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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

WASHINGTON, D.C.20549

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FORM10-Q

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934. |

For the quarterly period endedDecember  31,2006.

OR

|        |                                                                                         |
|--------|-----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934. |

For the transition period from                                    to                                    .

Commissionfile number 1-9169

BERNARD CHAUS,INC.

(Exact Name of Registrant as Specifiedin itsCharter)

|                                                             |  |  |                                       |
|-------------------------------------------------------------|--|--|---------------------------------------|
| NewYork                                                     |  |  | 13-2807386                            |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. employeridentificationnumber) |
| SeventhAvenue, New York, NewYork                            |  |  | 10018                                 |
| (Addressof Principal Executive Offices)                     |  |  | (ZipCode)                             |
|                                                             |

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

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(Former name, formeraddress and former fiscal year, if changed since lastreport)    

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

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of ‘‘accelerated filer and largeaccelerated filer’’ in Rule 12b-2 of the Exchange Act.(check one):

|                        |  |  |                   |  |  |                       |
|------------------------|--|--|-------------------|--|--|-----------------------|
| Largeaccelerated filer |  |  | Accelerated filer |  |  | Non-accelerated filer |
|                        |

Indicate bycheck mark whether the registrant is a shell company (as defined inrule 12b-2 of the Exchange Act).    Yes         No

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latestpracticabledate.

|                 |  |  |                              |  |  |                   |
|-----------------|--|--|------------------------------|--|--|-------------------|
| Date            |  |  | Class                        |  |  | SharesOutstanding |
| January31, 2007 |  |  | Common Stock, $0.01 parvalue |  |  | 37,509,254        |
|                 |

    

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INDEX

|                |  |  |                                                                                                               |  |        |      |  |        |  |
|----------------|--|--|---------------------------------------------------------------------------------------------------------------|--|--------|------|--|--------|--|
|           |  |  |                                                                                                          |  |        | PAGE |
| PARTI          |  |  | FINANCIALINFORMATION                                                                                          |  |        |      |  |   |  |
| Item1.         |  |  | CondensedConsolidated Financial Statements(Unaudited)                                                         |  |        |      |  |   |  |
|           |  |  | Condensed ConsolidatedBalance Sheets as of December  31,  2006, June30,  2006 and December  31,2005           |  |        |      |  | 3      |  |
|           |  |  | Condensed ConsolidatedStatements of Operations for the Three and  Six Months endedDecember  31,  2006 and2005 |  |        |      |  | 4      |  |
|           |  |  | Condensed ConsolidatedStatements of Cash Flows for the Six Months ended December31,  2006 and 2005            |  |        |      |  | 5      |  |
|           |  |  | Notes toCondensed Consolidated Financial Statements                                                           |  |        |      |  | 6      |  |
| Item 2.        |  |  | Management’sDiscussion and Analysis of Financial Condition and Results ofOperations                     |  |        |      |  | 11     |  |
| Item3.         |  |  | Quantitative and Qualitative Disclosures About MarketRisk                                                     |  |        |      |  | 16     |  |
| Item 4.        |  |  | ControlsandProcedures                                                                                         |  |        |      |  | 16     |  |
| PARTII         |  |  | OTHERINFORMATION                                                                                              |  |        |      |  |   |  |
| Item4.         |  |  | Submission of Matters to Vote of SecurityHolders                                                              |  |        |      |  | 17     |  |
| Item6.         |  |  | Exhibits                                                                                                      |  |        |      |  | 18     |  |
| SIGNATURES     |  |  |                                                                                                               |  | 19     |      |
| CERTIFICATIONS |  |  |                                                                                                               |  |   |      |
|                |

2

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PARTI — FINANCIAL INFORMATION

Item1.    Financial Statements

BERNARD CHAUS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Inthousands, except number of shares and per share amounts)

|                                                                                                                                                                                           |  |  |                  |   |          |               |  |  |                  |   |          |   |  |  |  |   |          |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|------------------|---|----------|---------------|--|--|------------------|---|----------|---|--|--|--|---|----------|---|
|                                                                                                                                                                                      |  |  | December31, 2006 |   |          | June 30, 2006 |  |  | December 31,2005 |
|                                                                                                                                                                                      |  |  | (Unaudited)      |   |          | (*)           |  |  | (Unaudited)      |
| Assets                                                                                                                                                                                    |  |  |                  |   |     |               |  |  |                  |   |     |   |  |  |  |   |     |   |
| CurrentAssets                                                                                                                                                                             |  |  |                  |   |     |               |  |  |                  |   |     |   |  |  |  |   |     |   |
| Cash andcash equivalents                                                                                                                                                                  |  |  |                  | $ | 81       |               |  |  |                  | $ | 120      |   |  |  |  | $ | 3,626    |   |
| Accountsreceivable –net                                                                                                                                                             |  |  |                  |   | 24,474   |               |  |  |                  |   | 21,864   |   |  |  |  |   | 14,086   |   |
| Accountsreceivable – due fromfactor                                                                                                                                                 |  |  |                  |   | 1,305    |               |  |  |                  |   | 1,390    |   |  |  |  |   | 814      |   |
| Inventories–net                                                                                                                                                                     |  |  |                  |   | 10,789   |               |  |  |                  |   | 9,139    |   |  |  |  |   | 10,932   |   |
| Prepaidexpenses and other currentassets                                                                                                                                                   |  |  |                  |   | 850      |               |  |  |                  |   | 643      |   |  |  |  |   | 641      |   |
| Totalcurrentassets                                                                                                                                                                        |  |  |                  |   | 37,499   |               |  |  |                  |   | 33,156   |   |  |  |  |   | 30,099   |   |
| Fixedassets –net                                                                                                                                                                    |  |  |                  |   | 3,121    |               |  |  |                  |   | 3,154    |   |  |  |  |   | 3,289    |   |
| Otherassets – net                                                                                                                                                                   |  |  |                  |   | 336      |               |  |  |                  |   | 347      |   |  |  |  |   | 350      |   |
| Trademarks                                                                                                                                                                                |  |  |                  |   | 1,000    |               |  |  |                  |   | 1,000    |   |  |  |  |   | 1,000    |   |
| Goodwill                                                                                                                                                                                  |  |  |                  |   | 2,257    |               |  |  |                  |   | 2,257    |   |  |  |  |   | 2,257    |   |
| Totalassets                                                                                                                                                                               |  |  |                  | $ | 44,213   |               |  |  |                  | $ | 39,914   |   |  |  |  | $ | 36,995   |   |
| Liabilitiesand Stockholders’Equity                                                                                                                                                  |  |  |                  |   |     |               |  |  |                  |   |     |   |  |  |  |   |     |   |
| CurrentLiabilities                                                                                                                                                                        |  |  |                  |   |     |               |  |  |                  |   |     |   |  |  |  |   |     |   |
| Revolvingcreditborrowings                                                                                                                                                                 |  |  |                  | $ | 4,856    |               |  |  |                  | $ | 2,379    |   |  |  |  | $ | —  |   |
| Accountspayable                                                                                                                                                                           |  |  |                  |   | 8,378    |               |  |  |                  |   | 9,304    |   |  |  |  |   | 8,740    |   |
| Accruedexpenses                                                                                                                                                                           |  |  |                  |   | 4,979    |               |  |  |                  |   | 3,841    |   |  |  |  |   | 3,062    |   |
| Termloan – current                                                                                                                                                                  |  |  |                  |   | 1,700    |               |  |  |                  |   | 1,700    |   |  |  |  |   | 1,700    |   |
| Totalcurrentliabilities                                                                                                                                                                   |  |  |                  |   | 19,913   |               |  |  |                  |   | 17,224   |   |  |  |  |   | 13,502   |   |
| Termloan                                                                                                                                                                                  |  |  |                  |   | 3,075    |               |  |  |                  |   | 3,925    |   |  |  |  |   | 4,775    |   |
| Longtermliabilities                                                                                                                                                                       |  |  |                  |   | 546      |               |  |  |                  |   | 660      |   |  |  |  |   | 884      |   |
| Deferredincometaxes                                                                                                                                                                       |  |  |                  |   | 328      |               |  |  |                  |   | 282      |   |  |  |  |   | 223      |   |
| Totalliabilities                                                                                                                                                                          |  |  |                  |   | 23,862   |               |  |  |                  |   | 22,091   |   |  |  |  |   | 19,384   |   |
| Stockholders’Equity                                                                                                                                                                 |  |  |                  |   |     |               |  |  |                  |   |     |   |  |  |  |   |     |   |
| Preferredstock, $.01 par value, authorized shares – 1,000,000; issued andoutstanding shares –none                                                                             |  |  |                  |   | —  |               |  |  |                  |   | —  |   |  |  |  |   | —  |   |
| Commonstock, $.01 par value, authorized shares – 50,000,000; issuedshares – 37,571,541 at December  31,  2006,37,590,085 at June  30,  2006 and 37,594,196 at December31,2005 |  |  |                  |   | 376      |               |  |  |                  |   | 376      |   |  |  |  |   | 376      |   |
| Additionalpaid-incapital                                                                                                                                                                  |  |  |                  |   | 133,468  |               |  |  |                  |   | 133,449  |   |  |  |  |   | 133,352  |   |
| Deficit                                                                                                                                                                                   |  |  |                  |   | (111,552 | )             |  |  |                  |   | (114,061 | ) |  |  |  |   | (113,962 | ) |
| Accumulatedother comprehensiveloss                                                                                                                                                        |  |  |                  |   | (461     | )             |  |  |                  |   | (461     | ) |  |  |  |   | (675     | ) |
| Less:Treasury stock at cost – 62,270 shares at December  31,2006, June 30, 2006 and December  31,2005                                                                               |  |  |                  |   | (1,480   | )             |  |  |                  |   | (1,480   | ) |  |  |  |   | (1,480   | ) |
| Totalstockholders’equity                                                                                                                                                            |  |  |                  |   | 20,351   |               |  |  |                  |   | 17,823   |   |  |  |  |   | 17,611   |   |
| Totalliabilities and stockholders’equity                                                                                                                                            |  |  |                  | $ | 44,213   |               |  |  |                  | $ | 39,914   |   |  |  |  | $ | 36,995   |   |
|                                                                                                                                                                                           |

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|   |                                                            |
|---|------------------------------------------------------------|
| * | Derivedfrom audited financial statements at June  30,2006. |

See accompanying notes to condensed consolidatedfinancial statements.

3

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BERNARD CHAUS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except number of shares and per shareamounts)

|                                                                                          |  |  |                           |   |            |                         |  |  |                 |   |            |                   |  |  |  |   |            |  |  |  |  |   |            |   |
|------------------------------------------------------------------------------------------|--|--|---------------------------|---|------------|-------------------------|--|--|-----------------|---|------------|-------------------|--|--|--|---|------------|--|--|--|--|---|------------|---|
|                                                                                     |  |  | Forthe Three Months Ended |   |            | For the Six MonthsEnded |
|                                                                                     |  |  | December31,2006           |   |            | December 31,2005        |  |  | December31,2006 |   |            | December  31,2005 |
|                                                                                     |  |  | (Unaudited)               |   |            | (Unaudited)             |
| Netrevenue                                                                               |  |  |                           | $ | 39,387     |                         |  |  |                 | $ | 23,002     |                   |  |  |  | $ | 78,896     |  |  |  |  | $ | 60,720     |   |
| Costof goodssold                                                                         |  |  |                           |   | 27,552     |                         |  |  |                 |   | 18,228     |                   |  |  |  |   | 55,030     |  |  |  |  |   | 45,362     |   |
| Grossprofit                                                                              |  |  |                           |   | 11,835     |                         |  |  |                 |   | 4,774      |                   |  |  |  |   | 23,866     |  |  |  |  |   | 15,358     |   |
| Selling,general and administrativeexpenses                                               |  |  |                           |   | 10,236     |                         |  |  |                 |   | 9,405      |                   |  |  |  |   | 20,666     |  |  |  |  |   | 19,634     |   |
| Income(loss) fromoperations                                                              |  |  |                           |   | 1,599      |                         |  |  |                 |   | (4,631     | )                 |  |  |  |   | 3,200      |  |  |  |  |   | (4,276     | ) |
| Interestexpense,net                                                                      |  |  |                           |   | 270        |                         |  |  |                 |   | 194        |                   |  |  |  |   | 542        |  |  |  |  |   | 424        |   |
| Income(loss) before income tax provision                                                 |  |  |                           |   | 1,329      |                         |  |  |                 |   | (4,825     | )                 |  |  |  |   | 2,658      |  |  |  |  |   | (4,700     | ) |
| Incometax provision                                                                      |  |  |                           |   | 64         |                         |  |  |                 |   | 46         |                   |  |  |  |   | 149        |  |  |  |  |   | 75         |   |
| Netincome(loss)                                                                          |  |  |                           | $ | 1,265      |                         |  |  |                 | $ | (4,871     | )                 |  |  |  | $ | 2,509      |  |  |  |  | $ | (4,775     | ) |
| Basicearnings (loss) pershare                                                            |  |  |                           | $ | 0.03       |                         |  |  |                 | $ | (0.13      | )                 |  |  |  | $ | 0.07       |  |  |  |  | $ | (0.13      | ) |
| Dilutedearnings (loss) pershare                                                          |  |  |                           | $ | 0.03       |                         |  |  |                 | $ | (0.13      | )                 |  |  |  | $ | 0.07       |  |  |  |  | $ | (0.13      | ) |
| Weightedaverage number of common shares outstanding –basic                         |  |  |                           |   | 37,509,000 |                         |  |  |                 |   | 37,025,000 |                   |  |  |  |   | 37,513,000 |  |  |  |  |   | 36,513,000 |   |
| Weightedaverage number of common and common equivalent shares outstanding– diluted |  |  |                           |   | 37,971,000 |                         |  |  |                 |   | 37,025,000 |                   |  |  |  |   | 37,946,000 |  |  |  |  |   | 36,513,000 |   |
|                                                                                          |

Seeaccompanying notes to condensed consolidated financialstatements.

4

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BERNARD CHAUS, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS(Inthousands)

|                                                                                    |  |  |                        |   |         |                   |  |  |  |   |         |   |
|------------------------------------------------------------------------------------|--|--|------------------------|---|---------|-------------------|--|--|--|---|---------|---|
|                                                                               |  |  | Forthe Six MonthsEnded |
|                                                                               |  |  | December31, 2006       |   |         | December 31, 2005 |
|                                                                               |  |  | (Unaudited)            |
| OperatingActivities                                                                |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Net income(loss)                                                                   |  |  |                        | $ | 2,509   |                   |  |  |  | $ | (4,775  | ) |
| Adjustmentsto reconcile net income (loss) to net cash used in operatingactivities: |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Depreciationandamortization                                                        |  |  |                        |   | 611     |                   |  |  |  |   | 599     |   |
| Stockcompensation expense                                                          |  |  |                        |   | 36      |                   |  |  |  |   | 98      |   |
| Deferred incometaxes                                                               |  |  |                        |   | 45      |                   |  |  |  |   | 44      |   |
| Changes inoperating assets andliabilities:                                         |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Accountsreceivable                                                                 |  |  |                        |   | (2,610  | )                 |  |  |  |   | 2,245   |   |
| Accountsreceivable due fromfactor                                                  |  |  |                        |   | 85      |                   |  |  |  |   | 875     |   |
| Inventories                                                                        |  |  |                        |   | (1,650  | )                 |  |  |  |   | (265    | ) |
| Prepaidexpenses and other currentassets                                            |  |  |                        |   | (216    | )                 |  |  |  |   | 251     |   |
| Accountspayable                                                                    |  |  |                        |   | (926    | )                 |  |  |  |   | (739    | ) |
| Accruedexpenses and long termliabilities                                           |  |  |                        |   | 1,025   |                   |  |  |  |   | (1,730  | ) |
| NetCash Used In OperatingActivities                                                |  |  |                        |   | (1,091  | )                 |  |  |  |   | (3,397  | ) |
| InvestingActivities                                                                |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Purchases offixedassets                                                            |  |  |                        |   | (558    | )                 |  |  |  |   | (508    | ) |
| CashUsed In InvestingActivities                                                    |  |  |                        |   | (558    | )                 |  |  |  |   | (508    | ) |
| FinancingActivities                                                                |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Net proceedsfrom revolving creditborrowings                                        |  |  |                        |   | 2,477   |                   |  |  |  |   | — |   |
| Principalpayments on termloan                                                      |  |  |                        |   | (850    | )                 |  |  |  |   | (850    | ) |
| Repurchasesand retirement of CommonStock                                           |  |  |                        |   | (17     | )                 |  |  |  |   | (17     | ) |
| Net proceedsfrom issuance of stock                                                 |  |  |                        |   | — |                   |  |  |  |   | 666     |   |
| Netcash provided by (used in) financingactivities                                  |  |  |                        |   | 1,610   |                   |  |  |  |   | (201    | ) |
| Decreasein cash and cashequivalents                                                |  |  |                        |   | (39     | )                 |  |  |  |   | (4,106  | ) |
| Cashand cash equivalents, beginning ofperiod                                       |  |  |                        |   | 120     |                   |  |  |  |   | 7,732   |   |
| Cashand cash equivalents, end ofperiod                                             |  |  |                        | $ | 81      |                   |  |  |  | $ | 3,626   |   |
| SupplementalDisclosure of Cash FlowInformation:                                    |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Cash paidfor:                                                                      |  |  |                        |   |    |                   |  |  |  |   |    |   |
| Taxes                                                                              |  |  |                        | $ | 35      |                   |  |  |  | $ | 35      |   |
| Interest                                                                           |  |  |                        | $ | 525     |                   |  |  |  | $ | 388     |   |
|                                                                                    |

Seeaccompanying notes to condensed consolidated financialstatements.

5

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BERNARDCHAUS, INC. ANDSUBSIDIARIES

NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)SixMonths Ended December 31, 2006 and December 31,2005

1.    Business and Summary of Significant AccountingPolicies

Business:

Bernard Chaus, Inc. (the‘‘Company’’ or‘‘Chaus’’) designs, arranges for themanufacture of and markets an extensive    range of women’scareer and casual sportswear principally under the JOSEPHINECHAUS® COLLECTION, JOSEPHINE CHAUS®SPORT, CHAUS®, CYNTHIA STEFFE®, andCYNTHIA CYNTHIA STEFFE®, trademarks and under privatelabel brand names. The Company’s products are sold nationwidethrough department store chains, specialty retailers and other retailoutlets. The Company has positioned its JOSEPHINE CHAUS product linesold through department store channels into the opening price points ofthe ‘‘better’’ category. In November2002, the Company acquired certain assets of S.L. Danielle, Inc.(‘‘SL Danielle’’). SL Danielle designs,arranges for the manufacture of and markets women’s moderatelypriced clothing. In January  2004, the Company acquired certainassets of the Cynthia Steffe division of LF Brands Marketing, Inc.,including inventory and intellectual property. In connection with suchacquisition, the Company also acquired all the Cynthia Steffetrademarks from Cynthia Steffe. The Cynthia Steffe business designs,arranges for the manufacture of, markets and sells an upscale modernwomen’s apparel line, under the Cynthia Steffe trademarks. InJune  2005 the Company signed a licensing agreement with KennethCole Productions, Inc. to manufacture and sell women’ssportswear under the Kenneth Cole  Reaction®label. In December  2005, the Company began shipping productsbearing the Kenneth Cole Reaction label primarily to retail departmentstores. These Kenneth Cole Reaction products offer high-qualityfabrications and styling at ‘‘better’’price points. As used herein, fiscal 2007 refers to the fiscal yearended June  30,  2007, fiscal 2006 refers to the fiscalyear ended June  30,  2006 and fiscal 2005 refers to thefiscal year ended June  30,  2005.

Basis ofPresentation:

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America(‘‘generally accepted accountingprinciples’’) for interim financial information and withthe instructions to Form  10-Q and Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for afair presentation have been included. Operating results for the threeand six months ended December  31,  2006 are notnecessarily indicative of the results that may be expected for the yearending June  30,  2007 (‘‘fiscal2007’’) or any other period. The balance sheet atJune  30,  2006 has been derived from the audited financialstatements at that date. For further information, refer to thefinancial statements and footnotes thereto included in theCompany’s Annual Report on Form 10-K for the year endedJune  30,  2006.

Principles ofConsolidation:

The consolidated financial statements include theaccounts of the Company and its subsidiaries. Intercompany accounts andtransactions have been eliminated.

Use of Estimates:

Thepreparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differfrom those estimates.

6

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BERNARDCHAUS, INC. ANDSUBSIDIARIES

Revenue Recognition:

The Companyrecognizes sales upon shipment of products to customers since title andrisk of loss passes upon shipment. Provisions for estimateduncollectible accounts, discounts and returns and allowances areprovided when sales are recorded based upon historical experience andcurrent trends. While such amounts have been within expectations andthe provisions established, the Company cannot guarantee that it willcontinue to experience the same rates as in the past.

CreditTerms:

The Company extends credit to its customers, other thancustomers of Cynthia Steffe Acquisition, LLC (‘‘CSAcquisition’’) based upon an evaluation of thecustomer’s financial condition and credit history. CS Acquisitionextends credit to the majority of its customers through a factoringagreement with The CIT Group/Commercial Services, Inc.(‘‘CIT’’). Under the factoring arrangement,the Company receives payment from CIT as of the earlier of: a) the datethat CIT has been paid by the Company’s customers; b) the date ofthe customer’s longest maturity if the customer is in abankruptcy or insolvency proceeding; or c) the last day of the thirdmonth following the customer’s longest maturity date if thereceivable remains unpaid. CIT assumes only the risk of theCompany’s customers’ insolvency or non-payment. All otherreceivable risks for customer deductions that reduce the customerreceivable balances are retained by the Company, including, but notlimited to, allowable customer markdowns, operational chargebacks,disputes, discounts, and returns. As of December  31,  2006approximately 95% of the Company’s accounts receivablewas non-factored.

Accounts Receivable:

AccountsReceivable are net of allowances and anticipated discounts. Anallowance for doubtful accounts is determined through analysis of theaging of accounts receivable at the date of the financial statements,assessments of collectibility based on historical trends and anevaluation of the impact of economic conditions. This amount is notsignificant primarily due to the Company’s history of minimalbad debts. An allowance for discounts is based on those discountsrelating to open invoices where trade discounts have been extended tocustomers. Costs associated with potential returns of products as wellas allowable customer markdowns and operational charge backs, net ofexpected recoveries, are included as a reduction to net revenue and arepart of the provision for allowances included in Accounts Receivable.These provisions result from seasonal negotiations as well as historicdeduction trends, net expected recoveries and the evaluation of currentmarket conditions. As of December  31,  2006, June30,  2006 and December  31,  2005, AccountsReceivable was net of allowances of $4.2  million, $2.7million and $2.6  million,respectively.

Inventories:

Inventories are stated at thelower of cost or market, cost being determined on the first-in,first-out method. The majority of the Company’s inventorypurchases are shipped FOB shipping point from the Company’ssuppliers. The Company takes title and assumes the risk of loss whenthe merchandise is received at the boat or airplane overseas. TheCompany records inventory at the point of such receipt at the boat orairplane overseas. Reserves for slow moving and aged merchandise areprovided to writedown inventory costs to net realizable value based onhistorical experience and current product demand. Inventory reserveswere $1.2  million at December  31,  2006,$1.4  million at June  30,  2006, and $1.6million at December  31,  2005. Inventory reserves arebased upon the level of excess and aged inventory and theCompany’s estimated recoveries on the sale of the inventory.While markdowns have been within expectations and the provisionsestablished, the Company cannot guarantee that it will continue toexperience the same level of markdowns as in the past.

Cash andCash Equivalents:

All highly liquid investments with an originalmaturity of three months or less at the date of purchase are classifiedas cash equivalents.

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BERNARDCHAUS, INC. ANDSUBSIDIARIES

Income Taxes:

The Company accountsfor income taxes under the asset and liability method in accordancewith Statement of Financial Accounting Standards(‘‘SFAS’’) No. 109, Accounting for IncomeTaxes. Deferred income taxes reflect the future tax consequences ofdifferences between the tax bases of assets and liabilities and theirfinancial reporting amounts at year-end. The Company periodicallyreviews its historical and projected taxable income and considersavailable information and evidence to determine if it is more likelythan not that a portion of the deferred tax assets will be realized. Avaluation allowance is established to reduce the deferred tax assets tothe amount that is more likely than not to be realized. As ofDecember  31,  2006, June  30,  2006 andDecember  31,  2005, based upon its evaluation, ofhistorical and projected results of operation and the current businessenvironment, the Company recorded a full valuation allowance on itsdeferred tax assets. If the Company determines that it is more likelythan not that a portion of the deferred tax assets will be realized inthe future, that portion of the valuation allowance will be reduced andthe Company will provide for an income tax benefit in its Statement ofIncome at its estimated effective tax rate.

The Company hasprovided a deferred tax liability on the temporary differencesassociated with its indefinite-lived intangibles. The Company’sindefinite-lived intangibles are not amortized for book purposes. Asthe Company continues to amortize these intangible assets for taxpurposes, it will provide a deferred tax liability on a temporarydifference. The temporary difference will not reverse until such timeas the assets are impaired or sold therefore the likelihood of beingoffset by the company’s net operation loss carryfoward isuncertain. There were no sales or impairments during all periodspresented.

Stock-based Compensation:

The Company has aStock Option Plan and accounts for the plan under SFAS No. 123 (revised2004), ‘‘Share Based Payment’’(‘‘SFAS No. 123R’’) which requirescompanies to recognize the cost of employee services received inexchange for awards of equity instruments, based on the grant date fairvalue of those awards, in the financial statements.

EarningsPer Share:

Basic earnings (loss) per share have been computedby dividing the applicable net income (loss) by the weighted averagenumber of common shares outstanding. Diluted earnings per share hasbeen computed for the three and six months ended December31,  2006 by dividing the applicable net income by the weightedaverage number of common shares outstanding and common equivalents.Potentially dilutive shares of 0.4  million and 0.6million were not included in the calculation of diluted net loss pershare for the three and six months ended December  31,2005,respectively, as their inclusion would be antidilutive.

|                                                                            |  |  |                           |  |      |                         |  |  |             |  |         |             |  |  |  |  |      |  |  |  |  |  |         |  |
|----------------------------------------------------------------------------|--|--|---------------------------|--|------|-------------------------|--|--|-------------|--|---------|-------------|--|--|--|--|------|--|--|--|--|--|---------|--|
|                                                                       |  |  | Forthe Three Months Ended |  |      | For the Six MonthsEnded |
|                                                                       |  |  | December31,               |  |      | December  31,           |  |  | December31, |  |         | December31, |
| Denominator forearnings per share (inmillions)                             |  |  | 2006                      |  |      | 2005                    |  |  | 2006        |  |         | 2005        |
| Denominatorfor basic earnings per share weighted-average sharesoutstanding |  |  |                           |  | 37.5 |                         |  |  |             |  | 37.0    |             |  |  |  |  | 37.5 |  |  |  |  |  | 36.5    |  |
| Assumedexercise of potential commonshares                                  |  |  |                           |  | 0.5  |                         |  |  |             |  | — |             |  |  |  |  | 0.4  |  |  |  |  |  | — |  |
| Denominatorfor diluted earnings pershare                                   |  |  |                           |  | 38.0 |                         |  |  |             |  | 37.0    |             |  |  |  |  | 37.9 |  |  |  |  |  | 36.5    |  |
|                                                                            |

Newaccounting pronouncements:

In September  2006, theFinancial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 158, Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans, an Amendment of FASBStatements No. 87, 106, and 132(R) (‘‘SFAS No.158’’). 

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BERNARDCHAUS, INC. ANDSUBSIDIARIES

SFAS No. 158 requires an employer to recognizethe overfunded or underfunded status of a defined benefitpostretirement plan as an asset or liability in its statement offinancial position and to recognize changes in that funded status inthe year in which the changes occur through comprehensive income. SFASNo. 158 also requires employers to measure the funded status of a planas of the date of its year-end statement of financial position. Apublic company is required to initially recognize the funded status ofa defined benefit postretirement plan and to provide the requireddisclosures as of the end of the fiscal year ending afterDecember  15,  2006. The requirement to account for planassets and benefit obligations as of the date of the employer’sfiscal year-end is effective for fiscal years ending afterDecember  15,  2008. Earlier application of the recognitionor measurement date provisions is encouraged. Retrospective applicationis not permitted. The Company is currently evaluating the effect ofSFAS No. 158 but does not believe that it will have a material effecton its financial statements.

2.    Inventories –net

|                 |      |  |             |      |         |               |      |  |             |   |       |  |  |  |  |   |        |  |
|-----------------|------|--|-------------|------|---------|---------------|------|--|-------------|---|-------|--|--|--|--|---|--------|--|
|            |      |  | December31, |      |         | June  30,     |      |  | December31, |
|                 | 2006 |  |             | 2006 |         |               | 2005 |
|            |      |  | (unaudited) |      |         | (inthousands) |      |  | (unaudited) |
| Rawmaterials    |      |  |             | $    | 2,022   |               |      |  |             | $ | 534   |  |  |  |  | $ | 2,322  |  |
| Work-in-process |      |  |             |      | — |               |      |  |             |   | 101   |  |  |  |  |   | 273    |  |
| Finishedgoods   |      |  |             |      | 8,767   |               |      |  |             |   | 8,504 |  |  |  |  |   | 8,337  |  |
| Total           |      |  |             | $    | 10,789  |               |      |  |             | $ | 9,139 |  |  |  |  | $ | 10,932 |  |
|                 |

Inventoriesare stated at the lower of cost, using the first in first-out (FIFO)method, or market. Included in finished goods inventories ismerchandise in transit of approximately $4.1  million atDecember  31,  2006, $6.5  million at June30,  2006 and $4.9  million at December  31,2005.

3.    Financing Agreements

The Company has afinancing agreement (the ‘‘FinancingAgreement’’) with The CIT Group/Commercial Services, Inc.(‘‘CIT’’) which provides the Company with a$40  million revolving line of credit (the‘‘Revolving Facility’’) with a $25million sublimit for letters of credit, and a term loan (the‘‘Term Loan’’).

At the option of theCompany, the Revolving Facility and the Term Loan each may bearinterest either at the JP Morgan Chase Bank Rate (‘‘PrimeRate’’) or the London Interbank Offered Rate(‘‘LIBOR’’). If the Company chooses thePrime Rate, the interest (i) on the Revolving Facility accrues at arate of 1⁄2 of 1% above the Prime Rate (ii) onthe Term Loan accrues at a rate of 1% above the Prime Rate. Ifthe Company chooses LIBOR, the interest (i) on the Revolving Facilityaccrues at a rate of 23⁄4% above LIBOR (ii) onthe Term Loan accrues at a rate of 33⁄4% aboveLIBOR. The Company has elected the Prime Rate option from the inceptionof the financing agreement through December  31,  2006.Each of the foregoing interest rates is subject to an annual upward ordownward adjustment by 1⁄4 of 1%, commencingwith the month following delivery of the Company’sconsolidated financial statements to CIT for fiscal 2007 based upon theCompany’s borrowing availability, fixed charge coverage ratioand leverage ratio as in effect at each such adjustment period. Theinterest rate as of December  31,  2006 on the RevolvingFacility was 8.75% and on the Term Loan was9.25%.

The Term loan is paid down in quarterlyinstallments of $425,000 with a balloon payment of $1.8  milliondue on October  1,  2008. The Company’s obligationsunder the Financing Agreement are secured by a first priority lien onsubstantially all of the Company’s assets, including theCompany’s accounts receivable, inventory, intangibles,equipment, and trademarks, and a pledge of the Company’s equityinterest in its subsidiaries.

The Financing Agreement containsnumerous financial and operational covenants, including limitations onadditional indebtedness, liens, dividends, stock repurchases andcapital expenditures. In 

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BERNARDCHAUS, INC. ANDSUBSIDIARIES

addition, the Company is required to maintain(i) specified levels of tangible net worth, (ii) minimum EBITDA(earnings before interest, taxes, depreciation and amortization),(iii)certain fixed charge coverage ratios, (iv) certain leverageratios, and (v) specified levels of minimum borrowing availabilityunder the Revolving Facility. At December  31,  2006, theCompany was in compliance with all of its covenants. In the event ofthe early termination by the Company of the Financing Agreement, theCompany will be liable for termination fees of $150,000 if terminationoccurs prior to November  11, 2007. The Company may prepay at anytime, in whole or in part, the Term Loan without penalty. Theexpiration of the Financing Agreement is October  1,2008.

On September  21,  2006, the Company and CITagreed to amend the Financing Agreement to modify the financialcovenants to be consistent with the Company’s latest businessplan for fiscal 2007.

On December  31,  2006, theCompany had $3.7  million of outstanding letters of credit underthe Revolving Facility, total availability of approximately$19.6  million under the Amended Financing Agreement, a balanceof $4.8  million on the Term Loan and $4.9  million inrevolving credit borrowings. On December  31,  2005, theCompany had $4.1  million of outstanding letters of credit underthe Revolving Facility, total availability of approximately$15.9  million under the Amended Financing Agreement, a balanceof $6.5  million on the Term Loan and no revolving creditborrowings. At June  30,  2006, the Company had $5.1million of outstanding letters of credit, total availability ofapproximately $16.6  million, a balance of $5.6  million onthe Term Loan and $2.4  million on the revolving creditborrowings.

Factoring Agreement

One of theCompany’s subsidiaries, CS Acquisition has a factoring agreementwith CIT which provides for a factoring commission equal to 6/10 of1% of the gross face amount of all accounts factored by CIT upto $10  million ratably declining to a commission between..55% and .45% of the gross amount of the factoredreceivables in excess of $10  million. Such agreement has anannual minimum factoring fee of $50,000. The Factoring Agreementexpires on March  31,  2007. The Company is obligated topay to CIT a collateral management fee of $5,000 a month.

4.    Pension Plan

Components of Net Periodic BenefitCost

|                              |  |  |                           |   |     |                         |  |  |               |   |     |             |  |  |  |   |     |   |  |  |  |   |     |   |
|------------------------------|--|--|---------------------------|---|-----|-------------------------|--|--|---------------|---|-----|-------------|--|--|--|---|-----|---|--|--|--|---|-----|---|
|                         |  |  | PensionPlan               |   |     | PensionPlan             |
|                         |  |  | For theThree Months Ended |   |     | For the Six MonthsEnded |
|                         |  |  | December31,               |   |     | December31,             |  |  | December  31, |   |     | December31, |
|                         |  |  | 2006                      |   |     | 2005                    |  |  | 2006          |   |     | 2005        |
|                         |  |  | (Unaudited)               |   |     | (Unaudited)             |
|                         |  |  | (InThousands)             |   |     | (In Thousands)          |
| Servicecost                  |  |  |                           | $ | 7   |                         |  |  |               | $ | 8   |             |  |  |  | $ | 13  |   |  |  |  | $ | 16  |   |
| Interestcost                 |  |  |                           |   | 26  |                         |  |  |               |   | 24  |             |  |  |  |   | 52  |   |  |  |  |   | 48  |   |
| Expectedreturn on planassets |  |  |                           |   | (29 | )                       |  |  |               |   | (26 | )           |  |  |  |   | (58 | ) |  |  |  |   | (52 | ) |
| Amortizationof netloss       |  |  |                           |   | 8   |                         |  |  |               |   | 6   |             |  |  |  |   | 15  |   |  |  |  |   | 12  |   |
| Netperiodic benefitcost      |  |  |                           | $ | 12  |                         |  |  |               | $ | 12  |             |  |  |  | $ | 22  |   |  |  |  | $ | 24  |   |
|                              |

EmployerContributions

For the six months ended December31,  2006 the Company’s contribution to the pension planwas $87,000. The Company anticipates no additional contributions tofund its pension plan in fiscal2007.

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BERNARDCHAUS, INC. AND SUBSIDIARIES

Item2.    Management’s Discussion and Analysis of FinancialCondition and Results ofOperations

Overview

The Company has expandedits product mix over the past few years mainly through its acquisitionof S.L. Danielle and Cynthia Steffe. In November 2002, the Companyacquired certain assets of S.L. Danielle. S.L. Danielle designs,arranges for the manufacture of, markets and sells moderately pricedwomen’s apparel lines. In January  2004, the Companypurchased certain assets of the Cynthia Steffe, a division of LF BrandsMarketing, Inc., including inventory and intellectual property. Inconnection with the acquisition, the Company also acquired all theCynthia Steffe trademarks from Cynthia Steffe. The Cynthia Steffebusiness designs, arranges for the manufacture of, markets and sells anupscale modern women apparel line, under the Cynthia Steffe trademarks.In June  2005, the Company signed a licensing agreement withKenneth Cole Productions, Inc. to manufacture and sell women’ssportswear under the Kenneth Cole Reaction® label. InDecember  2005, the Company began shipping products bearing theKenneth Cole Reaction label primarily to retail department stores. TheCompany is targeting increased doors for the new line with its existingcustomers and additional retail department stores. These Kenneth ColeReaction products offer high-quality fabrications and styling at‘‘better’’ price points.

Resultsof Operations

The following table sets forth, for theperiods indicated, certain items expressed as a percentage of netrevenue.

|                                            |  |  |                           |  |       |                         |  |  |                 |  |             |                 |  |  |  |  |       |   |  |  |  |  |            |   |
|--------------------------------------------|--|--|---------------------------|--|-------|-------------------------|--|--|-----------------|--|-------------|-----------------|--|--|--|--|-------|---|--|--|--|--|------------|---|
|                                       |  |  | Forthe Three Months Ended |  |       | For the Six MonthsEnded |
|                                       |  |  | December31,2006           |  |       | December31,2005         |  |  | December31,2006 |  |             | December31,2005 |
| NetRevenue                                 |  |  |                           |  | 100.0 | %                       |  |  |                 |  | 100.0       | %               |  |  |  |  | 100.0 | % |  |  |  |  | 100.0      | % |
| GrossProfit                                |  |  |                           |  | 30.0  | %                       |  |  |                 |  | 20.8        | %               |  |  |  |  | 30.2  | % |  |  |  |  | 25.3       | % |
| Selling,general and administrativeexpenses |  |  |                           |  | 26.0  | %                       |  |  |                 |  | 40.9        | %               |  |  |  |  | 26.2  | % |  |  |  |  | 32.3       | % |
| Interestexpense                            |  |  |                           |  | 0.7   | %                       |  |  |                 |  | 0.8         | %               |  |  |  |  | 0.7   | % |  |  |  |  | 0.7        | % |
| NetIncome(Loss)                            |  |  |                           |  | 3.2   | %                       |  |  |                 |  | −21.2 | %               |  |  |  |  | 3.2   | % |  |  |  |  | −7.9 | % |
|                                            |

Netrevenues for the quarter ended December  31,  2006increased by 71.2%, or $16.4  million, to $39.4million from $23.0  million for the quarter ended December31,  2005. Units sold increased from 1.6  million to2.5  million or approximately 56% and the overall priceper unit increased from $14.50 to $15.50 or approximately 7%.The Company’s revenues increased primarily due to an increase inrevenues in the Company’s private label and licensed productlines ($7.5  million), the Company’s Chaus product lines($7.8  million) and the Company’s Cynthia Steffe productlines ($1.0  million). The increase in the private label andlicensed product lines are primarily attributable to the Kenneth ColeReaction label which the company began shipping in December2005.

Net revenues for the six months ended December31,  2006 increased by 29.9%, or $18.2  million, to$78.9  million from $60.7  million for the six months endedDecember  31,  2005. Units sold increased from 3.5million to 4.5  million or approximately 29% and theoverall price per unit increased from $17.40 to $17.60 or approximately1%. The Company’s revenues increased primarily due to anincrease in revenues in the Company’s private label and licensedproduct lines ($14.9  million), and the Company’s Chausproduct lines ($3.5  million) The increase in the private labeland licensed product lines are primarily attributable to the KennethCole Reaction label which the company began shipping in December2005.

Gross profit for the quarter ended December31,  2006 increased $7.0  million to $11.8  millionas compared to $4.8  million for the quarter endedDecember  31,  2005. As a percentage of net revenue, grossprofit increased to 30.0% for the quarter ended December31,  2006 from 20.8% for the quarter ended December31,  2005. The increase in gross profit dollars was due to theincrease in gross profit 

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BERNARDCHAUS, INC. AND SUBSIDIARIES

in the Company’s Chaus product lines($3.4  million), private label and licensed product lines($2.2  million), and in the Company’s Cynthia Steffeproduct lines ($1.4  million). The increase in gross profitpercentage was across all product lines due primarily to an increase inregular price sales and an increase in the overall price perunit.

Gross profit for the six months ended December31,  2006 increased $8.5  million to $23.9  millionas compared to $15.4  million for the six months endedDecember  31,  2005. As a percentage of net revenue, grossprofit increased to 30.2% for the six months endedDecember  31,  2006 from 25.3% for the six monthsended December  31,  2005. The increase in gross profitdollars was due to the increase in gross profit in the Company’sprivate label and licensed product lines ($4.5 million), theCompany’s Chaus product lines ($3.1  million) and theCompany’s Cynthia Steffe product lines ($0.9  million).The increase in gross profit percentage was attributable to an increasein gross profit percentage across all product lines primarily due to anincrease in regular price sales and an increase in the overall priceper unit.

Selling, general and administrative(‘‘SG&A’’) expenses increased by$0.8  million to $10.2  million (26.0% of netrevenue) for the quarter ended December  31,  2006 from$9.4  million (40.9% of net revenue) for the quarter endedDecember  31,  2005. The main components of the increase inSG&A expenses for the quarter ended December  31,  2006were marketing and advertising costs ($0.5  million), payroll andpayroll related costs ($0.3  million). Most of the increase inthe Company’s marketing and advertising costs are attributableto costs associated with the Kenneth Cole Reaction label which theCompany began shipping in December  2005.

Selling, generaland administrative (‘‘SG&A’’) expensesincreased by $1.1  million to $20.7  million (26.2%of net revenue) for the six months ended December  31,2006 from $19.6  million (32.3% of net revenue) for thesix months ended December  31,  2005. The main component ofthe increase in SG&A expenses for the six months endedDecember  31,2006 were marketing related costs ($1.3million), professional and consulting fees ($0.4  million)partially offset by a decrease in design related costs ($0.4million) and a decrease in total costs associated with warehouse anddistribution ($0.4  million) . Most of the increase in theCompany’s marketing and advertising costs are attributable tocosts associated with the Kenneth Cole Reaction label which the Companybegan shipping in December  2005.

Interest expenseincreased approximately $0.1  million for the quarter and sixmonths ended December  31,  2006 as compared to the quarterand six months ended December  31,  2005 primarily due tohigher bank borrowings and higher interest rates.

TheCompany’s income tax provision for the quarters and six monthsended December  31,  2006 and 2005 includes provisions forstate and local taxes, and a deferred provision for the temporarydifferences associated with the Company’s indefinite livedintangibles. The Company’s income tax provision for the quartersand six months ended December  31,  2006 also includesfederal alternative minimum taxes (AMT) resulting from the use of theCompany’s net operating loss (NOL) carryforward from prioryears.

The Company periodically reviews its historical andprojected taxable income and considers available information andevidence to determine if it is more likely than not that a portion ofthe deferred tax assets will be realized. A valuation allowance isestablished to reduce the deferred tax assets to the amount that ismore likely than not to be realized. As of December  31,2006, June  30,  2006 and December  31,  2005,based upon its evaluation of taxable income and the current businessenvironment, the Company recorded a full valuation allowance on itsdeferred tax assets including NOL’s. If the Company determinesthat it is more likely than not that a portion of the deferred taxassets will be realized in the future, that portion of the valuationallowance will be reduced and the Company will provide for an incometax benefit in its Statement of Income at its estimated effective taxrate. See discussion below under Critical Accounting Policies andEstimates regarding income taxes and the Company’s federal netoperating loss carryforward.

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BERNARDCHAUS, INC. AND SUBSIDIARIES

Financial Position, Liquidity andCapital Resources

General

Net cash used inoperating activities was $1.1  million for the six months endedDecember  31, 2006 as compared to cash used in operatingactivities of $3.4  million for the six months endedDecember  31,  2005. Cash used in operating activities forthe six month-period ended December  31,  2006 resultedprimarily from an increase in accounts receivable and accountsreceivable due from factor ($2.5  million), an increase ininventory ($1.7  million) partially offset by net income($2.5  million) and an increase in accrued expenses and otherlong term liabilities ($1.0  million). The increase in accountsreceivable of $2.5  million was predominately due to the increasein sales during the six months ended December  31,  2006 ascompared to six months ended June  30,  2006. The increasein inventory of $1.7  million was due to the timing of receiptsand shipments of inventory to customers. Cash used in operatingactivities for the six-month ended December  31,  2005resulted primarily from the net loss ($4.8  million) a decreasein accrued expenses and long term liabilities ($1.7  million)offset by a decrease in accounts receivable and accounts receivable duefrom factor ($3.1  million).

Cash used in investingactivities for the six months ended December  31,  2006 was$0.6  million compared to $0.5  million in the previousyear. The purchases of fixed assets for the six months endedDecember  31,  2006 consisted primarily of capitalexpenditures for store fixtures and management information systemupgrades. In fiscal 2007, the Company anticipates capital expendituresof approximately $1.0  million primarily for managementinformation system upgrades and store fixtures. The unexpended portionof capital expenditures for the remainder of fiscal 2007 isapproximately $0.4.

Net cash provided by financing activities of$1.6  million for the six months ended December  31,2006 was primarily the result of net proceeds from short-term bankborrowings of $2.5  million, partially offset by principalpayments on term loan of $0.9  million. Net cash used infinancing activities of $0.2  million for the six months endedDecember  31,  2005 was primarily the result of principalpayments on term loan of $0.9  million, partially offset by netproceeds from exercise of stock options of $0.7million.

Financing Agreement

The Company has afinancing agreement (the ‘‘FinancingAgreement’’) with The CIT Group/Commercial Services, Inc.(‘‘CIT’’) which provides the Company with a$40  million revolving line of credit (the‘‘Revolving Facility’’) with a $25million sublimit for letters of credit, and as of December31,  2006, a $4.8  million term loan (the‘‘Term Loan’’).

At the option of theCompany, the Revolving Facility and the Term Loan each may bearinterest either at the JP Morgan Chase Bank Rate (‘‘PrimeRate’’) or the London Interbank Offered Rate(‘‘LIBOR’’). If the Company chooses thePrime Rate, the interest (i) on the Revolving Facility accrues at arate of 1⁄2 of 1% above the Prime Rate (ii) onthe Term Loan accrues at a rate of  1% above the PrimeRate. If the Company chooses LIBOR, the interest (i) on the RevolvingFacility accrues at a rate of 23⁄4% above LIBOR(ii) on the Term Loan accrues at a rate of33⁄4% above LIBOR. The Company has elected thePrime Rate option from the inception of the financing agreement throughDecember  31,  2006. Each of the foregoing interest ratesis subject to an annual upward or downward adjustment by1⁄4 of 1%, commencing with the monthfollowing delivery of the Company’s consolidated financialstatements to CIT for fiscal 2007 based upon the Company’sborrowing availability, fixed charge coverage ratio and leverage ratioas in effect at each such adjustment period. The interest rate as ofDecember  31,  2006 on the Revolving Facility was8.75% and on the Term Loan was 9.25%.

The Term loanis paid down in quarterly installments of $425,000 with a balloonpayment of $1.8  million due on October  1,  2008.The Company’s obligations under the Financing Agreement are

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BERNARDCHAUS, INC. AND SUBSIDIARIES

secured by a first priority lien onsubstantially all of the Company’s assets, including theCompany’s accounts receivable, inventory, intangibles,equipment, and trademarks, and a pledge of the Company’s equityinterest in its subsidiaries.

The Financing Agreement containsnumerous financial and operational covenants, including limitations onadditional indebtedness, liens, dividends, stock repurchases andcapital expenditures. In addition, the Company is required to maintain(i) specified levels of tangible net worth, (ii) minimum EBITDA(earnings before interest, taxes, depreciation and amortization),(iii)certain fixed charge coverage ratios, (iv) certain leverageratios, and (v) specified levels of minimum borrowing availabilityunder the Revolving Facility. At December  31,  2006, theCompany was in compliance with all of its covenants. In the event ofthe early termination by the Company of the Financing Agreement, theCompany will be liable for termination fees of $150,000 if terminationoccurs prior to November  11,  2007. The Company may prepayat any time, in whole or in part, the Term Loan without penalty. Theexpiration of the Financing Agreement is October  1,2008.

On September  21,  2006, the Company and CITagreed to amend the Financing Agreement to modify the financialcovenants to be consistent with the Company’s latest businessplan for fiscal 2007.

On December  31,  2006, theCompany had $3.7  million of outstanding letters of credit underthe Revolving Facility, total availability of approximately$19.6  million under the Amended Financing Agreement, a balanceof $4.8  million on the Term Loan and $4.9  million inrevolving credit borrowings. On December  31,  2005, theCompany had $4.1  million of outstanding letters of credit underthe Revolving Facility, total availability of approximately$15.9  million under the Amended Financing Agreement, a balanceof $6.5  million on the Term Loan and no revolving creditborrowings. At June  30,  2006, the Company had $5.1million of outstanding letters of credit, total availability ofapproximately $16.6  million, a balance of $5.6  million onthe Term Loan and $2.4  million on revolving creditborrowings.

Factoring Agreement

One of theCompany’s subsidiaries, CS Acquisition has a factoring agreementwith CIT which provides for a factoring commission equal to 6/10 of 1% of the gross face amount of allaccounts factored by CIT up to $10  million ratably declining toa commission between .55% and .45% of the gross amount ofthe factored receivables in excess of $10  million. Suchagreement has an annual minimum factoring fee of $50,000. The FactoringAgreement expires on March  31,  2007. The Company isobligated to pay to CIT a collateral management fee of $5,000 amonth.

Future Financing Requirements

AtDecember  31,  2006, the Company had working capital of$17.6  million as compared with working capital of $16.6million at December  31,  2005. The Company’sbusiness plan requires the availability of sufficient cash flow andborrowing capacity to finance its product lines and to meet its cashneeds for the launch and support of the Kenneth Cole product lines. TheCompany is obligated to incur approximately $1.9  million throughDecember  31,  2007 to support initial launch of theKenneth Cole licensed products. The Company expects to satisfy suchrequirements through cash on hand, cash flow from operations andborrowings under its financing agreements. The Company believes that ithas adequate resources to meet its needs for the foreseeable futureassuming that it meets its business plan and satisfies the covenantsset forth in the Financing Agreement.

The foregoing discussioncontains forward-looking statements which are based upon currentexpectations and involve a number of uncertainties, including theCompany’s ability to maintain its borrowing capabilities underthe Financing Agreement, retail market conditions, and consumeracceptance of the Company’s products.

CriticalAccounting Policies and Estimates

The Company’ssignificant accounting policies are more fully described in Note 2 tothe consolidated financial statements included in the Company’sannual report on Form 10-K for the year 

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BERNARDCHAUS, INC. AND SUBSIDIARIES

ended June  30,  2006. Certain ofthe Company’s accounting policies require the application ofsignificant judgment by management in selecting the appropriateassumptions for calculating financial estimates. By their nature, thesejudgments are subject to an inherent degree of uncertainty. Thesejudgments are based on historical experience, observation of trends inthe industry, information provided by customers and informationavailable from other outside sources, as appropriate. Significantaccounting policies include:

Revenue Recognition – TheCompany recognizes sales upon shipment of products to customers sincetitle and risk of loss passes upon shipment. Provisions for estimateduncollectible accounts, discounts and returns and allowances areprovided when sales are recorded based upon historical experience andcurrent trends. While such amounts have been within expectations andthe provisions established, the Company cannot guarantee that it willcontinue to experience the same rates as in the past.

AccountsReceivable – Accounts Receivable are net of allowances andanticipated discounts. An allowance for doubtful accounts is determinedthrough analysis of the aging of accounts receivable at the date of thefinancial statements, assessments of collectibility based on historicaltrends and an evaluation of the impact of economic conditions. Thisamount is not significant primarily due to the Company’s historyof minimal bad debts. An allowance for discounts is based on thosediscounts relating to open invoices where trade discounts have beenextended to customers. Costs associated with potential returns ofproducts as well as allowable customer markdowns and operational chargebacks, net of expected recoveries, are included as a reduction to netrevenue and are part of the provision for allowances included inAccounts Receivable. These provisions result from seasonal negotiationsas well as historic deduction trends, net expected recoveries and theevaluation of current market conditions. As of December31,  2006, June  30,  2006 and December31,  2005, Accounts Receivable was net of allowances of$4.2  million, $2.7  million and $2.6  million,respectively.

Inventories – Inventories are stated at thelower of cost or market, cost being determined on the first-in,first-out method. The majority of the Company’s inventorypurchases are shipped FOB shipping point from the Company’ssuppliers. The Company takes title and assumes the risk of loss whenthe merchandise is received at the boat or airplane overseas. TheCompany records inventory at the point of such receipt at the boat orairplane overseas. Reserves for slow moving and aged merchandise areprovided to writedown inventory costs to net realizable value based onhistorical experience and current product demand. Inventory reserveswere $1.2  million at December  31,  2006,$1.4  million at June  30,  2006, and $1.6million at December  31,  2005. Inventory reserves arebased upon the level of excess and aged inventory and theCompany’s estimated recoveries on the sale of the inventory.While markdowns have been within expectations and the provisionsestablished, the Company cannot guarantee that it will continue toexperience the same level of markdowns as in the past.

Valuationof Long-Lived Assets, Trademarks and Goodwill – The Companyperiodically reviews the carrying value of its long-lived assets forcontinued appropriateness. This review is based upon projections ofanticipated future undiscounted cash flows. While the Company believesthat its estimates of future cash flows are reasonable, differentassumptions regarding such cash flows could materially affectevaluations. The Company evaluates goodwill and trademarks at leastannually or whenever events and changes in circumstances suggest thatthe carrying amount may not be recoverable from its estimated futurecash flows. To the extent these future projections or theCompany’s strategies change, the conclusion regarding impairmentmay differ from the current estimates.

Income Taxes – TheCompany’s results of operations have generated a federal tax netoperating loss (‘‘NOL’’) carryforward ofapproximately $99.5  million as of June  30,  2006.Generally accepted accounting principles require that the Companyrecord a valuation allowance against the deferred tax asset associatedwith this NOL if it is ‘‘more likely thannot’’ that the Company will not be able to utilize it tooffset future taxable income. As of December  31,  2006,based upon its evaluation of the 

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BERNARDCHAUS, INC. AND SUBSIDIARIES

Company’s historical and projectedresults of operations, the current business environment and themagnitude of the NOL, the Company recorded a full valuation allowanceon its deferred tax assets including NOL’s. The provision forincome taxes primarily relates to federal alternative minimum taxes(AMT) and state and local taxes. It is possible, however, that theCompany could be profitable in the future at levels which causemanagement to conclude that it is more likely than not that the Companywill realize all or a portion of the NOL carryforward. Upon reachingsuch a conclusion, the Company would record the estimated netrealizable value of the deferred tax asset at that time and would thenprovide for income taxes at a rate equal to its combined federal andstate effective rates. Subsequent revisions to the estimated netrealizable value of the deferred tax asset could cause theCompany’s provision for income taxes to vary from period toperiod, although its cash tax payments would remain unaffected untilthe benefit of the NOL is utilized.

Item 3.    Quantitativeand Qualitative Disclosures About Market Risk

Interest Rate Risk– The Company is subject to market risk from exposure to changesin interest rates based primarily on its financing activities. Themarket risk inherent in the financial instruments represents thepotential loss in earnings or cash flows arising from adverse changesin interest rates. These debt obligations with interest rates tied tothe prime rate are described in ‘‘Liquidity and CapitalResources’’, as well as Note 3 of the Notes to theCondensed Consolidated Financial Statements. The Company manages theseexposures through regular operating and financing activities. TheCompany has not entered into any derivative financial instruments forhedging or other purposes. The following quantitative disclosures arebased on the prevailing prime rate. These quantitative disclosures donot represent the maximum possible loss or any expected loss that mayoccur, since actual results may differ from these estimates.

AtDecember  31,  2006 and 2005, the carrying amounts of theCompany’s revolving credit borrowings and term loan approximatedfair value. As of December  31,  2006, the Company’srevolving credit borrowings bore interest at 8.75% and the termloan bore interest at 9.25%. As of December  31,2006, a hypothetical immediate 10% adverse change in primeinterest rates relating to the Company’s revolving creditborrowings and term loan would have approximately a $0.1  millionunfavorable impact on its earnings and cash flows over a one-yearperiod.

Item 4.    Controls and Procedures

TheCompany maintains disclosure controls and procedures that are designedto ensure that information required to be disclosed by the Company inthe reports filed or submitted by it under the Securities Exchange Actof 1934, as amended (the ‘‘Exchange Act’’),is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules andforms, and include controls and procedures designed to ensure thatinformation required to be disclosed by the Company in such reports isaccumulated and communicated to the Company’s management,including the Company’s Chairwoman and Chief Executive Officerand the Company’s Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.

Each fiscalquarter the Company carries out an evaluation, under the supervisionand with the participation of the Company’s management, includingthe Company’s Chairwoman and Chief Executive Officer along withthe Company’s Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls andprocedures pursuant to Exchange Act Rule  13a-15. Based upon theforegoing, the Company’s Chairwoman and Chief Executive Officeralong with the Company’s Chief Financial Officer, concludedthat, as of December  31,  2006, the Company’sdisclosure controls and procedures were effective in timely alertingthem to material information relating to the Company (including itsconsolidated subsidiaries) required to be included in theCompany’s Exchange Act reports.

During the fiscal quarterended December  31,  2006, there has been no change in theCompany’s internal control over financial reporting that hasmaterially affected, or is reasonably likely to materially affect, theCompany’s internal control over financialreporting.

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BERNARDCHAUS, INC. AND SUBSIDIARIES

PART II— OTHER INFORMATION

|              |                                                    |
|--------------|----------------------------------------------------|
| Item4.  | Submission of Matters to a Vote of SecurityHolders |

|  |           |                                                                                               |
|--|-----------|-----------------------------------------------------------------------------------------------|
|  | (a)  | The Annual Meeting of Stockholdersof the Company was held on November  16,  2006 at 9:00 a.m. |

|  |           |                                                                                                                                                                                                                     |
|--|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (c)  | At such meeting, theStockholders voted on the election of four directors of the Company toserve until the next Annual Meeting of Stockholders and until theirrespective successors have been elected and qualified. |

|                 |  |  |                 |  |            |          |  |  |  |  |         |  |
|-----------------|--|--|-----------------|--|------------|----------|--|--|--|--|---------|--|
|            |  |  | Numberof Shares |
|            |  |  | For             |  |            | Withheld |
| PhilipG.Barach  |  |  |                 |  | 36,887,371 |          |  |  |  |  | 72,517  |  |
| JosephineChaus  |  |  |                 |  | 36,875,905 |          |  |  |  |  | 83,983  |  |
| HarveyM.Krueger |  |  |                 |  | 36,886,306 |          |  |  |  |  | 73,582  |  |
| S. LeeKling     |  |  |                 |  | 36,826,986 |          |  |  |  |  | 132,902 |  |
|                 |

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BERNARDCHAUS, INC. AND SUBSIDIARIES

Item 6.    Exhibits

|  |     |    |  |  |  |                                                                                                                                           |
|--|-----|----|--|--|--|-------------------------------------------------------------------------------------------------------------------------------------------|
|  | *31 | .1 |  |  |  | CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for JosephineChaus.                                                |
|  | *31 | .2 |  |  |  | Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 for BartonHeminover.                                               |
|  | *32 | .1 |  |  |  | Certification Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 for JosephineChaus.  |
|  | *32 | .2 |  |  |  | Certification Pursuant to 18U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 for BartonHeminover. |
|  |

|  |
|--|
|  |  |
|  |

|   |               |
|---|---------------|
| * | Filedherewith |

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto dulyauthorized.

|                                              |  |  |                               |  |  |                                                                  |
|----------------------------------------------|--|--|-------------------------------|--|--|------------------------------------------------------------------|
|                                         |  |  | BERNARDCHAUS,INC.(Registrant) |
| Date:    February2, 2007 |  |  | By:                           |  |  | /s/ JosephineChaus                                               |
|                                         |  |  |                          |  |  | JOSEPHINECHAUSChairwoman of the Board, andChief ExecutiveOfficer |
| Date:    February2, 2007 |  |  | By:                           |  |  | /s/ BartonHeminover                                              |
|                                         |  |  |                          |  |  | BARTONHEMINOVERChief FinancialOfficer                            |
|                                              |

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INDEXTOEXHIBITS

|               |    |    |              |  |  |                                                                                                                                           |
|---------------|----|----|--------------|--|--|-------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |    |    | ExhibitTitle |
|               | 31 | .1 |              |  |  | Certification Pursuant to Section302 of the Sarbanes-Oxley Act of 2002 for JosephineChaus.                                                |
|               | 31 | .2 |              |  |  | Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 for BartonHeminover.                                               |
|               | 32 | .1 |              |  |  | Certification Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 for JosephineChaus.  |
|               | 32 | .2 |              |  |  | Certification Pursuant to 18U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 for BartonHeminover. |
|               |

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