relinquished all warrants she had received as credit support.
See Notes 6 and 7 to Consolidated Financial Statements.

Restructuring Program

         In June 1997, the Company announced a proposed restructuring program
to be implemented by the Company. In September 1997, the disinterested members
of the Board of Directors of the Company unanimously approved the restructuring
plan (the "Restructuring") which provided for the following: (i) the Company
raised, through an offer of rights to subscribe ("Rights"), up to $20.0
million, but not less than $12.5 million, of equity through a rights offering
to all shares of Common Stock of the Company (the "Rights Offering") of up to
13,977,270 shares of Common Stock of the Company (on a post stock split basis);
(ii) the conversion of approximately $40.6 million of the Company's
indebtedness to Ms. Chaus, consisting of $28.1 million of then existing
subordinated indebtedness (including accrued interest through January 28, 1998)
and $12.5 million of additional indebtedness owed to Ms. Chaus, into 10,510,910
shares of Common Stock of the Company; (iii) the New Financing Agreement; (iv)
the implementation of a reverse stock split of the Company's Common Stock such
that every ten (10) shares of Common Stock would be converted into one (1)
share of Common Stock; and (v) the liquidation of the Company's retail outlet
stores during the second quarter of fiscal 1998. On October 10, 1997, the
Company entered into the New Financing Agreement referred to in (iii) above. On
December 9, 1997, the reverse stock split described in (iv) above became
effective. Prior to January 14, 1998, the Company closed all of its retail
outlet stores as referenced in (v) above. On January 26, 1998, the Rights
Offering described in (i) above was consummated. On January 29, 1998, the
conversion of indebtedness into equity described in (ii) above was completed.



                                       15

<PAGE>



 Future Financing Requirements

         At June 30, 1998, the Company had working capital of $18.7 million.
The Company's business plan requires the availability of sufficient cash flow
and borrowing capacity to finance its product lines. The Company expects to
satisfy such requirements through cash flow from operations and borrowings
under the New Financing Agreement.

         Although there can be no assurance, the Company believes that it has
adequate resources to meet its needs for the foreseeable future, assuming it
meets its business plan.

         The foregoing discussion contains forward-looking statements which are
based upon current expectations and involve a number of uncertainties,
including the Company's ability to maintain its borrowing capabilities under
the New Financing Agreement, retail market conditions, and consumer acceptance
of the Company's products.

INFLATION

         The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States, where it
competes, have had a significant effect on its net sales or profitability.

SEASONALITY

         Historically, the Company's sales and operating results fluctuate by
quarter, with the greatest sales occurring in the Company's first and third
fiscal quarters. It is in these quarters that the Company's Fall and Spring
product lines, which traditionally have had the highest volume of net sales,
are shipped to customers, with revenues generally being recognized at the time
of shipment. As a result, the Company experiences significant variability in
its quarterly results and working capital requirements. Moreover, delays in
shipping can cause revenues to be recognized in a later quarter, resulting in
further variability in such quarterly results.

NEW ACCOUNTING PRONOUNCEMENTS

         The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share which was required to be adopted for
interim and annual periods ending after December 15, 1997. The statement
establishes standards for computing and presenting earnings per share ("EPS")
and simplifies the standards for computing EPS currently found in Accounting
Principles Board ("APB") Opinion No. 15, Earnings Per Share. Common stock
equivalents under APB No. 15, with the exception of contingently issuable
shares (shares issuable for little or no cash consideration), are no longer
included in the calculation of primary, or basic EPS. Under SFAS No. 128,
contingently issuable shares are included in the calculation of basic EPS.

         The Company is required to adopt SFAS No. 130, Reporting Comprehensive
Income during the year ending June 30, 1999. SFAS 130 establishes standards for
reporting comprehensive income and its components in a full set of general-
purpose financial statements. This Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement, and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Adoption of this statement
will require the Company to report changes in the excess of additional pension
liability over unrecognized prior service cost and foreign currency translation
adjustment accounts, currently shown in the stockholders' equity section of the
balance sheet, as an increase or decrease to reported net income in arriving at
comprehensive income. Currently, the Company has no items of other
comprehensive income.

         The Company is required to adopt SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information during the year ending June
30, 1999. The Statement establishes standards for the way that public business


                                       16

<PAGE>



enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement supersedes FASB
Statement No. 14 Financial Reporting for Segments of a Business Enterprise, but
retains the requirement to report information about major customers. It amends
FASB Statement No. 94, Consolidation of all Majority-Owned Subsidiaries to
remove the special disclosure requirements for previously unconsolidated
subsidiaries. The Company is currently considering what effect adoption of this
statement will have on the Company.

         The Company is required to adopt SFAS No. 132, Employers' Disclosure
About Pensions and Other Postretirement Benefits during the year ending June
30, 1999. This Statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. Restatement of disclosures for earlier
periods provided for comparative purposes is required. The Company has not yet
determined the impact the adoption of this statement will have on the Company's
financial statements.

YEAR 2000 COMPLIANCE

         The Company has prepared a plan to become Year 2000 compliant.
Pursuant to the Company's Year 2000 Plan, major segments of the Company's
information technology ("IT") and non-IT systems have been upgraded and tested
to become Year 2000 compliant. The Company anticipates that the remaining IT
and non-IT systems should be upgraded and tested to be Year 2000 compliant by
the first quarter of calendar 1999. The total costs of these system upgrades is
projected to approximate $0.4 million. Given that the Company expects to be
Year 2000 compliant by the first quarter of calendar 1999, the Company has not
prepared a contingency plan and does not currently believe that a contingency
plan is necessary.

         In some cases, the Company's computer systems are linked to its major
customers and the Company is in the process of assessing its customers'
compliance with Year 2000. The Company has had correspondence from its major
customers regarding Year 2000. The Company's major customers generally comply
with VICS (Voluntary Interindustry Commerce Standards) standards. VICS
establishes standards that simplify the flow of product and information in the
general merchandise retail industry for retailers and suppliers alike. The
Company expects to be compliant with VICS Year 2000 Electronic Data Interchange
standards by the end of calendar 1998. The Company has virtually no computer
interfaces with its vendors: however, it does not know the extent to which its
vendors, or its customers, would be impaired by their own Year 2000 issues and
its impact on the Company. The costs of assessing compliance are expected to be
minimal. In addition, although the Company believes it is adequately addressing
its Year 2000 issues, there can be no assurance that any such failure regarding
Year 2000 compliance would not have a material impact on the Company.

ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements are included herein commencing on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.

         None.


                                       17

<PAGE>



PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information with respect to the executive officers of the Company is
set forth in Part I of this Annual Report on Form 10-K.

         Information with respect to the directors of the Company is
incorporated by reference to the information to be set forth under the heading
"Election of Directors" in the Company's definitive proxy statement relating to
its 1998 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
(the "Company's 1998 Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

         Information called for by Item 11 is incorporated by reference to the
information to be set forth under the heading "Executive Compensation" in the
Company's 1998 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information called for by Item 12 is incorporated by reference to the
information to be set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1998 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information called for by Item 13 is incorporated by reference to the
information to be set forth under the headings "Executive Compensation" and
"Certain Transactions" in the Company's 1998 Proxy Statement.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a) Financial Statements and Financial Statement Schedule: See List of
Financial Statements and Financial Statement Schedule on page F-1.

         (b) The Company did not file a Form 8-K during the last quarter of its
fiscal year ended June 30, 1998.

         (c) Exhibits filed herewith are denoted by an (*):



<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
       EXHIBIT NO. PAGES                                                             NUMBERED    
<S>           <C>                                                                    
3.1           Restated Certificate of Incorporation (the "Restated Certificate")
              of the Company (incorporated by reference to Exhibit 3.1 of the
              Company's Registration Statement on Form S-1, Registration No.
              33-5954 (the "1986 Registration Statement").

3.11          Amendment dated November 18, 1987 to the Restated Certificate
              (incorporated by reference to Exhibit 3.11 of the Company's
</TABLE>

                                       18

<PAGE>


<TABLE>
<CAPTION>
                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES
<S>           <C>
              Registration Statement on Form S-2, Registration No. 33-63317
              (the "1995 Registration Statement").

3.12          Amendment dated November 15, 1995 to the Restated Certificate
              (incorporated by reference to Exhibit 3.12 of Amendment No. 1 to
              the 1995 Registration Statement).

*3.13         Amendment dated December 9, 1998 to the Restated Certificate.

3.2           By-Laws of the Company, as amended (incorporated by reference
              to Exhibit 3.1 of the Company's Form 10-Q for the quarter ended
              December 31, 1987).

3.3           Amendment dated September 13, 1994 to the By-Laws
              (incorporated by reference to Exhibit 10.105 of the Company's
              Form 10-Q for the quarter ended September 30, 1994).

+10.1         Restricted Stock Purchase Plan (incorporated by reference to
              Exhibit 10.1 of the Company's Form 10-K for the year ended June
              30, 1987).

+10.2         1986 Stock Option Plan, as amended and restated as of January 1,
              1987 (the "1986 Stock Option Plan") (incorporated by reference to
              Exhibit 10.2 of the Company's Form 10-K for the year ended July
              1, 1989 (the "1989 Form 10-K")).

+10.3         Amendment No. 1 to the 1986 Stock Option Plan (incorporated by
              reference to Exhibit 10.3 of the 1989 Form 10-K).

+10.4         Amendment No. 2 to the 1986 Stock Option Plan (incorporated by
              reference to the Company's Proxy Statement for its 1990 Annual
              Meeting of Stockholders).

+10.5         Amendment No. 3 to the 1986 Stock Option Plan (incorporated by
              reference to the Company's Proxy Statement for its 1991 Annual
              Meeting of Stockholders).

+10.6         Amendment No. 4 to the 1986 Stock Option Plan (incorporated by
              reference to the Company's Proxy Statement for its 1993 Annual
              Meeting of Stockholders).

+10.7         Amendment No. 5 to the 1986 Stock Option Plan as amended
              (incorporated by reference to the Company's Proxy Statement for
              its 1995 Annual Meeting of Stockholders).


                                       19

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

+10.8         Incentive Award Plan (incorporated by reference to Exhibit 10.6
              of the 1986 Registration Statement).

10.9          Agreement dated December 3, 1990 among the Company, Bernard
              Chaus, Josephine Chaus and National Union Fire Insurance
              Company of Pittsburgh, Pa., the Company's directors and officers
              liability carrier (incorporated by reference to Exhibit 10.31 of the
              Company's Form 10-Q for the quarter ended December 31, 1990).

+10.10        Employment Agreement, dated July 1, 1991, between the Company and
              Josephine Chaus (incorporated by reference to Exhibit 10.39 of
              the Company's Form 10-K for the year ended June 30, 1991).

+10.11        Employment Agreement dated September 1, 1994 between the Company
              and Andrew Grossman with Stock Option Agreement dated as of
              September 1, 1994 by and between the Company and Andrew Grossman
              (incorporated by reference to Exhibit 10.90 of the 1994 Form
              10-K).

+10.12        Employment Agreement dated December 14, 1996 between the Company
              and Michael Winter (incorporated by reference to Exhibit 10.68 of
              the Company's Form 10-Q for the quarter ended December 31, 1995
              (the "December 1995 Form 10-Q").

10.13         Agreement, dated June 15, 1988, between the Company and
              Bernard Chaus and Josephine Chaus, amending the terms of the
              Company's subordinated promissory notes to each of them, each
              in the principal amount of $7,365,000, the form of which was filed
              as Exhibit 10.13 of the 1986 Registration Statement (incorporated
              by reference to Exhibit 10.11 of the Company's Form 10-K for the
              year ended July 2, 1988).

10.14         Agreement, dated May 17, 1990, between the Company and Bernard
              Chaus and Josephine Chaus amending the terms of the Company's
              subordinated promissory notes to each of them, each in the
              principal amount of $7,365,000, the form of which was filed as
              Exhibit 10.13 of the 1986 Registration Statement.

10.15         Agreement, dated February 21, 1991, between the Company and
              Bernard Chaus and Josephine Chaus amending the terms of the
              Company's subordinated promissory notes to each of them, each in
              the principal amount of $7,365,000 (incorporated by reference to
              Exhibit 10.74 of the Company's Form 10-K for the year ended June
              30,1993 (the "1993 Form 10-K")).



                                       20

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

10.16         Subordinated promissory notes, dated March 12, 1991, between the
              Company and Bernard Chaus and Josephine Chaus, separately, each
              in the amount of $5,000,000 (incorporated by reference to Exhibit
              10.75 of the 1993 Form 10-K).

10.17         Agreement, dated July 31, 1991, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus amending the terms of
              the Company's subordinated promissory notes to each of them, each
              in the principal amount of $7,365,000 (incorporated by reference
              to Exhibit 10.76 of the 1993 Form 10-K).

10.18         Agreement, dated July 31, 1991, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus amending the terms of
              the Company's subordinated promissory notes to each of them, each
              in the principal amount of $5,000,000 (incorporated by reference
              to Exhibit 10.77 of the 1993 Form 10-K).

10.19         Agreement, dated July 15, 1992, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus amending the terms of
              the Company's subordinated promissory notes to each of them, each
              in the principal amount of $5,000,000 (incorporated by reference
              to Exhibit 10.78 of the 1993 Form 10-K).

10.20         Agreement, dated October 30, 1992, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus amending the terms of
              the Company's subordinated promissory notes to each of them, each
              in the principal amount of $7,365,000 (incorporated by reference
              to Exhibit 10.79 of the 1993 Form 10-K).

10.21         Demand Notes, dated June 30, 1993, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus, each in the
              principal amount of $1,520,216 (incorporated by reference to
              Exhibit 10.80 of the 1993 Form 10-K).

10.22         Agreement, dated September 21, 1993, between the Company and the
              Estate of Bernard Chaus and Josephine Chaus amending the terms of
              the Company's subordinated promissory notes to each of them, each
              in the principal amount of $7,365,000 (incorporated by reference
              to Exhibit 10.81 of the 1993 Form 10-K).

10.23         Subordinated promissory notes, dated August 1, 1993, between the
              Company and Josephine Chaus and the Estate of Bernard Chaus,
              separately, each in the amount of $208,716 (incorporated by
              reference to Exhibit 10.94 of the 1994 Form 10-K).


                                       21

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

10.24         Subordinated promissory note, dated August 1, 1993, between the
              Company and Josephine Chaus in the amount of $1,311,500
              (incorporated by reference to Exhibit 10.95 of the 1994 Form
              10-K.)

10.25         Subordinated Promissory Note, dated August 1, 1993, between the
              Company and the Estate of Bernard Chaus in the amount of
              $1,000,000 (incorporated by reference to Exhibit 10.96 of the
              1994 Form 10-K).

10.26         Subordinated promissory note, dated August 1, 1993, between the
              Company and the Estate of Bernard Chaus, in the amount of
              $311,500 (incorporated by reference to Exhibit 10.97 of the 1994
              Form 10-K).

10.27         Subordinated promissory notes, dated December 31, 1993, between
              the Company and Josephine Chaus and the Estate of Bernard Chaus,
              separately, each in the amount of $181,056 (incorporated by
              reference to Exhibit 10.98 of the 1994 Form 10-K).

10.28         Subordinated promissory notes, dated December 31, 1993, between
              the Company and Josephine Chaus and the Estate of Bernard Chaus,
              separately, each in the amount of $412,950 (incorporated by
              reference to Exhibit 10.99 of the 1994 Form 10-K).

10.29         Agreements, dated September 9, 1993, between the Company and
              Josephine Chaus and the Estate of Bernard Chaus, separately,
              reflecting amendments to subordinated promissory notes, each in
              the principal amount of $5,000,000 (incorporated by reference to
              Exhibit 10.100 of the 1994 Form 10-K).

10.30         Agreements, dated October 18, 1993, between the Company and
              Josephine Chaus and the Estate of Bernard Chaus, separately,
              reflecting amendments to subordinated promissory notes, each in
              the principal amount of $1,520,216 (incorporated by reference to
              Exhibit 10.101 of the 1994 Form 10-K).

10.31         Agreements, dated October 18, 1993, between the Company and
              Josephine Chaus and the Estate of Bernard Chaus, separately,
              reflecting amendments to subordinated promissory notes, each in
              the principal amount of $7,365,000 (incorporated by reference to
              Exhibit 10.102 of the 1994 Form 10-K).



                                       22

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

10.32         Agreement, dated December 31, 1993, between the Company and
              Josephine Chaus reflecting amendments to a subordinated
              promissory note in the principal amount of $1,311,500
              (incorporated by reference to Exhibit 10.103 of the 1994 Form
              10-K).

10.33         Agreement, dated December 31, 1993, between the Company and the
              Estate of Bernard Chaus, reflecting amendments to subordinated
              promissory notes, in the principal amounts of $1,000,000 and
              $311,500 (incorporated by reference to Exhibit 10.104 of the 1994
              Form 10-K).

10.34         Agreement, dated November 9, 1994, between the Company and
              Josephine Chaus extending the due dates on subordinated
              promissory notes (incorporated by reference to Exhibit 10.107 of
              the Company's Form 10-Q for the quarter ended September 30, 1994
              (the "September 1994 Form 10-Q")).

10.35         Agreement, dated November 9, 1994, between the Company and the
              Estate of Bernard Chaus extending the due dates on subordinated
              promissory notes (incorporated by reference to Exhibit 10.108 of
              the September 1994 Form 10-Q).

10.36         Agreement, dated December 19, 1994, assigning the subordinated
              notes from the Estate of Bernard Chaus to Josephine Chaus
              (incorporated by reference to Exhibit 10.110 of the Company's
              Form 10-Q for the quarter ended December 30, 1994 (the "December
              1994 Form 10-Q").

10.37         Agreement, dated January 11, 1995, between the Company and
              Josephine Chaus extending the due dates on subordinated
              promissory notes (incorporated by reference to Exhibit 10.111 of
              the December 1994 Form 10-Q).

+10.38        Agreement, dated November 22, 1994, between the Company and
              Josephine Chaus issuing 32,500 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.112 of
              the Company's Form 10-Q for the quarter ended March 31, 1995 (the
              "March 1995 Form 10-Q")).

+10.39        Agreement, dated November 22, 1994, between the Company and
              Josephine Chaus issuing 206,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.113 of
              the March 1995 Form 10-Q).



                                       23

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

+10.40        Agreement, dated November 22, 1994, between the Company and
              Josephine Chaus issuing 338,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.114 of
              the March 1995 Form 10-Q).

+10.41        Agreement, dated November 22, 1994, between the Company and
              Josephine Chaus issuing 640,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.115 of
              the March 1995 Form 10-Q).

10.42         Agreement effective February 21, 1995 (the "Old Bank Debt
              Agreement") between the Company and BNY Financial Corporation
              restating and amending the Financing Agreement (incorporated by
              reference to Exhibit 10.116 of the March 1995 Form 10-Q).

10.43         Waiver dated September 14, 1995 to the Old Bank Debt
              Agreement (incorporated by reference to Exhibit 10.5 of the 1995
              Registration Statement).

10.44         Agreement effective as of September 28, 1995 relating to the Old
              Bank Debt Agreement (incorporated by reference to Exhibit 10.58
              of the 1995 Registration Statement).

10.45         Agreement dated April 28, 1995 between the Company and Josephine
              Chaus extending the due dates on subordinated promissory notes
              (incorporated by reference to Exhibit 10.117 of the March 1995
              Form 10-Q).

10.46         Agreement dated September 8, 1995 between the Company and
              Josephine Chaus extending the due dates on subordinated
              promissory notes (incorporated by reference to Exhibit 10.60 of
              the 1995 Registration Statement).

10.47         License Agreement dated as of September 6, 1995 between the
              Company and Nautica Apparel Inc. (incorporated by reference to
              Exhibit 10.61 of the 1995 Registration Statement, confidential
              portions of which have been omitted and filed separately with the
              Commission subject to an order granting confidential treatment).

10.48         Agreement dated October 9, 1995, between the Company and
              Josephine Chaus, extending the due dates on subordinated
              promissory notes and clarifying the subordination provision
              (incorporated by reference to Exhibit 10.65 of the 1995
              Registration Statement).



                                       24

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

10.49         Agreement dated October 9, 1995, between the Company and
              Josephine Chaus, providing the Company with an option to extend
              the Letter of Credit to July 31, 1996 (incorporated by reference
              to Exhibit 10.66 of the 1995 Registration Statement).

10.50         Agreement dated October 27, 1995 between the Company and
              Josephine Chaus extending the due dates on subordinated
              promissory notes (incorporated by reference to Exhibit 10.67 of
              the Company's Form 10-Q for the quarter ended September 30,
              1995).

+10.51        Agreement dated November 15, 1995 between the Company and
              Josephine Chaus issuing 815,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.69 of the
              December 1995 Form 10-Q).

+10.52        Agreement dated November 15, 1995 between the Company and
              Josephine Chaus issuing 535,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.70 of the
              December 1995 Form 10-Q).

+10.53        Agreement dated November 15, 1995 between the Company and
              Josephine Chaus issuing 230,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.71 of the
              December 1995 Form 10-Q).

10.54         Amendment No. 4 dated September 17, 1996 to the Financing
              Agreement (incorporated by reference to Exhibit 10.65 of the
              Company's Form 10-K for the year ended June 30, 1996).

10.55         Lease dated June 12, 1996 between the Company and L. H. Charney
              Associates, relating to the Company's facility at 1410 Broadway,
              New York, New York (incorporated by reference to Exhibit 10.66 of
              the Company's Form 10-K for the year ended June 30, 1996).

10.56         Amendment No. 5 dated January 31, 1997 to the Financing Agreement
              (incorporated by reference to Exhibit 10.67 of the Company's Form
              10-Q for the quarter ended December 31, 1996).


10.57         Waiver dated February 4, 1997 to the Financing Agreement
              (incorporated by reference to Exhibit 10.68 of the Company's Form
              10-Q for the quarter ended December 31, 1996).


                                       25

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

+10.58        Consulting Agreement dated as of December 31, 1996 between the
              Company and Michael Winter (incorporated by reference to Exhibit
              10.69 of the Company's Form 10-Q for the quarter ended December
              31, 1996).

10.59         Agreement dated February 19, 1997, between the Company and BNY
              Financial Corp. issuing 125,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.70 of the
              Company's Form 10-Q for the quarter ended March 31, 1997).

10.60         Amendment No. 6 dated March 21, 1997, to the Financing Agreement
              (incorporated by reference to Exhibit 10.71 of the Company's Form
              10-Q for the quarter ended March 31, 1997).

10.61         Amendment No. 7 dated April 1, 1997, to the Financing Agreement
              (incorporated by reference to Exhibit 10.72 of the Company's Form
              10-Q for the quarter ended March 31, 1997).

10.62         Amendment No. 8 dated April 29, 1997, to the Financing Agreement
              (incorporated by reference to Exhibit 10.73 of the Company's Form
              10-Q for the quarter ended March 31, 1997).

10.63         Waiver dated May 5, 1997, to the Financing Agreement
              (incorporated by reference to Exhibit 10.74 of the Company's Form
              10-Q for the quarter ended March 31, 1997).

10.64         Commitment Letter dated as of June 26, 1997, between the Company
              and BNY Financial Corp. (incorporated by reference to Exhibit
              10.75 of the Company's Form 10-K for the year ended June 30,
              1997).

10.65         Cash Collateral Deposit Letter dated as of July 23, 1997, between
              Josephine Chaus and BNY Financial Corp. (incorporated by
              reference to Exhibit 10.76 of the Company's Form 10-K for the
              year ended June 30, 1997).

10.66         Cash Collateral Deposit Letter dated as of October 10, 1997,
              between Josephine Chaus and BNY Financial Corp. (incorporated by
              reference to Exhibit 10.77 of the Company's Form 10-K for the
              year ended June 30, 1997).

10.67         Amended and Restated Cash Collateral Deposit Letter dated as of
              October 10, 1997, between Josephine Chaus and BNY Financial Corp.
              (incorporated by reference to Exhibit 10.78 of the Company's Form
              10-K for the year ended June 30, 1997).


                                       26

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

10.68         Second Restated and Amended Financing Agreement dated as of
              October 10, 1997, between the Company and BNY Financial Corp.
              (incorporated by reference to Exhibit 10.79 of the Company's Form
              10-K for the year ended June 30, 1997).

10.69         Agreement dated October 10, 1997, between the Company and BNY
              Financial Corp. issuing 125,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.80 of the
              Company's Form 10-Q for the quarter ended September 30, 1997).

10.70         Agreement dated October 10, 1997, between the Company and BNY
              Financial Corp. issuing 375,000 warrants to purchase Common Stock
              of the Company (incorporated by reference to Exhibit 10.81 of the
              Company's Form 10-Q for the quarter ended September 30, 1997).

+10.71        Executive Employment Agreement dated October 28, 1997, between
              the Company and Lynn Buechner (incorporated by reference to
              Exhibit 10.82 of the Company's Form 10-Q for the quarter ended
              September 30, 1997).

10.72         Letter Agreement dated December 9, 1997 between Josephine Chaus
              and the Company (incorporated by reference to Exhibit 10.83 of
              the Company's Form 10-Q for the quarter ended December 31, 1997).

10.73         Cash Collateral Deposit Release Letter Agreement dated as of
              January 29, 1998 Agreement among Josephine Chaus, the Company and
              BNY Financial Corporation (incorporated by reference to Exhibit
              10.84 of the Company's Form 10-Q for the quarter ended December
              31, 1997).

10.74         Subrogated Subordinated Promissory Note dated as of January 29,
              1998 from the Company to Josephine Chaus in the principal amount
              of $12.5 million (incorporated by reference to Exhibit 10.85 of
              the Company's Form 10-Q for the quarter ended December 31, 1997).

10.75         Conversion Agreement dated as of January 29, 1998 between
              Josephine Chaus and the Company (incorporated by to reference
              Exhibit 10.86 of the Company's Form 10-Q for the quarter ended
              December 31, 1997).

+*10.76       Letter Agreement between the Company and Andrew Grossman
              dated as of January 1, 1998.

                                       27

<PAGE>


                                                                                 SEQUENTIALLY
                                                                                   NUMBERED
       EXHIBIT NO.                                                                  PAGES

+*10.77       1998 Stock Option Plan, including form of related stock option
              agreement.

*10.78        Amendment No. 1 dated June 3, 1998 to the Second Restated and
              Amended Financing Agreement.

+*10.79       Letter Agreement between the Company and Stewart S. Levy dated
              as of July 22, 1998.

*21           List of Subsidiaries of the Company.

*27           Financial Data Schedule.
</TABLE>





+ Management agreement or compensatory plan or arrangement required to be filed
  as an exhibit.
* Filed herewith.


                                      28

<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report on Form 10-K/A
(Number 1) to be signed on its behalf by the undersigned, thereunto duly
authorized, on October 20, 1998.

                                                BERNARD CHAUS, INC.



                                                By: /s/ Josephine Chaus
                                                   ----------------------------
                                                     Josephine Chaus
                                                     Chairwoman of the Board and
                                                     Office of the Chairman




                                       29

<PAGE>



                     BERNARD CHAUS, INC. AND SUBSIDIARIES

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statements of Bernard Chaus, Inc. and
subsidiaries are included in Item 8:

<TABLE>
<CAPTION>
<S>                                                                                                                        <C>
Report of Independent Auditors.............................................................................................F-2
Consolidated Balance Sheets -- June 30, 1998 and 1997 .....................................................................F-3
Consolidated Statements of Operations -- Years Ended June 30, 1998, 1997 and 1996..........................................F-4
Consolidated Statements of Stockholders' Equity (Deficiency) --
  Years Ended June 30,  1998, 1997 and 1996................................................................................F-5
Consolidated Statements of Cash Flows -- Years Ended June 30, 1998, 1997 and 1996..........................................F-6
Notes to Consolidated Financial Statements.................................................................................F-7

The following consolidated financial statement schedule of Bernard Chaus, Inc. and subsidiaries is included in Item
14(a)(2):

  Schedule II -- Valuation and Qualifying Accounts.........................................................................S-1

              The other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
</TABLE>


                                      F-1

<PAGE>



                         REPORT OF INDEPENDENT AUDITORS




To the Board of Directors and Stockholders of
Bernard Chaus, Inc.
New York, New York



We have audited the accompanying consolidated balance sheets of Bernard Chaus,
Inc. and subsidiaries as of June 30, 1998 and June 30, 1997 and the related
consolidated statements of operations, stockholders' equity/deficiency, and
cash flows for each of the three years in the period ended June 30, 1998. Our
audits also included the financial statement schedule listed in the Index at
item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits 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 audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bernard Chaus, Inc. and
subsidiaries at June 30, 1998 and June 30, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


/S/ Deloitte & Touche LLP

New York, New York
August 26, 1998 (October 20, 1998 as to Note 12)



                                      F-2

<PAGE>



                      BERNARD CHAUS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                    (In thousands, except number of shares)

<TABLE>
<CAPTION>
                                                                                  June 30,         June 30,
                                                                                    1998             1997
                                                                                  --------         --------
<S>                                                                              <C>              <C>       
ASSETS
Current Assets
  Cash and cash equivalents .................................................... $    2,039       $      330
  Accounts receivable, less allowances of $3,202 and $2,092 ....................     17,289            7,451
  Inventories...................................................................     17,486           23,746
  Prepaid expenses............................................................          362              568
                                                                                  ---------        ---------
     Total current assets.......................................................     37,176           32,095
Fixed assets-- net............................................................          960            1,295
Other assets..................................................................          876              748
                                                                                 ----------        ---------
                                                                                   $ 39,012         $ 34,138
                                                                                   ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
Current Liabilities
  Notes payable-- bank ......................................................... $       --         $ 37,756
  Accounts payable ...............................................................   13,005           19,825
  Accrued expenses .............................................................      4,492            5,393
  Accrued restructuring expenses ...............................................         --            1,850
  Term loan-- current ...........................................................     1,000               --
                                                                                    -------         --------
     Total current liabilities....................................................   18,497           64,824
Subordinated promissory notes...................................................         --           26,374
Term loan ........................................................................   13,500               --
                                                                                    -------         --------
                                                                                     31,997           91,198
STOCKHOLDERS' EQUITY/(DEFICIENCY)
  Preferred stock, $.01 par value, authorized shares -- 1,000,000; outstanding
     shares -- none
  Common stock, $.01 par value; authorized shares -- 50,000,000; issued shares
     -- 27,178,177 at June 30, 1998 and 26,899,974
     at June 30, 1997 .......................................................           272              269
  Additional paid-in capital ....................................................   125,224           65,463
  Deficit .......................................................................  (117,001)        (121,312)
  Less:  Treasury stock, at cost-- 62,270 shares at June 30, 1998
     and 622,700 shares at June 30, 1997 ......................................     ( 1,480)          (1,480)
                                                                                 ----------        ---------
     Total stockholders' equity/(deficiency) .................................        7,015          (57,060)
                                                                                -----------        ---------
                                                                                  $  39,012        $  34,138
                                                                                  =========        =========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>



                      BERNARD CHAUS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                Fiscal Year Ended June 30,
                                                                                --------------------------
                                                                         1998             1997              1996
                                                                         ----             ----              ----

<S>                                                                    <C>           <C>               <C>        
Net sales .......................................................      $191,546      $   160,100       $   170,575
Cost of goods sold ..............................................       142,175          125,422           147,994
                                                                     ----------      -----------       -----------

Gross profit ....................................................        49,371           34,678            22,581
Selling, general and administrative expenses ....................        38,462           40,924            40,162
Restructuring expenses ..........................................            --            2,250               --
                                                                     ----------      -----------       ----------
                                                                         10,909          ( 8,496)          (17,581)

Interest expense ................................................        (6,411)          (8,030)           (6,560)
Other income (expense), net .....................................            58              113                56
                                                                     ----------      -----------       -----------

Income (loss) before provision for income taxes .................         4,556          (16,413)          (24,085)
Provision for income taxes ......................................           245               50               301
                                                                     ----------      -----------       -----------

Net income (loss) ...............................................      $  4,311      $   (16,463)      $   (24,386)
                                                                     ==========      ============      ===========

Basic and diluted  earnings (loss) per share ....................      $    .28      $     (2.46)      $     (3.91)
                                                                     ==========      ===========       ===========

Weighted average number of common  shares
  outstanding....................................................    15,296,000        6,687,000         6,239,000
                                                                     ==========      ===========       ===========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>



                      BERNARD CHAUS, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
                    (In thousands, except number of shares)


<TABLE>
<CAPTION>
                                         Common Stock         Additional                       Treasury Stock
                                         ------------                                          --------------
                                   Number of                   Paid-in                      Number of
                                   Shares           Amount      Capital      (Deficit)       Shares        Amount         Total
                                   -------          ------     ---------    -----------  ------------    ----------       -----

<S>                               <C>              <C>          <C>           <C>            <C>          <C>           <C>      
Balance at July 1, 1995 ......... 21,073,081       $   211      $49,353       $(80,463)      622,700      $ (1,480)     $(32,379)
Net loss ..................                                                    (24,386)                                  (24,386)
Net proceeds from issuance
  of common stock ................ 5,750,000            57       15,366             --           --             --        15,423
Issuance of warrants..........           --            --           520             --           --             --           520
Exercise of stock options ......      70,643             1          211                                                      212
                                ------------        ------    ---------      ----------   ----------     ---------    ----------


Balance at June 30, 1996 ........ 26,893,724           269       65,450       (104,849)      622,700        (1,480)      (40,610)
Net loss .................                                                     (16,463)                                  (16,463)
Exercise of stock options ....         6,250           --             13                                                      13
                               -------------        ------    ----------  ------------  ------------   -----------   -----------


Balance at June 30, 1997 ........ 26,899,974           269        65,463      (121,312)      622,700        (1,480)      (57,060)
Net income ...............                                                       4,311                                     4,311
Exchange of notes for
  common stock ................. 10,510,910           105        40,520            --           --             --         40,625
Net proceeds from issuance
 of common stock................ 13,977,270           140        18,861            --           --             --         19,001
Issuance of warrants...........          --            --           138            --           --             --            138
Reverse stock split............ (24,209,977)         (242)          242            --      (560,430)           --            --
                               ------------        ------      --------       --------   ----------      ---------    ---------


Balance at June 30, 1998........ 27,178,177        $  272      $125,224      $(117,001)      62,270        $(1,480)      $ 7,015
                                 ==========        ======      ========      =========       ======        =======       =======
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>



                      BERNARD CHAUS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                          Year Ended June 30,
                                                                              ------------------------------------------
                                                                              1998             1997                 1996
                                                                              ----             ----                 ----
<S>                                                                          <C>             <C>               <C>      
Operating Activities
  Net income (loss) ....................................................    $  4,311         $(16,463)         $(24,386)
  Adjustments to reconcile net income (loss) to net cash used
    in operating activities:
    Depreciation and amortization.......................................         630              865               974
    Recovery of losses on accounts
      receivable .......................................................         (65)             (20)              (69)
    Deferred interest on subordinated promissory
      notes ............................................................       1,751            2,786             2,522
    Non-cash interest expense ..........................................          27               --               520
  Changes in operating assets and liabilities:
      Accounts receivable ..............................................      (9,773)             564              (280)
      Inventories ......................................................       6,260           (2,490)           (5,053)
      Prepaid expenses and other assets ................................         432              372               655
      Accounts payable .................................................      (6,820)           2,390             4,513
      Accrued expenses .................................................        (901)            (663)              507
      Accrued restructuring expenses ...................................      (1,619)           1,654            (2,608)
                                                                            ---------      ----------        ----------

Net Cash Used In Operating Activities ..................................      (5,767)         (11,005)          (22,705)
                                                                            ---------      ----------        ----------

Investing Activities
  Purchases of fixed assets ............................................        (348)            (186)             (480)
  Purchases of other assets ............................................        (421)            (418)              --
                                                                            ---------      ----------        ----------

Net Cash Used In Investing Activities ..................................        (769)            (604)             (480)
                                                                            ---------      ----------        ----------

Financing Activities
  Net repayments of  short-term bank
    borrowings .........................................................     (25,256)          11,679             7,379
  Net proceeds from issuance of stock ..................................      19,001               --            15,423
  Principal payments on term loan ......................................        (500)              --                --
  Proceeds from issuance of term loan ..................................      15,000               --                --
  Net proceeds from exercise of options.................................          --               13               212
                                                                            ---------      ----------        ----------

Net Cash Provided by Financing Activities...............................        8,245          11,692            23,014
                                                                            ---------      ----------        ----------
Increase (Decrease) In Cash And Cash Equivalents........................        1,709              83              (171)
Cash and Cash Equivalents, Beginning of Year............................          330             247               418
                                                                            ---------      ----------        ----------
Cash and Cash Equivalents, End of Year .................................    $   2,039        $    330          $    247
                                                                            =========      ==========        ==========

Cash paid for:
  Taxes.................................................................    $      8         $     13          $     14
  Interest .............................................................    $  4,670         $  4,822          $  3,809
Supplemental schedule of non-cash financing activities:
    Bank debt assumed by principal stockholder and
      converted to subordinated promissory notes .......................    $ 12,500               --                --
    Exchange of subordinated promissory notes for
      common stock .....................................................    $ 40,625               --                --
    Issuance of warrants relating to new financing agreement ...........    $    138               --               520
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  BUSINESS

         Bernard Chaus, Inc. (the "Company") designs, arranges for the
manufacture of and markets an extensive range of women's career and casual
sportswear which are marketed principally under the CHAUS(R), CHAUS SPORT(R),
and NAUTICA(R) trademarks. The Company's products are sold nationwide through
department store chains, specialty retailers and other retail outlets.

         On November 22, 1995, the Company issued 5,750,000 shares of Common
Stock at a price of $3.00 per share in an underwritten public offering.
Proceeds from the offering, net of commissions and other expenses were $15.4
million.

         In September 1997, the disinterested members of the Board of Directors
of the Company unanimously approved a restructuring program (the
"Restructuring") which was completed in January 1998 (see Notes 6 and 7).

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

         The consolidated financial statements include the accounts of the
Company and its subsidiaries. Material intercompany accounts and transactions
have been eliminated.

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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassification:

         Certain reclassifications were made to the fiscal 1997 and 1996
Consolidated Financial Statements to conform with the fiscal 1998 presentation.

Earnings (Loss) Per Share:

         All share and per share data reflects the 1 for 10 reverse stock split
which was effected December 9, 1997. Basic earnings (loss) per share has been
computed by dividing the applicable net income by the weighted average number
of common shares outstanding. Diluted earnings (loss) per share has been
computed by dividing the applicable net income by the weighted average number
of common shares outstanding and common stock equivalents. The calculation of
basic and diluted earnings per share reflects the retroactive adjustment for
the bonus element of the Rights Offering, which was consummated on January 26,
1998. At June 30, 1998, 1997 and 1996, 2,779,000, 7,673,000 and 7,652,000
common stock equivalents, respectively, were not included in the computation of
earnings (loss) per share as they were antidilutive.

         On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 Earnings Per Share. The statement
establishes standards for computing and presenting earnings per share ("EPS")
and simplifies the standards for computing EPS currently found in Accounting
Principles Board ("APB") Opinion No. 15, Earnings Per Share.


                                      F-7

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue Recognition:

         Revenues are recorded at the time merchandise is shipped, and with
regard to the outlet stores, at the time when goods are sold to the customer.

Credit Terms:

         The Company extends credit to its customers based upon an evaluation
of the customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1998 and 1997, approximately 87% and 62%, respectively, of
the Company's accounts receivables were due from department store customers
owned by four single corporate entities. During fiscal 1998, approximately 82%
of the Company's net sales were made to department store customers owned by
four single corporate entities, as compared to 63% in fiscal 1997 and 60% in
fiscal 1996. Sales to Dillard's Department Stores accounted for 43% of net
sales in fiscal 1998, 33% of net sales in fiscal 1997 and 29% of net sales in
fiscal 1996. Sales to nine department store companies owned by The May
Department Stores Company accounted for approximately 29% of net sales in
fiscal 1998, 16% of the Company's net sales in fiscal 1997 and 10% of net sales
in fiscal 1996. Sales to eight department store companies owned by Federated
Department Stores accounted for approximately 7% of net sales in fiscal 1998,
8% of net sales in fiscal 1997 and 5% of net sales in fiscal 1996. Sales to two
department store customers owned by TJX Companies, Inc. accounted for
approximately 3% of net sales in fiscal 1998, 6% of net sales in fiscal 1997
and 16% of net sales in fiscal 1996.

         The percentages of net sales are based upon stores owned by the four
corporate entities at the end of fiscal 1998. As a result of the Company's
dependence on these customers, they may have the ability to influence the
Company's business decisions. The loss of or significant decrease in business
from any of its major customers would have a material adverse effect on the
Company's financial position and results of operations.

Cash Equivalents:

         Cash equivalents are short-term, highly liquid investments purchased
with an original maturity of three months or less.

Inventories:

         Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.

Fixed Assets:

         Furniture and equipment are depreciated principally using the
straight-line method over eight years. Leasehold improvements are amortized
using the straight-line method over either the term of the lease or the
estimated useful life of the improvement, whichever period is shorter. Computer
software is depreciated using the straight-line method over three years.

Other Assets:

         "In store" fixtures and signs are depreciated using the straight line
method over the lesser of three years or the remaining term of the Nautica
License Agreement.


                                      F-8

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Foreign Currency Transactions:

         The Company negotiates substantially all of its purchase orders with
foreign manufacturers in United States dollars. The Company considers the
United States dollar to be the functional currency of its overseas
subsidiaries. All foreign currency gains and losses are recorded in the
Consolidated Statement of Operations.

Income Taxes:

         The Company records income taxes in accordance with Financial
Accounting Standards Board Statement SFAS No. 109, "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss).

Fair Value of Financial Instruments:

         For financial instruments, including cash and cash equivalents,
accounts receivable and payable, accruals and notes payable -- bank, it was
assumed that the carrying amounts approximated fair value due to their short
maturity.

New Accounting Pronouncements:

         The Company is required to adopt SFAS No. 130, Reporting Comprehensive
Income during the year ending June 30, 1999. SFAS 130 establishes standards for
reporting comprehensive income and its components in a full set of general-
purpose financial statements. This Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement, and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Adoption of this statement
will require the Company to report changes in the excess of additional pension
liability over unrecognized prior service cost and foreign currency translation
adjustment accounts, currently shown in the stockholders' equity section of the
balance sheet, as an increase or decrease to reported net income in arriving at
comprehensive income. Currently, the Company has no items of other
comprehensive income.

         The Company is required to adopt SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information during the year ending June
30, 1999. The Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This Statement supersedes FASB
Statement No. 14 Financial Reporting for Segments of a Business Enterprise, but
retains the requirement to report information about major. The Company is
currently considering what effect adoption of this statement will have on the
Company.

         The Company is required to adopt SFAS No. 132, Employers' Disclosure
About Pensions and Other Postretirement Benefits during the year ending June
30, 1999. This Statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. Restatement of disclosures for earlier
periods provided for comparative purposes is required. The Company has not yet
determined the impact the adoption of this statement will have on the Company's
financial statements.


                                      F-9

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.   INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of:                                      JUNE 30,         JUNE 30,
                                                               1998             1997
                                                            -----------      -----------
                                                                     (IN THOUSANDS)
          <S>                                                 <C>              <C>    
          Finished goods ...................................  $12,278          $19,981
          Work-in-process ..................................    3,051            1,027
          Raw materials ....................................    2,157            2,738
                                                              $17,486          $23,746
                                                              =======          =======
</TABLE>

Inventories include merchandise in transit (principally finished goods) of
approximately $7.2 million at June 30, 1998 and $8.3 million at June 30, 1997.

4.  FIXED ASSETS

Fixed assets at cost, net of accumulated depreciation and amortization, consist
of:

<TABLE>
<CAPTION>
                                                                                     JUNE 30,         JUNE 30,
                                                                                       1998             1997
                                                                                   ------------    -------------
                                                                                             (IN THOUSANDS)
<S>                                                                                   <C>             <C>    
          Furniture and equipment...........................................          $10,233         $10,233
          Leasehold improvements............................................            6,501           7,955
                                                                                        -----          ------
                                                                                       16,734         $18,188
          Less accumulated depreciation and amortization....................           15,774          16,893
                                                                                       ------         -------
                                                                                      $   960         $ 1,295
                                                                                      =======         =======
</TABLE>

5.  INCOME TAXES

Significant components of the Company's net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                                 JUNE 30,          JUNE 30,
                                                                                 1998              1997
                                                                             ------------      --------
                                                                                         (IN THOUSANDS)
<S>                                                                              <C>               <C>    
                  Deferred tax assets:
                    Net operating loss carryforwards...........................  $40,100           $42,500
                    Costs capitalized to inventory for tax purposes............    1,000             1,300
                    Accrued interest, subordinated debt/warrants...............    4,900             4,000
                    Book over tax depreciation.................................    2,200             2,000
                    Sales allowances not currently deductible..................    3,500             2,100
                    Reserves and other items not currently deductible..........    1,500             1,700
                                                                                 -------           -------
                                                                                  53,200            53,600
                  Valuation allowance for deferred tax assets..................  (53,200)          (53,600)
                                                                                                    ------
                  Net deferred tax asset.......................................  $     0           $     0
                                                                                 =======           =======
</TABLE>

There was a change in the valuation allowance for the year ended June 30, 1997
of $0.4 million.


                                      F-10

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                                                            FISCAL YEAR ENDED JUNE 30,
                                                                     1998              1997               1996
                                                                 -------------     ------------     ---------------
                                                                                  (IN THOUSANDS)
<S>                                                               <C>                  <C>              <C>     
      (Expense) benefit for federal
        income taxes at the statutory rate of
        35.0% in each of 1998, 1997 and 1996...................     $  1,542           ($5,694)         ($8,430)
      State and local income taxes
        net of federal tax benefit.............................           95                50              301
      Executive compensation in excess of
        amount deductible for tax purposes.....................           --                --               --
      Other....................................................           51                51               35
      Effect of unrecognized federal tax loss
        carryforwards..........................................       (1,443)            5,643            8,395
                                                                    --------            ------           ------
      Provision for income taxes...............................     $    245            $   50           $  301
                                                                    ========            ======           ======
</TABLE>

         At June 30, 1998, the Company has a federal net operating loss
carryforward for income tax purposes of approximately $96 million, which will
expire between 2006 and 2011.

6.   FINANCING AGREEMENTS

         The Company and BNY Financial Corporation, a wholly owned subsidiary
of The Bank of New York ("BNYF"), entered into a financing agreement in July
1991, which was amended and restated effective as of February 21, 1995 and
further amended, effective as of September 28, 1995 (the "September 1995
Amendment"), May 9, 1996 (the "May 1996 Amendment"), September 17, 1996 (the
"September 1996 Amendment"), January 31, 1997 (the "January 1997 Amendment"),
March 21, 1997 (the "March 1997 Amendment"), and April 1, 1997 (the "April 1,
1997 Amendment") and April 29, 1997 (the "April 29, 1997 Amendment")
(collectively, the "Old Bank Debt Agreement"). The Old Bank Debt Agreement
provided the Company with a $72.0 million credit facility for letters of credit
and direct borrowings, with a sublimit for loans and advances ranging between
$40.0 and $58.0 million. The amount of financing available was based upon a
formula incorporating eligible receivables and inventory, cash balances, other
collateral and permitted overadvances, all as defined in the Old Bank Debt
Agreement. The Company's obligations under the Old Bank Debt Agreement were
secured by the Company's accounts receivable, inventory and trademarks.

         The Old Bank Debt Agreement contained certain financial covenants
including covenants limiting the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company was also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions.

         Interest on direct borrowings was payable monthly at an annual rate
equal to the higher of (i) The Bank of New York's prime rate plus 0.5% (The
Bank of New York prime rate plus 1.5% in the event the Company's overadvance
position exceeded the allowable overadvances) or (ii) the Federal Funds Rate in
effect plus 1% (Federal Funds Rate in effect plus 2% in the event the Company's
overadvance position exceeded the allowable overadvances). There was a
commitment fee of 0.375% of the unused portion of the line, payable monthly,
and letter of credit fees equal to 0.125% of the outstanding letter of credit
balance, payable monthly. The Old Bank Debt Agreement required the payment of
minimum service charges of $0.6 million per annum. In connection with the May
1996 Amendment, BNYF was paid a fee of $25,000, and additional fees of $10,000
per month through December 1996 were provided for, with BNYF agreeing to
provide specified levels of overadvances up to $10.0 million through the same
period.


                                      F-11

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Josephine Chaus had arranged for the Letter of Credit in various
amounts since April 1994 in return for which BNYF had increased the
availability under the Old Bank Debt Agreement. In consideration for credit
support provided by Ms. Chaus to the Company prior to February 1995, Ms. Chaus
was granted 1,216,500 warrants (the "1994 Warrants"), exercisable through
November 22, 1999, at prices ranging between $2.25 to $4.62 per share. In
February 1995, Josephine Chaus increased the Letter of Credit to $10.0 million
and extended its term to October 31, 1995 (the "February 1995
Increase/Extension"). In addition, in February 1995, Mrs. Chaus provided a $5.0
million personal guarantee (the "$5.0 Million Guarantee"), to be in effect
during the Old Bank Debt Agreement's term. In September 1995, Ms. Chaus further
extended the term of the Letter of Credit to January 31, 1996 (the "September
1995 Extension"). In consideration of the February 1995 Increase/Extension, the
$5.0 Million Guarantee and the September 1995 Extension, a special committee
consisting of disinterested members of the Board of Directors of the Company
(the "Special Committee") authorized the issuance of warrants (the "1995
Warrants") to purchase an aggregate of 1,580,000 shares of Common Stock at
prices ranging between $4.05 and $6.75 per share. The issuance of the 1995
Warrants was approved at the 1995 Annual Meeting of Stockholders. The issuance
of the 1994 Warrants, the warrants for the February 1995 Increase/Extension and
the warrants for the $5.0 Million Guarantee were recorded in fiscal 1995 at a
value of $1.1 million, and was included as a charge to interest expense with a
corresponding increase to additional paid-in capital. The issuance of the
warrants for the September 1995 Extension was recorded in the second quarter of
fiscal 1996 at a value of $0.2 million, and was included as a charge to
interest expense with a corresponding increase to additional paid-in capital.
Ms. Chaus received warrant compensation for her provision of the $5.0 Million
Guarantee only through October 31, 1995. Thereafter, for each three month
period of the $5.0 Million Guarantee, received cash compensation of $50,000, as
authorized by the Special Committee.

         In connection with the September 1995 Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the "July 1996 Option"), subject to the consummation of the Company's
November 1995 public offering of Common Stock. In January 1996, the Company
exercised the July 1996 Option to extend the Letter of Credit to July 31, 1996
(the "July 1996 Extension"). In consideration of her provision of the July 1996
Extension, the Special Committee authorized the issuance to Ms. Chaus of
warrants (the "1996 Warrants") to purchase an aggregate of 682,012 shares of
Common Stock at a price of $4.20 per share. The issuance of the 1996 Warrants
was approved by the stockholders of the Company at the 1996 Annual Meeting of
Stockholders. The issuance of the 1996 Warrants ($0.3 million) was recorded in
the third quarter of fiscal 1996, at a value of $0.3 million and was included
as a charge to interest expense with a corresponding increase to additional
paid-in capital.

         In connection with the May 1996 Amendment, Ms. Chaus agreed to extend
the Letter of Credit to January 31, 1997 (the "January 1997 Extension") and
additionally provided a collateralized increase of $5.0 million in the $5.0
Million Guarantee to $10.0 million (the "$10.0 Million Guarantee"). In
connection with the January 1997 Extension, the Special Committee approved the
payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus
for her guaranty to $100,000 for each three month period of the $10.0 Million
Guarantee.

         In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the "July 1997 Extension") and
increase the amount of the $10.0 Million Guarantee by $2.5 million to $12.5
million (the "$12.5 Million Guarantee") and fully collateralize the $12.5
Million Guarantee. In connection with the July Extension, the Special Committee
approved the payment of cash compensation to Ms. Chaus of $100,000 for each
additional three month period of the Letter of Credit as extended from January
31, 1997 to July 31, 1997. For her provision of the $12.5 Million Guarantee,
the Special Committee approved an increase in the amount of cash compensation
payable to Ms. Chaus for her guaranty to $125,000 for each three month period
of the $12.5 Million Guarantee. Such increased amount was paid to Ms. Chaus
through January 29, 1998 (on a pro-rated basis).



                                      F-12

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Ms. Chaus previously entered into a deposit letter dated July 23, 1997
(the "July Deposit Letter") pursuant to which she provided $10 million in cash
collateral to secure the Bank Debt (as defined below) in substitution for the
letter of credit previously provided by her. The July Deposit Letter was
amended on October 10, 1997 to provide that the $10.0 million in cash
collateral would be held as collateral to secure indebtedness under the New
Financing Agreement. On January 23, 1998, in connection with the Rights
Offering (as defined below), such collateral was released and used by Ms. Chaus
to purchase shares of Common Stock issuable to her upon the exercise of the
Rights (as defined below), in satisfaction of her agreement to exercise her
full $10.0 million subscription (the "Purchase Commitment") in connection with
the Rights Offering. The Company used the proceeds from the Purchase Commitment
to retire $10 million of Bank Debt.

         On October 10, 1997, in substitution for the $12.5 Million Guarantee
previously provided by Ms. Chaus, she entered into a deposit letter (the
"October Deposit Letter") pursuant to which she provided $12.5 million in cash
collateral and secured the secured bank debt owed to BNYF by the Company (the
"Bank Debt"). The cash collateral was provided from the proceeds of a loan made
by BNYF to Ms. Chaus. On January 29, 1998, pursuant to the terms of a cash
collateral deposit release letter, the $12.5 million in cash collateral was
released to BNYF and was used to retire $12.5 million of the Bank Debt. As a
result of such repayment, the Company became indebted to Ms. Chaus for $12.5
million, and Ms. Chaus became subrogated to the rights of BNYF with respect to
such loan amount (the "Subrogated Loan") until the Subrogated Loan and the
Subordinated Notes (as defined below) were converted into 10,510,910 shares of
the Company's Common Stock. Pursuant to the terms of a conversion agreement
dated as of January 29, 1998, the Subrogated Loan and the Subordinated Notes
were converted by Ms. Chaus into 10,510,910 shares of Common Stock of the
Company.

         In connection with the Restructuring, Ms. Chaus relinquished, for no
value, all of her rights in and to the 1994 Warrants, the 1995 Warrants and the
1996 Warrants.

         On October 10, 1997, the Company and BNYF entered into a new revolving
credit facility (the "New Revolving Facility") and a new term loan facility
(the "New Term Loan" and, together with the New Revolving Facility, the "New
Financing Agreement") which amended and restated in its entirety the Old Bank
Debt Agreement.

         The New Financing Agreement consisted of two facilities: (i) the New
Revolving Facility, which was a $66.0 million five-year revolving credit line
with a $20 million sublimit for letters of credit, and (ii) the New Term Loan,
which was a $15.0 million term loan facility. On June 3, 1998 the Company and
BNYF amended the New Financing Agreement to provide for a $45.5 million
five-year revolving credit line with a $34.0 million sublimit for letters of
credit and a $14.5 million term loan facility. Each facility will mature on
December 31, 2002. The New Financing Agreement also amended certain financial
covenants contained in the Old Bank Debt Agreement. In January 1998 an
aggregate of $22.5 million held by BNYF as cash collateral was applied by BNYF
to retire $22.5 million of the revolving credit line in connection with the
Company's Restructuring (as defined below).

         Interest on the New Revolving Facility accrues at 1/2 of 1% above the
Prime Rate (8.5% at June 30, 1998) and is payable on a monthly basis, in
arrears. Interest on the New Term Loan accrues at an interest rate ranging from
1/2 of 1% above the Prime Rate to 1 1/2% above the Prime Rate, which interest
rate will be determined, from time to time, based upon the Company's
availability under the New Revolving Facility. With the exception of warrants
issued to BNYF (as discussed below), the Company's execution of the New
Financing Agreement did not require the payment of any commitment, closing,
administration or facility fees. The New Financing Agreement provides for
service charges and letter of credit fees on substantially the same terms as
those existing under the Company's Old Bank Debt Agreement with BNYF. As part
of the New Financing Agreement, BNYF's existing warrants were extinguished, and
BNYF


                                      F-13

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

received new warrants (the "BNYF Warrants") to purchase an aggregate of 162,500
shares of the Company's Common Stock. The issuance of the BNYF Warrants was
recorded in the third quarter of fiscal 1998 at a value of $0.1 million and was
included as an increase in additional paid-in capital and will be charged to
interest expense over the term of the New Financing Agreement.

         Amortization payments in the amount of $250,000 are payable quarterly
in arrears in connection with the New Term Loan. Two amortization payments have
been made as of June 30, 1998. A balloon payment in the amount of $10.25
million is due on December 31, 2002. In the event of the earlier termination by
the Company of the New Financing Agreement, the Company will be liable for
termination fees initially equal to $2.8 million, and declining to $2.2 million
after October 8, 2000. The Company's obligations under the New Financing
Agreement are secured by a first priority lien on substantially all of the
Company's assets, including the Company's accounts receivable, inventory and
trademarks.

         As an inducement to BNYF to enter into the New Financing Agreement,
Ms. Chaus had agreed with BNYF that she would purchase, at the option of BNYF,
a $2.5 million junior participation in the New Financing Agreement between the
Company and BNYF, in the event that (i) an event of default occurs under the
New Financing Agreement prior to before May 15, 1998 or (ii) the Rights
Offering is not consummated prior to May 15, 1998 (the "Bank Debt Put"). The
Rights Offering was consummated on January 26, 1998, and therefore, the Bank
Debt Put expired in accordance with its terms. See Note 7.

         The New Financing Agreement contains financial covenants requiring,
among other things, the maintenance of minimum levels of tangible net worth,
working capital and maximum permitted loss (minimum permitted profit).

7.  RESTRUCTURING

         In June 1997, the Company announced a proposed restructuring program
to be implemented by the Company. In September 1997, the disinterested members
of the Board of Directors of the Company unanimously approved the the
Restructuring which provided for the following: (i) the Company would raise,
through an offer of rights to subscribe ("Rights"), up to $20.0 million, but
not less than $12.5 million, of equity through a rights offering to all shares
of Common Stock of the Company (the "Rights Offering") of up to 13,977,270
shares of Common Stock of the Company (on a post stock split basis); (ii) the
conversion of approximately $40.6 million of the Company's indebtedness to Ms.
Chaus, consisting of $28.1 million of then existing subordinated indebtedness
(including accrued interest through January 28, 1998) and $12.5 million of
additional indebtedness owed to Ms. Chaus, into 10,510,910 shares of Common
Stock of the Company; (iii) the New Financing Agreement; (iv) the
implementation of a reverse stock split of the Company's Common Stock such that
every ten (10) shares of Common Stock would be converted into one (1) share of
Common Stock; and (v) the liquidation of the Company's retail outlet stores
during the second quarter of fiscal 1998. On October 10, 1997, the Company
entered into the New Financing Agreement referred to in (iii) above. On
December 9, 1997, the reverse stock split described in (iv) above became
effective. Prior to January 14, 1998, the Company closed all of its retail
outlet stores as referenced in (v) above. On January 26, 1998, the Rights
Offering described in (i) above was consummated. On January 29, 1998, the
conversion of indebtedness into equity described in (ii) above was completed.

         At the end of fiscal 1997, the remaining balance of the restructuring
reserve was $1.9 million. During fiscal 1998, $1.9 million was charged against
such remaining reserve, consisting of outlet store closing costs and
professional fees related to the Company's restructuring. Costs relating to the
liquidation of the retail outlet store inventory totaled $1.2 million, of which
$1.1 million was provided for in fiscal 1997.



                                      F-14

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.  SUBORDINATED PROMISSORY NOTES

         The Company had outstanding at June 30, 1997, $26.4 million, including
accrued interest at 12% per annum, of subordinated promissory notes payable to
Josephine Chaus, certain of which were originally issued on June 30, 1986 and
the remainder of which were issued in February and March 1991 (the
"Subordinated Notes"). The Company had been prohibited from making payments of
principal or interest on the Subordinated Notes since 1993 (with the exception
of principal payments of approximately $0.5 million, $0.3 million and $0.3
million in November 1993, February 1994 and August 1994, respectively) as a
result of restrictive covenants under the Old Bank Debt Agreement. In
connection with the public offering, Ms. Chaus extended the maturity date of
the Subordinated Notes (which were to mature on July 1, 1996) to July 1, 1998.

         In September 1994, Josephine Chaus loaned $7.2 million to the Company
in exchange for subordinated promissory notes bearing interest at 12% per
annum. Proceeds of such cash infusion were used for costs and associated
expenses related to the signing of the Company's new chief executive officer.
In November 1994, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate the bank, Josephine
Chaus subsequently agreed, at the request of the Special Committee, to exchange
such notes for shares of Common Stock of the Company on terms determined by a
Special Committee of the Board of Directors. In November 1994, following
stockholder approval, Josephine Chaus exchanged such notes, including accrued
interest thereon ($.2 million), for 1,914,500 shares of Common Stock (based
upon a purchase price of $3.85 per share). The purchase price was determined by
the Special Committee and the purchase was approved by the Company's
stockholders at the November 22, 1994 Annual Meeting of Stockholders.

         In connection with the Restructuring, Ms. Chaus converted all
indebtedness owed to her by the Company into Common Stock. See Notes 6 and 7.

9.  EMPLOYEE BENEFIT PLANS

Pension Plan:

         Pursuant to a collective bargaining agreement, all of the Company's
union employees are covered by a defined benefit pension plan. Pension expense
amounted to approximately $105,000, $69,000 and $40,000 in fiscal 1996, 1997
and 1998, respectively. As of December 31, 1997, the actuarial present value of
the accumulated vested and non-vested plan benefits amounted to $0.5 million
and net assets available for benefits amounted to $0.5 million. Actuarial
assumptions related to weighted average interest rate and weighted average rate
of return were 8.0% and 8.5%, respectively, for each of 1998, 1997 and 1996.

Savings Plan:

         The Company has a savings plan (the "Savings Plan") under which
eligible employees may contribute a percentage of their compensation and the
Company (subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and are
subject to vesting provisions of the Savings Plan. Expense under the Savings
Plan was approximately $0.2 in each of fiscal 1998, 1997 and 1996. An aggregate
of 10,000 shares of Common Stock has been reserved for issuance under the
Savings Plan.


                                      F-15

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Restricted Stock Plan:

         In November 1987, the Company's stockholders approved the adoption of
a restricted stock plan (the "Restricted Plan"). Pursuant to the Restricted
Plan, 25,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25% of such shares on each anniversary of their date of
allocation. As of June 30, 1998, no restricted shares have been granted under
this plan.

Stock Option Plan:

         On February 23,1998, the Company cancelled all options granted under
the Company's 1986 stock option plan and reissued the holders of such options
with an equivalent number of options (at fair market value) under the Company's
1998 Stock Option Plan (the "Option Plan"). Pursuant to the Option Plan, the
Company may grant to eligible individuals incentive stock options, as defined
in the Internal Revenue Code, and non-incentive stock options. Under the Option
Plan, 2,712,000 shares of Common Stock were reserved for issuance. No stock
options may be granted subsequent to 2007 and the exercise price may not be
less than 100% of the fair market value on the date of grant for incentive
stock options and 85% of the fair market value on the date of grant for
non-incentive stock options.

Grossman Option Plan:

         At the annual meeting of stockholders in November 1994, the
stockholders approved the issuance of options for the Company's new Chief
Executive Officer (the "Grossman Option Plan") to purchase 300,000 shares of
Common Stock (the "1994 Options"). Of this amount, 150,000 options were
granted, at fair market value, in September 1994, and the balance were granted
in September 1995, at fair market value, in connection with the extension of
the term of his employment agreement. On January 1, 1998 the Company amended
Mr. Grossman's employment agreement. In connection with such agreement, on
February 23, 1998 Mr. Grossman was issued 1,375,137 options under the Option
Plan, 50% of which became exercisable on the grant date, and the remaining 
amounts are exercisable over two years. The 1994 options were cancelled. 
See Note 10. All options granted under the Grossman Option Plan are included 
in the table below.

Total Options Reserved for Issuance

         At June 30, 1998, a total of approximately 2,722,000 shares of Common
Stock were reserved for issuance under the Option Plan and the Savings Plan.


                                      F-16

<PAGE>


                                  BERNARD CHAUS, INC. AND SUBSIDIARIES
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                               NON-INCENTIVE
                                                                               STOCK OPTIONS
                                                            -----------------------------------------------------
                                                                                                      WEIGHTED
                                                               NUMBER             EXERCISE            AVERAGE
                                                             OF SHARES           PRICE RANGE       EXERCISE PRICE
                                                            ------------        ----------------  ---------------
<S>                                                             <C>              <C>     <C>              <C>   
Outstanding at July 1, 1995                                     286,686          $18.75--$48.75           $29.92
Options granted                                                 206,400          $36.25--$58.75           $51.23
Options canceled                                                (68,720)         $18.75--$58.75           $42.88
Options exercised                                              (  7,064)         $18.75--$48.80           $30.04
                                                            ------------      

Outstanding at June 30, 1996                                    417,302          $18.75--$56.25           $38.34
Options granted                                                   9,500          $23.75--$31.25           $30.07
Options canceled                                                 (6,701)         $20.00--$48.80           $26.02
Options exercised                                               (   625)         $20.00--$20.00           $20.00
                                                            ------------      

Outstanding at June 30, 1997                                    419,476          $18.75--$56.25           $38.40
Options granted                                               2,616,407          $ 3.11--$ 3.11           $ 3.11
Options canceled                                               (419,476)         $18.75--$56.25           $38.40
                                                            ------------      

Outstanding at June 30, 1998                                  2,616,407          $ 3.11--$ 3.11           $ 3.11
                                                            ============        ===============          =======
</TABLE>
         The stock options are exercisable over four years in annual 25%
increments.

Stock Based Compensation:

         All stock options are granted at fair market value of the Common Stock
at grant date. The weighted average fair value of stock options granted during
1998, 1997 and 1996 was $2.76, $19.30 and $32.90, respectively. The fair value
of each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for the
grants: risk-free interest rate of 5.49% in 1998 and 6.38% in 1997; expected
dividend yield of 0% in 1998 and 1997; expected life of 2.40 years in 1998 and
3.05 years in 1997; and expected volatility of 237.06% in 1998 and 97.25% in
1997. The outstanding stock options have a weighted average contractual life of
9.60 years in 1998 and 7.68 years in 1997. The number of stock options
exercisable at June 30, 1998 and 1997 were 714,000 and 350,000, respectively.

         The Company accounts for the stock option plans in accordance with the
Accounting Principles Board Opinion No. 25, under which no compensation cost is
recognized for stock option awards. Had compensation cost been determined
consistent with Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company's pro forma net
income (loss) for 1998, 1997 and 1996 would have been $2,318, ($19,658) and
($26,469), respectively. The Company's pro forma net income (loss) per share for
1998, 1997 and 1996 would have been $0.15, ($2.94) and ($4.24), respectively.
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.


                                      F-17

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.   COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Lease Obligations:

         The Company leases showroom, distribution and office facilities, and
equipment under various noncancellable operating lease agreements which expire
through 2006. Rental expense for the years ended June 30, 1998, 1997 and 1996
was approximately $3.2 million, $4.7 million and $5.8 million, respectively.

         The minimum aggregate rental commitments at June 30, 1998 are as
follows (in thousands):

                       Fiscal year ending:

<TABLE>
<CAPTION>
                       <S>                                                             <C>   
                       1999 ..............................                             $2,194
                       2000 ..............................                              1,312
                       2001 ..............................                                 74
                     Subsequent to 2001 ..................                                --
                                                                                       ------
                                                                                       $3,580
                                                                                       ======
</TABLE>
Letters of Credit:

         The Company is contingently liable under letters of credit issued by
banks to cover contractual commitments for merchandise purchases of
approximately $17.8 million at June 30, 1998.

Litigation:

         Without admitting any liability, the Company settled, in July 1998, an
action brought by the Equal Employment Opportunity Commission on behalf of
three former patternmakers, each of whom was terminated by the Company in late
1995. The amount of the settlement was not material and was provided for in
fiscal 1997.

         The Company is also involved in various other legal proceedings
arising out of the conduct of its business. The Company believes that the
eventual outcome of the proceedings referred to above will not have a material
adverse effect on the Company's financial condition or results of operations.

Employment Agreement:

         The Company has entered into a number of employment agreements with
various senior executives. In addition to his $1 million salary, Mr. Grossman
is entitled to a bonus equal to 5% of the Company's annual net profits, as
defined, for the 1998 fiscal year and 2.5% of the Company's annual net profits,
as defined, for the duration of his agreement, which expires in 2000, subject
to a four year extension at the Company's option. Mr. Grossman has also been
granted stock options to acquire an aggregate of 5% of the outstanding shares
of common stock of the Company (approximately 1.38 million shares), and if the
agreement is extended by the Company, Mr. Grossman will be entitled to stock
options for an additional 3% of the outstanding shares of Common Stock of the
Company.

Nautica License Agreement:

         In September 1995, the Company entered into a license agreement (the
"Nautica License Agreement") with Nautica Apparel Inc. ("Nautica"), pursuant to
which the Company will arrange for the manufacture of, market,


                                      F-18

<PAGE>


                      BERNARD CHAUS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

distribute and sell a new women's career and casual sportswear line under the
Nautica name. The initial term of the Nautica License Agreement runs through
December 31, 1999, and is thereafter renewable, at the option of the Company,
for up to two periods of three years each, provided that certain conditions are
met (including the successful attainment of certain sales targets and the
requirement that Andrew Grossman continue in his position as Chief Executive
Officer during the term of the Nautica License Agreement). The Company's
obligations include minimum royalty and advertising payments.

         Pursuant to the terms of the Nautica License Agreement, the Company
has granted Nautica a ten-year option to purchase up to 15,000 shares of the
Company's Common Stock at a purchase price of $50.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement, giving effect to the
Company's one-for-ten reverse stock split during 1998).

11.  COMMON STOCK OFFERING

         On November 22, 1995, the Company issued 5,750,000 shares of Common
Stock at a price of $3.00 per share in an underwritten public offering.
Proceeds from the offering, net of commissions and other expenses totaling $1.8
million, were $15.4 million.

12.  RESTATEMENT

         Subsequent to the issuance of the Company's fiscal 1998 consolidated
financial statements, the Company's management determined that certain pro
forma earnings per share amounts, common share amounts, stock option data and
stock-based compensation disclosures had been improperly calculated, disclosed
or omitted. As a result, issued shares at June 30, 1997, pro forma earnings per
share under SFAS No. 123 and options outstanding as of June 1998 have been
restated from the amounts previously reported.

         Disclosures have been expanded in accordance with SFAS No. 123 to
include weighted-average exercise prices for all periods presented, the
weighted-average assumptions used under the Black-Scholes option pricing model
for the grants in fiscal 1997, and the weighted-average contractual life of
options outstanding at June 30, 1997.

A summary of the significant effects of the restatement are as follows:

<TABLE>
<CAPTION>
                                     1998                             1997                               1996
                           --------------------------     -----------------------------      ------------------------------
                           As Previously                  As Previously                      As Previously
                              Reported    As Restated       Reported       As Restated          Reported        As Restated
<S>                        <C>            <C>             <C>              <C>               <C>                <C>
At June 30:
Common Stock Issued              --           --            6,687,000       26,899,974               --                --

For the year ended June 30:
Pro forma net income
(loss) per share in
accordance with SFAS
No. 123                       $0.07        $0.15               ($0.73)          ($2.94)          ($1.10)           ($4.24)
</TABLE>


                                                              F-19


<PAGE>


                                  BERNARD CHAUS, INC. AND SUBSIDIARIES
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



                                             BERNARD CHAUS, INC. & SUBSIDIARIES
                                              VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                                   ADDITIONS
                                                                  BALANCE AT       CHARGED TO                     BALANCE
                                                                   BEGINNING       COSTS AND                      AT END
DESCRIPTION                                                        OF YEAR         EXPENSES    DEDUCTIONS         OF YEAR
                                                                   -------         --------    ----------         -------
                                                                                         (IN THOUSANDS)

<S>                                                                <C>            <C>          <C>               <C>
Year ended June 30, 1998
  Allowance for doubtful accounts ........................         $   341        $     (65)   $    (92)1        $    368
                                                                   =======        =========    ========          ========

  Reserve for customer allowances and deductions .........         $ 1,751        $   8,054    $  6,971 2        $  2,834
                                                                   -------        ---------    --------          --------

  Accrued restructuring expenses .........................         $ 1,850        $       0    $  1,850 3        $      0
                                                                   -------        ---------    --------          --------

Year ended June 30, 1997
  Allowance for doubtful accounts ........................         $   378        $     (20)   $     17  1       $    341
                                                                   --------       ---------    --------          --------

  Reserve for customer allowances and deductions .........         $ 2,576        $   3,723    $  4,548  2       $  1,751
                                                                   -------        ---------    --------          --------

  Accrued restructuring expenses .........................         $   196        $   1,850    $    196  3       $  1,850
                                                                   --------       ---------    --------          --------

Year ended June 30, 1996
  Allowance for doubtful accounts ........................         $   619        $     (70)   $    171  1       $    378
                                                                   --------       ---------    --------          --------

  Reserve for customer allowances and deductions .........         $ 1,500        $   6,786    $  5,710  2       $  2,576
                                                                   -------        ---------    --------          --------

  Accrued restructuring expenses .........................         $ 2,804        $       0    $  2,608  3       $    196
                                                                   -------        ---------    --------          --------
</TABLE>

--------------

1  Uncollectible accounts written off.
2  Allowances charged to reserve and granted to customers.
3  Expenses charged to reserve.


                                      S-1