<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                                           
                                WASHINGTON, D.C. 20549
                                      FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                    FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997

                                          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 1-10157

                                   L.A. GEAR, INC.

                (Exact name of registrant as specified in its charter)



                 CALIFORNIA                      95-3375118          
    (State or other jurisdiction of         (I.R.S. Employer
    incorporation or organization)          Identification Number)

              2850 OCEAN PARK BOULEVARD, SANTA MONICA, CALIFORNIA 90405
                 (Address of principal executive offices)  (Zip code)

                                    (310) 452-4327
                 (Registrant's telephone number, including area code)

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

The number of shares outstanding of the registrant's Common Stock, no par value,
at October 10, 1997 was 22,959,070 shares.

THIS FORM 10-Q CONTAINS 19 PAGES.

THE EXHIBIT INDEX APPEARS ON PAGE 19.

<PAGE>

                                   L.A. GEAR, INC.
                                  TABLE OF CONTENTS
               FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997


    PART I.   FINANCIAL INFORMATION                                       PAGE
                                             
    Item 1.   Financial Statements

                 Consolidated Condensed Balance Sheets 
                   at August 31, 1997 and November 30, 1996                 3

                 Consolidated Condensed Statements of Operations and
                    Accumulated Deficit for the three months ended 
                    August 31, 1997 and August 31, 1996                     4

                 Consolidated Condensed Statements of Operations and         
                    Accumulated Deficit for the nine months ended 
                    August 31, 1997 and August 31, 1996                      5

                 Consolidated Condensed Statements of Cash Flows             
                   for the nine months ended August 31, 1997 and 
                   August 31, 1996                                          6

                 Notes to Consolidated Condensed Financial Statements       7


    Item 2.   Management's Discussion and Analysis of Financial Condition
                 and Results of Operations                                 10



    PART II.  OTHER INFORMATION

    Item 1.   Legal Proceedings                                            17

    Item 2.   Changes in Securities                                        17

    Item 3.   Defaults Upon Senior Securities                              17
                                             
    Item 4.   Submission of Matters to a Vote of Security Holders          17
                                             
    Item 5.   Other Information                                            17
                                             
    Item 6.   Exhibits and Reports on Form 8-K                             17
                                             
    Signatures                                                             18

    Exhibit Index                                                          19

<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                        CONSOLIDATED CONDENSED BALANCE SHEETS
                          (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                  August 31,        November 30,
                                                                                     1997               1996    
                                                                                 -----------        ------------
                                                                                 (unaudited)
    ASSETS
<S>                                                                              <C>                 <C>
Current assets:
  Cash and cash equivalents                                                     $   3,733           $  34,239
  Accounts receivable, net                                                         28,501              23,938
  Inventories                                                                      19,076              32,809
  Prepaid expenses and other current assets                                         1,955               1,933
                                                                                ---------           ---------

         Total current assets                                                      53,265              92,919

Property and equipment, net                                                         2,283               4,445
Goodwill, net                                                                       1,438               1,538
Other assets                                                                        1,881               2,054
                                                                                ---------           ---------

                                                                                $  58,867           $ 100,956
                                                                                ---------           ---------
                                                                                ---------           ---------

  LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

Current liabilities:
  Borrowings on line of credit                                                  $   4,900           $      --
  Accounts payable and accrued liabilities                                         28,498              46,452
                                                                                ---------           ---------

         Total current liabilities                                                 33,398              46,452

73/4% convertible subordinated debentures due 2002                                 50,000              50,000

Shareholders' (deficit) equity:
  71/2% Series B Cumulative Convertible Preferred Stock,
    $100 stated value; 1,161,822 shares authorized; 1,161,337
    shares issued and outstanding at August 31, 1997 and 
    November 30, 1996                                                             115,473             115,473
  Common stock, no par value; 80,000,000 shares authorized;
    22,959,070 shares issued and outstanding at 
    August 31, 1997; 22,936,433 shares issued and 
    outstanding at November 30, 1996                                              128,132             128,093
  Cumulative currency translation adjustment                                         (609)                296
  Accumulated deficit                                                            (267,527)           (239,358)
                                                                                ---------           ---------
         Total shareholders' (deficit) equity                                     (24,531)              4,504
                                                                                ---------           ---------
 Commitments and contingencies                                                         --                  --
                                                                                ---------           ---------
                                                                                $  58,867           $ 100,956
                                                                                ---------           ---------
                                                                                ---------           ---------
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.


                                          3
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                               AND ACCUMULATED DEFICIT
                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                     (UNAUDITED)

                                                   THREE MONTHS ENDED AUGUST 31,
                                                   ----------------------------
                                                       1997              1996
                                                   ---------          ---------

Net sales                                         $  31,641          $  53,431
Cost of sales                                        29,040             39,209
                                                  ---------          ---------
  
    Gross profit                                      2,601             14,222

Selling, general and administrative expenses         13,172             21,994
Other expense (income), net                             240               (361)
Interest expense, net                                   971                475
                                                  ---------          ---------

    Loss before minority interest                   (11,782)            (7,886)

Minority interest                                        --              3,038
                                                  ---------          ---------

    Net loss                                        (11,782)            (4,848)

Dividends on Series B Cumulative Convertible 
  Preferred Stock                                    (2,286)            (2,098)
                                                  ---------          ---------

    Loss applicable to common stock                 (14,068)            (6,946)

Accumulated deficit, beginning of period           (253,459)          (179,814)
                                                  ---------          ---------

Accumulated deficit, end of period                $(267,527)         $(186,760)
                                                  ---------          ---------
                                                  ---------          ---------

Loss per common share                             $   (0.61)         $   (0.30)
                                                  ---------          ---------
                                                  ---------          ---------

Weighted average common shares outstanding           22,959             22,937
                                                  ---------          ---------
                                                  ---------          ---------


SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.


                                          4
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                               AND ACCUMULATED DEFICIT
                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                     (UNAUDITED)

                                                   NINE MONTHS ENDED AUGUST 31,
                                                   ----------------------------
                                                       1997              1996
                                                   ---------          ---------

Net sales                                         $  95,206          $ 170,569
Cost of sales                                        79,687            122,095
                                                  ---------          ---------

  Gross profit                                       15,519             48,474

Selling, general and administrative expenses         37,734             65,688
Litigation settlement expense (income), net             596             (1,955)
Restructuring credits                                (2,120)                --
Other income, net                                    (1,852)              (142)
Interest expense, net                                 2,628              1,609
                                                  ---------          ---------

  Loss before minority interest                     (21,467)           (16,726)

Minority interest                                        --              5,497
                                                  ---------          ---------

  Net loss                                          (21,467)           (11,229)

Dividends on Series B Cumulative Convertible 
  Preferred Stock                                    (6,702)            (3,206)
Dividends on mandatorily redeemable Series A 
  Cumulative Convertible Preferred Stock                --              (3,044)
                                                  ---------          ---------

  Loss applicable to common stock                   (28,169)           (17,479)

Accumulated deficit, beginning of period           (239,358)          (169,281)
                                                  ---------          ---------

Accumulated deficit, end of period                $(267,527)         $(186,760)
                                                  ---------          ---------
                                                  ---------          ---------

Loss per common share                             $   (1.23)         $   (0.76)
                                                  ---------          ---------
                                                  ---------          ---------

Weighted average common shares outstanding           22,956             22,937
                                                  ---------          ---------
                                                  ---------          ---------


SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.


                                          5
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                    (IN THOUSANDS)
                                     (UNAUDITED)

<TABLE>
<CAPTION>

                                                               NINE MONTHS ENDED AUGUST 31,
                                                               ---------------------------
                                                                  1997              1996
                                                               ----------        ---------
<S>                                                            <C>               <C>
Net cash (used in) provided by operating activities            $ (37,807)       $   4,103
                                                               ---------        ---------

Investing activities:
  Proceeds from sale of assets                                     2,269               --
  Capital expenditures                                              (471)            (723)
                                                               ---------        ---------

      Net cash provided by (used in) investing activities          1,798             (723)
                                                               ---------        ---------
     
Financing activities:
  Borrowings under credit facilities                               7,175              -- 
  Repayments of credit facilities                                 (2,275)          (1,218)
  Proceeds from exercise of stock options                             39               --
  Other                                                               --             (660)
                                                               ---------        ---------
    
       Net cash provided by (used in) financing activities         4,939           (1,878)
                                                               ---------        ---------
                                            
Effect of exchange rate changes on cash and
  cash equivalents                                                   564             (402)
                                                               ---------        ---------

       Net (decrease) increase in cash and cash equivalents      (30,506)           1,100

Cash and cash equivalents at beginning of period                  34,239           35,956
                                                               ---------        ---------

Cash and cash equivalents at end of period                     $   3,733        $  37,056
                                                               ---------        ---------
                                                               ---------        ---------
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.


                                          6
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)


NOTE 1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    BASIS OF PRESENTATION    In the opinion of management, the accompanying
unaudited consolidated condensed financial statements contain all adjustments,
which include normal recurring adjustments, necessary to present fairly the
consolidated financial position of L.A. Gear, Inc. and its subsidiaries
(collectively referred to as the "Company") at August 31, 1997, the results of
operations for the three months and nine months ended August 31, 1997 and 1996
and the cash flows for the nine months ended August 31, 1997 and 1996.  This
interim financial information and notes thereto should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1996.  The Company's interim results of operations and cash flows are not
necessarily indicative of the results to be expected for other interim periods
or the fiscal year.

    STOCK OPTIONS  In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.  The Company will
adopt the disclosure only provisions of SFAS No. 123 in the fiscal year ending
November 30, 1997 and the adoption of SFAS No. 123 will not have a material
impact on the Company's consolidated financial position or results of
operations.

    LOSS PER COMMON SHARE  Loss per common share is computed on the loss
applicable to common stock (net loss plus dividends on Series A Cumulative
Convertible Preferred Stock and Series B Cumulative Convertible Preferred Stock)
divided by the weighted average number of common shares outstanding during each
period.

    RECLASSIFICATIONS  Certain reclassifications to 1996 amounts have been made
to conform with 1997 presentation.  

NOTE 2.       SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

                                                    NINE MONTHS ENDED AUGUST 31,
                                                      --------------------------
                                                        1997            1996
                                                      --------        ---------
                                                          (IN THOUSANDS)

  CASH PAID (RECEIVED) DURING THE PERIOD FOR:
    INTEREST PAID                                       $ 3,944        $  2,126
                                                        -------        --------
    INTEREST RECEIVED                                   $  (366)       $ (1,471)
                                                        -------        --------

  NONCASH FINANCING ACTIVITY:
    DIVIDENDS ACCRUED ON MANDATORILY
       REDEEMABLE SERIES B CUMULATIVE CONVERTIBLE 
       PREFERRED STOCK                                  $ 6,702             $--
                                                        -------        --------
    EXCHANGE OF SERIES A CUMULATIVE CONVERTIBLE
       PREFERRED STOCK PLUS ACCRUED AND UNPAID 
       DIVIDENDS FOR SERIES B CUMULATIVE CONVERTIBLE 
       PREFERRED STOCK                                  $    --        $110,790
                                                        -------        --------
  SERIES B CUMULATIVE CONVERTIBLE PREFERRED 
       STOCK ISSUED IN PAYMENT OF DIVIDENDS DUE 
       ON SERIES B CUMULATIVE CONVERTIBLE 
       PREFERRED STOCK                                  $    --        $  3,206
                                                        -------        --------


                                          7
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)



NOTE 3.   OTHER INCOME

    Other income for the nine months ended August 31, 1997 consists primarily
of foreign exchange gains of $946,000 in connection with the sale of stock and
assets of certain foreign subsidiaries and of $889,000 of gain from the
dissolution of the Company's Far East joint venture with Inchcape Pacific
Limited.

NOTE 4.   ACCOUNTS RECEIVABLE, NET

    Accounts receivable, net of allowance for doubtful accounts and merchandise
returns, consist of the following:

                                                 AUGUST 31,       NOVEMBER 30,
                                                    1997             1996     
                                                  ----------       ------------
                                                         (IN THOUSANDS)
  TRADE RECEIVABLES
    DOMESTIC                                        $15,724            $12,581
    INTERNATIONAL                                    12,237             14,216
                                                    -------            -------
       TOTAL TRADE RECEIVABLES                       27,961             26,797

  OTHER RECEIVABLES                                   3,415              1,280
                                                    -------            -------
                                                     31,376             28,077
  LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
     AND MERCHANDISE RETURNS                         (2,875)            (4,139)

                                                    $28,501            $23,938
                                                    -------            -------
                                                    -------            -------

    During the nine months ended August 31, 1997 the Company sold substantially
all of the assets of its Italian and German subsidiaries and the capital stock
of its Dutch subsidiary.  Included in other receivables is $2.2 million, net,
owed to the Company from the purchasers of the assets of its Italian and German
subsidiaries. 

NOTE 5.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts payable and accrued liabilities consist of the following:

                                                  AUGUST 31,      NOVEMBER 30,
                                                     1997             1996    
                                                  ----------     -------------
                                                          (IN THOUSANDS)
  ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES    $13,386            $17,869
  ACCRUED INVENTORY PURCHASES                         6,183              8,417
  ACCRUED RESTRUCTURING CHARGES                       2,227             20,166
  ACCRUED DIVIDENDS ON SERIES B CUMULATIVE 
    CONVERTIBLE PREFERRED STOCK                       6,702                 --
                                                    -------            -------

                                                    $28,498            $46,452
                                                    -------            -------
                                                    -------            -------


                                          8
<PAGE>

                           L.A. GEAR, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)


    In the fourth quarter of fiscal 1996, management committed to a
restructuring plan aimed at bringing the Company's operating expenses in line
with its sales base and recorded a restructuring charge of $28.8 million.  Of
the $20.2 million remaining reserve at November 30, 1996, $15.9 million was
utilized in the nine months ended August 31, 1997 primarily for severance
payments, the transition to service certain of the Company's European customers
through independent distributors rather than through direct subsidiaries, and
space consolidation at the Company's Santa Monica, California headquarters and
Ontario, California distribution center.   During the nine months ended August
31, 1997, the Company recognized $2.1 million of income representing adjustments
to restructuring reserves relating primarily to: (i) the sublease of premises at
its Santa Monica and Ontario locations at more favorable terms and shorter
vacancy periods than originally anticipated, and (ii) greater consideration than
originally anticipated from the sale of stock and assets of certain European
subsidiaries.  All of these adjustments were recorded during the first half of
the year.  The Company anticipates that substantially all of the contemplated
restructuring actions will be completed by November 30, 1997 and believes that
the accrued restructuring charges of $2.2 million at August 31, 1997
appropriately reflect the remaining liabilities associated with these actions.

NOTE 6.  BANK BORROWINGS

    On May 21, 1997, the Company entered into a Loan and Security Agreement
(the "Agreement") with Congress Financial Corporation which provides the Company
with a new three-year revolving credit facility (the "Revolving Facility")
through May 2000, for loans and letters of credit. The Revolving Facility
replaces the Company's previous revolving credit facility with BankAmerica
Business Credit.

    The  Revolving Facility provides for maximum borrowings outstanding at any
time of the lesser of: (i) $40 million for aggregate loans and letters of
credit, or (ii) an amount equal to a borrowing base calculated on the Company's
eligible accounts receivable and inventory as defined under the Agreement. 
There is a $25 million sublimit for outstanding aggregate loans at any time. 
Loans bear interest at the publicly announced prime rate of CoreStates Bank,
N.A. plus 1/4% for up to $5 million of loans outstanding, and at such prime rate
plus 1/2% for loans outstanding in excess of $5 million. The Revolving Facility
is secured primarily by the Company's domestic assets . 
  
    As of August 31, 1997, there were cash borrowings of $4.9 million and
approximately $9.7 million of letters of credit commitments outstanding under
the Revolving Facility, with $5.3 million available for borrowing.

NOTE 7.  SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK

    The Series B Cumulative Convertible Preferred Stock, stated value $100 per
share, accrues dividends at a rate of 71/2% per annum, and is convertible into
shares of the Company's Common Stock at a conversion price of $6.75 per share. 
The Company elected not to pay cash dividends aggregating $6.7 million required
on the Series B Cumulative Convertible Preferred Stock due February 28, 1997
($2.2 million), May 31, 1997 ($2.2 million), and August 31, 1997 ($2.3 million).
The aggregate unpaid dividends will bear additional dividends accruing at a rate
of 8 5/8% per annum, compounded quarterly, until all such arrearages are paid. 


                                          9
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
ALL REFERENCES TO YEARS ARE TO FISCAL YEARS ENDING NOVEMBER 30, 1997 OR 1996, AS
APPLICABLE.

NET SALES
--------------------------------------------------------------------------------

    In 1996 the Company experienced a decrease in overall net sales as a result
of:  (i) reduced worldwide demand for the Company's children's lighted footwear
and men's products and (ii) a $2.68 per pair decrease in the average domestic
selling price, primarily with respect to children's lighted footwear and the
women's Wal-Mart line. In response to the continually declining sales base,
the Company initiated its 1996 restructuring plan to discontinue certain product
lines, to convert certain European subsidiaries into distributorships and to
terminate its Far East joint venture.  As a result of these actions, it was
anticipated that the Company's 1997 sales would decline significantly from
year-ago levels.   

    THIRD QUARTER  In the third quarter of 1997, the Company's net sales
decreased 40.8% to $31.6 million compared to $53.4 million in the third quarter
of 1996.  Domestic net sales in the third quarter of 1997 decreased by 36.4%
from the comparable 1996 period. International net sales, which accounted for
approximately 26.4% of the Company's total net sales for the third quarter of
1997, decreased 50.3% from the comparable 1996 period.

         The following table sets forth the operating segments comprising the
Company's net sales for the three months ended August 31, 1997 as compared to
the same period in 1996:

  THREE MONTHS ENDED AUGUST 31,                      NET SALES
  ----------------------------        ------------------------------------
                                           1997                  1996
                                      ----------------    ----------------
                                             (DOLLARS IN THOUSANDS)

  DOMESTIC FOOTWEAR
    CHILDREN'S                       $17,142      54%    $24,918      47%
    WOMEN'S                            3,686      12       7,143      13
    MEN'S                              2,229       7       3,763       7
  OTHER                                  225       1         782       1
                                     -------      --     -------      --
    TOTAL DOMESTIC SALES              23,282      74      36,606      68
                                     -------      --     -------      --

  INTERNATIONAL FOOTWEAR
    CHILDREN'S                         4,093      13       9,543      18
    WOMEN'S                            2,576       8       4,233       8
    MEN'S                              1,525       5       2,627       5
  OTHER                                  165       0         422       1
                                     -------      --     -------      --
    TOTAL INTERNATIONAL SALES          8,359      26      16,825      32
                                     -------      --     -------      --
    TOTAL NET SALES                  $31,641     100%    $53,431     100%
                                     -------     ---     -------     --- 
                                     -------     ---     -------     --- 

    The following table sets forth the percentage changes, by Children's,
Women's and Men's categories, in the number of pairs sold during the three
months ended August 31, 1997 as compared to the same period of 1996:

THREE MONTHS ENDED AUGUST 31,                  VOLUME OF FOOTWEAR SOLD
-----------------------------                  -----------------------
                                          DECREASE BETWEEN 1997 AND 1996
                                      ---------------------------------------
                                       DOMESTIC    INTERNATIONAL      TOTAL
                                      ---------    -------------      ------

    CHILDREN'S                         (21.2)%        (50.3)%         (29.3)%
    WOMEN'S                            (47.6)%        (25.6)%         (39.9)%
    MEN'S                              (41.4)%        (24.4)%         (35.4)%

       TOTAL VOLUME DECREASE           (28.7)%        (40.7)%         (32.3)%


                                          10
<PAGE>

    The decrease in domestic net sales in the third quarter of fiscal 1997 was
due primarily to a reduction in the number of pairs sold and in the average
selling price per pair of children's shoes.  Domestic women's and men's shoe
sales decreased during the third quarter of 1997 compared to year-ago levels
primarily due to a decline in demand.

    Total international net sales in the third quarter of fiscal 1997 decreased
primarily due to lower sales of  children's shoes by the Company's continuing
subsidiary operations in the United Kingdom and France.  In addition there were
lower footwear and apparel sales in Germany, Italy, and Holland where operations
have been transitioning from direct subsidiaries to independent distributors.

    Included in third quarter sales are initial shipments of several new brands
introduced in the Fall 1997 product line.  These brands target those demographic
groups where the Company seeks to build significant market share and to
differentiate the L.A. Gear product line by the use of sub-brands and
co-labeling.  Mongo-TM- is a fashion-forward casual shoe designed to appeal to
trend setting young adults.  Digit 3-TM- is a performance shoe aimed at the
expert sports enthusiast.  ABS+-TM- is a women's athletic shoe containing new
cushioning technology. While the new brands for the Fall 1997 product line have
been well received by certain key retail customers, they have not yet
contributed significant results as it is too early in their product life cycle.

    Consistent with the new strategy implemented by the Company to
differentiate its product among various tiers of distribution channels, L.A.
Lights-Registered Trademark- by L.A. Gear was also introduced as a sub-brand for
its four children's lighted product lines.  Total sales of the Company's
children's lighted shoes decreased by $6.1 million to $12.7 million in the third
quarter of fiscal 1997 from $18.8 million in the comparable prior year period,
primarily due to lower worldwide demand.

    NINE MONTHS  For the nine months ended August 31, 1997, the Company's net
sales decreased 44.2% to $95.2 million compared to $170.6 million in the prior
year period.  Domestic net sales for the nine months ended August 31, 1997
decreased by 47.9% from the comparable 1996 period.  Net international sales,
which accounted for approximately 33.4% of the Company's total net sales for the
nine months ended August 31, 1997, decreased by 34.8% from the comparable 1996
period.

    The following table sets forth the operating segments comprising the
Company's net sales for the nine months ended August 31, 1997 as compared to the
same period in 1996:

NINE MONTHS ENDED AUGUST 31,                        NET SALES
---------------------------           ------------------------------------
                                            1997                1996
                                      ----------------    ----------------
                                             (DOLLARS IN THOUSANDS)
  DOMESTIC FOOTWEAR
    CHILDREN'S                       $39,448      41%    $65,185      38%
    WOMEN'S                           13,060      14      35,587      21
    MEN'S                             10,677      11      19,176      11
  OTHER                                  224       0       1,827       1
                                     -------      --     -------      --
    TOTAL DOMESTIC SALES              63,409      66     121,775      71
                                     -------      --     -------      --

  INTERNATIONAL FOOTWEAR
    CHILDREN'S                        15,222      16      26,036      15
    WOMEN'S                            9,989      11      11,456       7
    MEN'S                              5,801       6       7,481       5
  OTHER                                  785       1       3,821       2
                                     -------      --     -------      --
    TOTAL INTERNATIONAL SALES         31,797      34      48,794      29
                                     -------      --     -------      --
    TOTAL NET SALES                  $95,206     100%   $170,569     100%
                                     -------     ---     -------     --- 


                                          11
<PAGE>

    The following table sets forth the percentage changes, by Children's,
Women's and Men's categories, in the number of pairs sold during the nine months
ended August 31, 1997 as compared to the same period of 1996:

THREE MONTHS ENDED AUGUST 31,                VOLUME OF FOOTWEAR SOLD
-----------------------------                -----------------------
                                     INCREASE (DECREASE) BETWEEN 1997 AND 1996
                                     -----------------------------------------
                                       DOMESTIC    INTERNATIONAL      TOTAL
                                      ---------    -------------      -------

    CHILDREN'S                         (33.7)%        (30.2)%         (32.9)%
    WOMEN'S                            (63.8)%          4.9%          (49.9)%
    MEN'S                              (38.9)%        (13.2)%         (32.7)%

        TOTAL VOLUME DECREASE          (44.2)%        (17.9)%         (38.2)%

    The decrease in domestic net sales for the nine months ended August 31,
1997 was primarily attributable to sales of $33.1 million to Wal-Mart in the
first nine months of fiscal 1996 in fulfillment of Wal-Mart's 1995 minimum
purchase commitment.  This compares to sales to Wal-Mart of $9.6 million in the
nine months ended August 31, 1997.  Additionally, the Company experienced lower
sales volume and lower average selling prices per pair across its product lines
in the nine months ended August 31, 1997 compared to the same year-ago period. 
Sales of discontinued product at reduced prices also contributed to lower
average selling prices per pair for the nine months ended August 31, 1997.

    For the nine months ended August 31, 1997, international sales decreased
from year-ago levels principally due to: (i) the aforementioned transition of
operations in certain European countries, and (ii) the closure of the Company's
Far East joint venture with Inchcape Pacific Limited in September 1996 and the
lack of alternative distribution arrangements in those markets since that time.

    For the nine months ended August 31, 1997, total sales of the Company's
children's lighted shoes decreased $18.4 million to $32.6 million from $51.0
million in the comparable prior year period, primarily due to a decrease
internationally in both volume and average selling price per pair.

GROSS MARGIN
--------------------------------------------------------------------------------

    The consolidated gross margin for the third quarter and the nine months
ended August 31, 1997 decreased to 8.2% and 16.3% , respectively, from 26.6% and
28.4% during the comparable periods in 1996, respectively.   In response to
unfavorable market conditions for excess wholesale inventories on an
industrywide basis following the Fall 1997 Back-to-School season, the Company
re-evaluated its inventories as of August 31, 1997.  As a result, the Company
recorded a $6.0 million write-down to reduce certain slow-moving inventories to
their estimated net realizable value.  The effect of this adjustment reduced
gross margin by 19 percentage points in the third quarter and 6 percentage
points for the nine months ended August 31, 1997.

    Excluding the effect of the inventory write-down, international gross
margins had increased to 17.6% and 23.2% in the third quarter and nine months
ended August 31, 1997, respectively, from 13.1% and 22.0% in the comparable 1996
periods. This third quarter 1997 increase in margin was primarily due to the
negative impact on third quarter 1996 gross margin from $2.1 million of
markdowns related to the Company's Far East joint venture with Inchcape Pacific
Limited.  Including the effect of the inventory write-down, international gross
margins had decreased to 11.1% and 21.5% in the third quarter and nine months
ended August 31, 1997, respectively, from 13.1% and 22.0% in the comparable
periods in 1996.

    Prior to the inventory write-down, domestically, gross margins decreased to
30.6% and 22.3% for the third quarter and nine months ended August 31, 1997,
respectively, from 32.8% and 31.0% during the comparable periods in 1996.  This
decline in domestic gross margins is attributable to a greater proportion of
sales of discontinued product. The aforementioned reduction of sales to Wal-Mart
during fiscal 1997 also contributed to the Company's lower domestic margins in
the nine months ended August 31, 1997 over the comparable prior year period.
Sales of discontinued product in the third quarter of 1997 accounted for 8% of
overall domestic sales, thereby contributing to the decrease in domestic gross
margin for the three months ended August 31, 1997.  After the inventory
write-down, domestic gross margins had decreased to 7.2% and 13.7% in the third
quarter and nine months ended August 31, 1997, respectively, compared to 32.8%
and 31.0% in the comparable periods in 1996.


                                          12
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                              
--------------------------------------------------------------------------------

    Total selling, general and administrative expenses decreased by $8.8
million, or 40.1%, to $13.2 million in the third quarter of 1997 and decreased
by $28.0 million, or 42.6%, to $37.7 million in the nine months ended August 31,
1997 compared to the respective prior year periods.  Approximately $1.5 million
and $15.9 million in restructuring costs incurred in the third quarter and the
nine months ended August 31, 1997, respectively, were applied against the
restructuring reserve established in 1996.    

    Domestic selling, general and administrative expenses declined by $4.0 
million, or 25.9%, to $11.3 million in the third quarter of 1997 and by $17.1 
million, or 36.0%, to $30.4 million in the nine months ended August 31, 1997 
from the comparable prior year periods. These decreases were largely due to 
expense reductions realized from the implementation of the Company's 1996 
corporate reorganization plan and include reductions in (i) compensation and 
benefit expenses, and (ii) advertising and promotional expenses.

    International selling, general and administrative expenses decreased by
$4.8 million, or 72.4%, to $1.9 million in the third quarter of fiscal 1997,
and decreased by $10.9 million, or 59.7%, to $7.3 million in the nine months
ended August 31, 1997 from the comparable prior year periods.  These decreases
were primarily due to (i) the transition of operations in Germany, Italy, and
Holland from direct subsidiaries to independent distributors, and (ii) the
elimination of all operating expenses associated with the Company's Far East
joint venture.

    As a percentage of net sales, selling, general and administrative expenses
were 41.6% and 39.6% for the third quarter and the nine months ended August 31,
1997, respectively, compared to 41.2% and 38.5% in the comparable prior year
periods.

OTHER INCOME
--------------------------------------------------------------------------------

    Other income for the nine months ended August 31, 1997 consists primarily
of foreign exchange gains of $946,000 in connection with the sale of stock and
assets of certain foreign subsidiaries and of $889,000 of gain from the
dissolution of the Company's Far East joint venture with Inchcape Pacific
Limited.

RESTRUCTURING CREDITS                                                
--------------------------------------------------------------------------------

    During the nine months ended August 31, 1997, the Company recognized $2.1
million of income representing adjustments to restructuring reserves relating
primarily to: (i) the sublease of premises at its Santa Monica and Ontario
locations at more favorable terms and shorter vacancy periods than originally
anticipated, and (ii) greater consideration than originally anticipated from the
sale of stock and assets of certain European subsidiaries.  All of these
adjustments were recorded during the first half of the year.

INTEREST EXPENSE, NET                                                    
--------------------------------------------------------------------------------

    Interest expense of $1.0 million and $3.0 million for the three and nine
months ended August 31, 1997, respectively, and $1.0 million and $3.1 million
for the three and nine months ended August 31, 1996, respectively, was primarily
related to interest costs on the $50 million, 7 3/4% convertible subordinated
debentures due 2002 issued in December 1992.   Interest income decreased to
$75,000 and $366,000 for the three and nine months ended August 31, 1997,
respectively, compared to $0.5 million and $1.5 million in the comparable prior
year periods primarily as a result of decreased average cash balances.


                                          13
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES                                        
--------------------------------------------------------------------------------

    The following table sets forth certain information regarding the Company's
liquidity and capital resources:

                                              AUGUST 31,    NOVEMBER 30,
                                                1997           1996  
                                            -----------    ------------
                                               (DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS                    $    3,733     $   34,239
WORKING CAPITAL                                  19,867         46,467

OUTSTANDING LETTERS OF CREDIT                     9,688         26,467
CONVERTIBLE SUBORDINATED DEBENTURES              50,000         50,000 


                                        THREE MONTHS ENDED    NINE MONTHS ENDED
                                            AUGUST 31,            AUGUST 31, 
                                         ------------------    -----------------
                                          1997      1996        1997      1996
                                         -------   --------    -------    ------

AVERAGE DAILY SHORT-TERM BORROWINGS      $1,608     $  --        $678      $  3
WEIGHTED AVERAGE INTEREST RATES             8.8%       --%        9.2%      8.2%

    CASH AND CASH EQUIVALENTS  Cash and cash equivalent balances decreased by
$30.5 million from November 30, 1996 to a balance of $3.7 million at August 31,
1997 primarily due to $37.8 million in net cash used for operating activities
including the payment of certain restructuring costs of $9.1 million in the
first nine months of fiscal 1997.

    WORKING CAPITAL  Working capital decreased by $26.6 million to $19.9
million during the nine months ended August 31, 1997.  The decrease was
primarily due to the reduction in cash and cash equivalents that were used to
finance the Company's operating losses and due to a reduction in inventories.

    BORROWING FACILITIES  On May 21, 1997, the Company entered into a Loan and
Security Agreement (the "Agreement") with Congress Financial Corporation which
provides the Company with a new three-year revolving credit facility (the
"Revolving Facility") through May 2000, for loans and letters of credit. The
Revolving Facility replaces the Company's previous revolving credit facility
with BankAmerica Business Credit.

    The  Revolving Facility provides for maximum borrowings outstanding at any
time of the lesser of: (i) $40 million for aggregate loans and letters of
credit, or (ii) an amount equal to a borrowing base calculated on the Company's
eligible accounts receivable and inventory as defined under the Agreement. 
There is a $25 million sublimit for outstanding aggregate loans at any time. 
Loans bear interest at the publicly announced prime rate of CoreStates Bank,
N.A. plus 1/4% for up to $5 million of loans outstanding, and at such prime rate
plus 1/2% for loans outstanding in excess of $5 million. The Revolving Facility
is secured primarily by the Company's domestic assets . 
  
    As of August 31, 1997, there were cash borrowings amounting to $4.9 million
and approximately $9.7 million of letters of credit commitments outstanding
under the Revolving Facility, with $5.3 million available for borrowing.

    CONVERTIBLE SUBORDINATED DEBENTURES  The $50 million Debentures are
convertible into shares of the Company's Common Stock at a conversion rate of
$12.30 per share, and are redeemable by the Company at any time, initially at a
specified premium to par, declining to par for redemptions on or after November
30, 2000.


                                          14
<PAGE>

    SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK The Series B Cumulative
Convertible Preferred Stock, stated value $100 per share, accrues dividends at a
rate of 7 1/2% per annum, and is convertible into shares of the Company's Common
Stock at a conversion price of $6.75 per share.  The Company elected not to pay
cash dividends aggregating $6.7 million required on the Series B Cumulative
Convertible Preferred Stock due February 28, 1997 ($2.2 million), May 31, 1997
($2.2 million), and August 31, 1997 ($2.3 million).  The aggregate unpaid
dividends will bear additional dividends accruing at a rate of 8 5/8% per annum,
compounded quarterly, until all such arrearages are paid.

FUTURE OUTLOOK                                                           
--------------------------------------------------------------------------------

    The accompanying unaudited financial statements are presented on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  The unaudited financial
statements do not include any adjustments relating to the recoverability or
classification of the recorded asset amounts or the amount or classification of
liabilities or any other adjustments that might be necessary should the Company
be unable to continue as a going concern.

    The Company is facing a very difficult operating environment for the
foreseeable future.  On a comparative basis, it was expected that the Company's
order backlog would decline from year ago levels based on the actions taken in
connection with the 1996 restructuring plan to discontinue certain product
lines, to convert certain European subsidiaries into distributorships, and to
terminate the Company's Far East joint venture.  In addition, despite strong
sell-throughs for many of its products at key retail customers during the Fall
1997 Back-To-School period, the Company is experiencing a decline in its order
backlog below expected levels both in "at once" reorders and orders for future
delivery.  While comparative trends in backlog may not be indicative of future
shipments, the current backlog is being adversely affected by conditions
emerging in the marketplace which in turn will adversely affect the Company's
sales.

    Footwear trade publications have recently reported a significant decline in
consumer demand for athletic shoes.  As a result of this decline, certain of the
Company's key retail customers are over-stocked with products and are unable to
place the previously anticipated orders.  The decline in demand has also
resulted in significant quantities of excess wholesale inventories being offered
on an industry wide basis at severely discounted prices during the fourth
quarter of 1997.

    As a result of these conditions, the Company had a combined domestic and
international order backlog of $25.8 million on September 30, 1997, of which
$8.4 million is scheduled to ship in the October and November period and $12.9
million is scheduled to ship in the first quarter of fiscal 1998.  On September
30, 1996, the Company's backlog was $49.0 million, with $16.7 million scheduled
for shipment in the October and November period and $24.5 million scheduled for
shipment in the first quarter of 1997.  Consequently, the Company anticipates
that its sales in the fourth quarter will be significantly lower than previously
expected.  The impact of lower backlog for the first quarter of 1998 is not
presently determinable because it is too early to assess the overall impact and
timeframe that the current market conditions will have on future orders from the
retail trade.  

    Under the Company's credit facility with Congress, its borrowing base is
calculated based on the Company's eligible accounts receivable and inventories. 
Depending upon the outcome and the extent to which the current market conditions
affect the Company's operations for the foreseeable future, the possibility
arises that the borrowing base may not be sufficient to meet the Company's
liquidity requirements.

    Due to the continuing depressed operating results, management believes that
the operating cash flows may be inadequate to meet both its working capital
needs and its debt service obligations under the 7 3/4% Convertible Subordinated
Debentures (the "Debentures").  Accordingly, the Company may not make its
November 30, 1997 Debentures interest payment.  The nonpayment of interest,
after expiration of the thirty-day cure period, would constitute an "Event of
Default" (as defined in the Indenture applicable to the Debentures), and would
allow the holders of the Debentures to accelerate payment of the principal.  In
addition, under the terms of the Company's existing credit facility with
Congress, such nonpayment will result in an "Event of Default" at the end of
such 30 day period.


                                          15
<PAGE>

    In light of the foregoing, management is actively exploring various
alternatives, including a restructuring of its outstanding obligations,
additional financing and capital resources, the sale of certain assets, and
further reductions in operating expenses to address its current projected
liquidity shortfall.  The timing of the Company's efforts to address this
shortfall may be accelerated if Congress were to take the position that the
Company's current and projected circumstances are a material adverse change, and
thereby constitutes an event of default under the credit facility with Congress.
In such event, the Company would, among other things, be forced to negotiate a
waiver with Congress or secure alternative means of financing to meet its short
term working capital needs.

    The Company cannot predict the timing or outcome of the aforementioned
efforts of the Company, and there can be no assurance that any restructuring or
sale of assets will be consummated, or that the Company will obtain additional
financing or capital.  In such event, it may be necessary to consider other
restructuring alternatives, including the filing of a voluntary petition for
relief under chapter 11 of the United States Bankruptcy Code.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Certain statements in this report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. 
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.  Such factors include, among others, the following: general economic
and business conditions; the size and growth of the overall athletic footwear
market; changes in consumer preferences and demographics; competition; success
of operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or adherence to development
schedules; the existence of adverse publicity; new product development and
introduction; the loss of significant customers; availability, location and
terms of product distribution channels; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; business disruptions; the
ability to reverse recent trends that have caused reductions in market share and
substantial losses; continued access to licensed intellectual property rights;
continued access to adequate sources of product supply; risks associated with
unaffiliated manufacturers and international operations; and other factors
referenced in this report.  Given such uncertainties, shareholders are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such forward-looking statements to
reflect future events or developments.

    In addition, the Company has implemented several measures in fiscal 1996
and 1997 discussed elsewhere in this Form 10-Q in an effort to reorganize its
production and distribution structures and to reduce its overhead and other
costs.  The Company's ability to capitalize on these measures will depend in
large part on its ability to predict and quickly exploit fashion trends in the
footwear market and thereby attain its revenue and margin goals. The Company
believes that its business strategy for fiscal 1997 will better position it to
address changes in the marketplace and to build on its past successes in
offering branded footwear in the market.  However, if sales, margins and
operating expense savings in fiscal 1997 fall below management's expectations,
additional sources of working capital may be necessary and difficult to obtain. 
There can be no assurance that the Company will be able to successfully exploit
this strategy or that the strategy will have the desired effect.


                                          16
<PAGE>

                                           
                             PART II - OTHER INFORMATION
                                           
ITEM 1 -      LEGAL PROCEEDINGS

    -    Not applicable


ITEM 2 -      CHANGES IN SECURITIES

    -    Not applicable
     

ITEM 3 -      DEFAULTS UPON SENIOR SECURITIES

         The Series B Cumulative Convertible Preferred Stock, stated value $100
         per share, accrues dividends at a rate of 7 1/2% per annum, and is
         convertible into shares of the Company's Common Stock at a conversion
         price of $6.75 per share.  The Company elected not to pay cash
         dividends aggregating $6.7 million required on the Series B Cumulative
         Convertible Preferred Stock due February 28, 1997 ($2.2 million), May
         31, 1997 ($2.2 million) and August 31, 1997 ($2.3 million).  The
         aggregate unpaid dividends will bear additional dividends accruing at
         a rate of 8 5/8% per annum, compounded quarterly, until all such
         arrearages are paid.

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

    -    Not applicable.


ITEM 5 -      OTHER INFORMATION

    -    Not applicable


ITEM 6 -      EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits:

              27.1 Financial Data Schedule

    (b)  Reports on Form 8-K:

    -    Not applicable.


                                          17
<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



Dated: October 15, 1997                        L.A. GEAR, INC.



                                               By:  /s/ Bruce W. MacGregor  
                                                 -------------------------------

                                                    Bruce W. MacGregor
                                                    President and
                                                    Chief Operating Officer


                                               By:  /s/ D. Garn Anderson        
                                                 -------------------------------

                                                    D. Garn Anderson
                                                    Vice President - Finance


                                          18
<PAGE>

                                    EXHIBIT INDEX




Exhibit No.                       Document                      Page No.
-----------              ---------------------------             --------
    27                  Financial Data Schedule                    20


                                          19