<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549



                                   FORM 10-Q

   [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934.


For the quarterly period ended August 28, 1999

                                       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 No.  0-19369
                     -------


                           LITTLE SWITZERLAND, INC.
            (Exact name of registrant as specified in its charter)


               DELAWARE                       66-0476514
       (State of Incorporation)             (I.R.S Employer
                                           Identification No.)

  161-B CROWN BAY CRUISE SHIP PORT
         ST.  THOMAS U.S.V.I.                    00802
(Address of Principal Executive Offices)      (Zip Code)


                                (340) 776-2010
             (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 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
                             ------     ------



At October 5, 1999, 8,627,209 shares of $.01 par value common stock of the
registrant were outstanding.
<PAGE>

                           LITTLE SWITZERLAND, INC.

                              INDEX TO FORM 10-Q

                     FOR THE QUARTER ENDED AUGUST 28, 1999

<TABLE>
<CAPTION>

                                                                            PAGE
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
-------  --------------------
<S>                                                                      <C>
         Consolidated Balance Sheets as of August 28, 1999 (unaudited)        3
         and May 29, 1999 Consolidated Statements of Operations
         (unaudited) for the three months ended August 28, 1999 and           4
         August 29, 1998

         Consolidated Statements of Cash Flows (unaudited) for the            5
         three months ended August 28, 1999 and August 29, 1998
                                                                           6-12
         Notes to Consolidated Financial Statements (unaudited)

Item 2.  Management's Discussion and Analysis of Financial Condition
-------  -----------------------------------------------------------
         and Results of Operations                                        13-17
         -------------------------

Item 3.  Quantitative and Qualitative Disclosures about Market Risk          17
-------  ----------------------------------------------------------


PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings                                                 18
-------    -----------------

Item 6.    Exhibits and Reports on Form 8-K                                  19
-------    --------------------------------

Signature Page                                                               20
</TABLE>

                                       2
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial statements

                   LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                     (in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                 August 28, May 29,
                                                    1999     1999
                                                  -------   -------
                                                (unaudited)
<S>                                             <C>         <C>
                   ASSETS
Current Assets:
  Cash and cash equivalents....................  $ 2,804    $ 2,739
  Accounts receivable..........................      414        560
  Inventory....................................   30,516     38,195
  Prepaid expenses and other current assets....    1,187      1,111
                                                 -------    -------
      Total current assets.....................   34,921     42,605

Property, Plant and Equipment, at Cost.........   37,020     36,999
  Less -- Accumulated depreciation.............   19,706     19,051
                                                 -------    -------
                                                  17,314     17,948

Other assets...................................      365        291
                                                 -------    -------

      Total assets.............................  $52,600    $60,844
                                                 =======    =======

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Secured demand notes.........................  $13,275    $13,275
  Accounts payable.............................    1,731      5,205
  Accrued and currently deferred income taxes..    1,011      1,715
  Other accrued expenses and deferred income...    3,508      3,641
                                                 -------    -------
      Total current liabilities................   19,525     23,836
                                                 -------    -------

Long-term Debt.................................       --         --

Deferred Income Taxes..........................      202        202
                                                 -------    -------

      Total liabilities........................   19,727     24,038
                                                 -------    -------

Commitments and Contingencies..................

Minority Interest..............................    1,619      1,619

Stockholders' Equity:

  Preferred stock, $.01 par value--
    Authorized--5,000 shares
    Issued and outstanding--none...............       --         --
  Common stock, $.01 par value --
    Authorized -- 20,000 shares
    Issued and outstanding--8,625 and
    8,625 shares at August 28, 1999 and
    May 29, 1999, respectively.................       87         87
  Capital in excess of par.....................   15,601     15,601
  Retained earnings............................   15,566     19,499
                                                 -------    -------
      Total stockholders' equity...............   31,254     35,187
                                                 -------    -------

      Total liabilities, minority interest
      and stockholders' equity.................  $52,600    $60,844
                                                 =======    =======
</TABLE>
          See accompanying notes to consolidated financial statements

                                       3
<PAGE>

                   LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                      (in thousands except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                      For the three months ended

                                                        August 28,   August 29,
                                                          1999         1998
                                                        ----------   ----------
<S>                                                    <C>          <C>
Net sales.....................................           $13,835      $16,987

Cost of sales.................................             9,226        9,304
                                                         -------      -------

 Gross profits................................             4,609        7,683

Selling, general and administrative expenses..             8,165        9,261
                                                         -------      -------

 Operating (loss).............................            (3,556)      (1,578)

Interest expense, net.........................               277          345
                                                         -------      -------

 Loss before income taxes.....................            (3,833)      (1,923)

Provision for income taxes....................               100          ---
                                                         -------      -------

Net loss......................................           $(3,933)     $(1,923)
                                                         =======      =======

Basic and diluted (loss)

 Per share....................................            $(0.46)      $(0.22)
                                                         =======      =======

</TABLE>
          See accompanying notes to consolidated financial statements

                                       4
<PAGE>

                   LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                                (in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>


                                                      For the three months ended
                                                      --------------------------
                                                         August 28,   August 29,
                                                            1999         1998
                                                         ----------   ----------
<S>                                                     <C>          <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss)...........................................   $(3,933)     $(1,923)
  Adjustments to reconcile net (loss) to net cash
     provided by (used in) operating activities--
     Depreciation......................................       655          811
     Changes in assets and liabilities:
       Decrease (increase) in accounts receivable......       146          815
       Decrease (increase) in inventory................     7,679        3,033
       (Increase) decrease in prepaid expenses and
          other current assets.........................       (76)         174
       (Increase) Decrease in other assets.............       (74)          60
       (Decrease) increase in accounts payable.........    (3,474)      (5,269)
       (Decrease) in other accrued expenses and
          deferred income..............................      (133)      (1,131)
       (Decrease) in accrued and currently deferred
          income taxes.................................      (704)         (26)
                                                          -------      -------

  Net cash provided by (used in) operating activities..        86       (3,456)
                                                          -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures.................................       (21)         (72)
                                                          -------      -------

  Net cash (used in) investing activities..............       (21)         (72)
                                                          -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from unsecured notes payable................        --        6,400
  Repayments of unsecured notes payable................        --       (3,100)
  Repayments of long term borrowings...................        --         (556)
  Issuance of common stock.............................        --          ---
                                                          -------      -------

     Net cash provided by financing activities.........        --        2,744
                                                          -------      -------

     Net increase (decrease) in cash and cash
        equivalents....................................        65         (784)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.........     2,739        2,278
                                                          -------      -------

CASH AND CASH EQUIVALENTS, END OF PERIOD...............   $ 2,804      $ 1,494
                                                          =======      =======
</TABLE>
During the three months ended August 29, 1998 and August 28, 1999, the Company
paid income taxes of $29 and $604, respectively, and paid interest of $415 and
$304, respectively.

          See accompanying notes to consolidated financial statements

                                       5
<PAGE>

1.  CONSOLIDATED FINANCIAL STATEMENTS
    ---------------------------------

    The accompanying consolidated financial statements include the operations of
Little Switzerland, Inc. (the "Company") and its wholly owned subsidiaries,
L.S. Holding, Inc. and L.S. Wholesale, Inc. All significant intercompany
balances have been eliminated in consolidation. The interim financial statements
are unaudited and, in the opinion of management, contain all adjustments
necessary to present fairly the Company's financial position as of August 28,
1999 and August 29, 1998 and the results of its operations and cash flows for
the interim periods presented. It is suggested that these interim financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K for the
fiscal year ended May 29, 1999.

    The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for a full fiscal year, due
to the seasonal nature of the Company's operations.


2.  USE OF ESTIMATES
    ----------------

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.


3.  MANAGEMENT'S PLANS
    ------------------

    Existing Situation
    ------------------

    The Company incurred a substantial loss during the fiscal year ended May 29,
1999.  In addition, the Company is presently operating without a long-term
credit facility to fund its working capital needs.  This condition was triggered
by, among other things, the following events: (i) the absence of Rolex products
due to the decision by Rolex to cease shipments which resulted in a revenue loss
of approximately $24 million versus the fiscal year ended May 30, 1998; (ii) the
occurrence of store closings and the resulting charges to net income of
approximately $1.8 million; (iii) the Company's noncompliance with certain
financial covenants contained in the original loan agreements with its lenders;
and (iv) the nonpayment of amounts totaling approximately $1.5 million due under
the revolving term loan with one of the Company's lenders.

    Effective April 1, 1999, the Company and its subsidiaries entered into a
Forbearance Agreement with its existing lenders, which effectively froze the
Company's existing line of credit at its then and current level of $17.5
million. Pursuant to the Forbearance Agreement, the lenders agreed, through
August 31, 1999, not to exercise their rights and remedies under the existing
loan documents with respect to existing defaults. In exchange, the Company and
its subsidiaries granted a security interest to the lenders against their
personal property. The forbearance period under the Forbearance Agreement
expired, and the Company is currently in default under certain of the covenants
contained in such Forbearance Agreement. As a result, the banks may exercise
their rights and remedies under the existing loan documents, including declaring
all amounts immediately due under the loan agreements. If the banks accelerate
the outstanding loans and declare amounts outstanding under such loan agreements
immediately due, the Company does not believe that it will have sufficient funds
available to make such payments and such action by the banks will have a
material adverse effect on the Company. The Company currently is in active
negotiations with its lenders regarding the terms and conditions to extend this
agreement through the end of November 1999. There, however, is no assurance that
the Company will be able to fulfill all of the conditions to such extension.

    Actions Taken to Date
    ---------------------

    The Company has been working, and continues to work, diligently at
addressing the above issues. The Company has been addressing operational,
merchandising, recruitment as well as financial issues.  For a complete
description of the actions taken through September 17, 1999, see Note 1 to
Consolidated Financial Statements in the Annual Report on Form 10-K for the
fiscal year ended May 29, 1999 as filed with the Securities and Exchange
Commission on September 17, 1999, which is incorporated herein by reference.

                                       6
<PAGE>

    Actions In Progress
    -------------------

    The Company's new management team is committed to continuing progress on the
initiatives taken to date. This team will continue to attempt to secure a
greater range of world class luxury products for sale in Little Switzerland
stores. Included in this process will be a focus on attempting to improve gross
margin leverage and inventory turnover.  Based on year-end results, a thorough
review of each location and operation will be made to determine what further
actions are required to return the Company to profitability, including, without
limitation, the possible sale of certain store locations.

    The Company is currently in negotiations with its existing banks regarding
an extension of the term of the Forbearance Agreement to enable the Company to
find alternative financing to pay off the existing lenders and for working
capital.  The Company currently is negotiating the terms and conditions of the
extension, which the Company believes will be granted until the end of November
1999. There, however, is no assurance that the Company will be able to fulfill
all of the conditions to such extension. The Company will continue to work
towards securing adequate permanent financing to pay off the existing lenders
and to fund the ongoing working capital requirements.

    Although, through August 28, 1999, the Company made limited purchases of new
merchandise, beginning in the second quarter of fiscal 2000, the Company has
begun placing orders to support its upcoming peak selling season using proceeds
from the St. Barthelmey sale as well as excess operational cash flows,
including, from the sale of older merchandise and discontinued categories (see
Management's Discussion and Analysis--Subsequent Event--St. Barthelmey Store).

    Qualification
    -------------

    The Company's ability to achieve its operating results included in its
fiscal 2000 business plan is impacted by each of the factors described above.
There can be no assurance that the Company will successfully execute its fiscal
2000 business plan including securing adequate financing to pay off its existing
lenders and to fund its additional working capital needs.

    Included in this Note 3 is a discussion of management's planned actions to
improve its current financial condition.  The planned actions include a thorough
review of each location and operation to determine what further actions are
required to return the Company to sustained profitability, including, without
limitation, the possible sale of certain store locations. Although the Company
believes no further impairment losses are required at August 28, 1999, future
strategic actions could result in additional store closings and material
restructuring charges and impairment losses.


4.  CREDIT ARRANGEMENTS
    -------------------

    Historically, the Company has utilized unsecured credit facilities with the
Company's two lead banks to support its inventory and capital requirements,
which fluctuate during the year due to the seasonal nature of the Company's
business, and to maintain and remodel its existing stores.  As a result of
negotiations with its two lead banks regarding the Company's noncompliance with
certain financial covenants contained in the original loan agreements with the
banks and the nonpayment of amounts totaling approximately $1.5 million due
under the revolving term loan with one of the Company's banks, the Company and
its subsidiaries entered into a Forbearance Agreement, effective as of April 1,
1999 that effectively froze the Company's line of credit at its then and current
level of $17.5 million.  This amount consists of approximately $13.3 million in
outstanding cash borrowings and approximately $4.2 million in contingent stand-
by letters of credit.  Pursuant to the Forbearance Agreement, the banks agreed,
through August 31, 1999, not to exercise their rights and remedies under the
existing loan documents with respect to existing defaults and certain expected
future defaults.  In exchange, the Company and its subsidiaries granted a
security interest to the banks against their personal property.  The Forbearance
Agreement also set forth certain criteria that the

                                       7
<PAGE>

Company had to meet regarding the Company's inventory levels. The banks
indicated that they would not make any additional borrowings to the Company
during the term of the Forbearance Agreement.

    The forbearance period under the Forbearance Agreement expired, and the
Company is currently in default under certain of the covenants contained in such
Forbearance Agreement. The Company, however, is currently in negotiations with
its banks regarding an extension of the term of the Forbearance Agreement to
enable the Company to find alternative financing to pay off the existing lenders
and to fund its working capital needs. The Company currently is negotiating the
terms and conditions of the extension, which the Company believes will be
granted until the end of November 1999. There is no assurance that such
extension will be on favorable terms to the Company or that alternative
financing will be obtained during the extension period. If the Company is unable
to fulfill all of the conditions to such extension, the banks may exercise their
rights and remedies under the existing loan documents, including declaring all
amounts immediately due under the loan agreements. If the banks accelerate the
outstanding loans and declare amounts outstanding under such loan agreements
immediately due, the Company does not believe that it will have sufficient funds
available to make such payments and such action by the banks will have a
material adverse effect on the Company. The Company currently is actively
exploring other financing alternatives. At this time, however, the Company does
not have any firm commitments from other lenders or third parties to provide it
with funds that would be used to pay off its existing lenders or to finance its
working capital. There is no assurance that the Company will be successful in
obtaining any other financing.

    Outstanding borrowings against these aforementioned now secured credit
facilities totaled $9.1 million and $7.8 million as of August 28, 1999 and
August 29, 1998, respectively.  Outstanding letters of credit against these
credit facilities totaled $4.2 million and $4.1 million as of August 28, 1999
and August 29, 1998, respectively.  Additionally, in February 1996, the Company
secured term debt of approximately $8.9 million at an annual interest rate of
7.25%, payable monthly. The principal was payable in equal quarterly payments
over a four-year period commencing March 1997. As of August 28, 1999 and August
29, 1998, the principal outstanding on the term debt was approximately $4.2
million and $6.1 million, respectively. The weighted average interest rates
incurred during fiscal 1999, 1998 and 1997 were approximately 8.4%, 8.1% and
7.9%, respectively.

5.  EARNINGS PER SHARE
    ------------------

    The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share, effective December 15, 1997. In accordance with the
requirements of SFAS No. 128, basic earnings per share is computed by dividing
net income by the weighted average number of shares outstanding and diluted
earnings per share reflects the dilutive effect of stock options (as calculated
utilizing the "Treasury Method"). The weighted average number of shares
outstanding, the dilutive effects of outstanding stock options, weighted average
number of shares used in diluted earnings calculation, and the shares under
option plans which were anti-dilutive for the periods included in this report
are as follows (in thousands):

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                      Three Month Ended
                                                      -----------------
                                                      8/28/99   8/29/98
                                                      -------   -------
<S>                                                  <C>       <C>
  Weighted average number of shares
   used in basic earnings per share
   calculation......................................    8,625     8,624

  Dilutive effects of options.......................      ---       ---

  Weighted average number of shares
   used in diluted earnings per share
   calculation......................................    8,625     8,624

  Shares under and outside the option plans
   excluded in computation of diluted earnings
   per share due to anti-dilutive effects...........    1,233       762

</TABLE>

6.  ACCOUNTING FOR INCOME TAXES
    ---------------------------

    The Company follows the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes.  Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns.  The amount of deferred tax asset or liability is based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.  Valuation allowances are established when
necessary to reduce deferred tax assets to the amount that is realizable, based
upon the realization criteria defined in SFAS No. 109.


7.  LONG-LIVED ASSETS
    -----------------

    The Company accounts for long-lived and intangible assets in accordance with
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of.  In accordance with the requirements of SFAS No.
121, the Company periodically assesses whether events or circumstances have
occurred that may indicate the carrying value of its long-lived assets may not
be recoverable.  When such events or circumstances indicate the carrying value
of an asset may be impaired, the Company uses an estimate of the future
undiscounted cash flows to be derived from the asset over the remaining useful
life of the asset to assess whether or not the asset is recoverable.  If the
future undiscounted cash flows to be derived over the life of the asset do not
exceed the asset's net book value, the Company recognizes an impairment loss for
the amount by which the net book value of the asset exceeds its estimated fair
market value.  Due to several factors, including the Company's relationship with
Rolex which is discussed further in Note 11, the Company recognized an
impairment loss relating to the goodwill at the Company's World Gift Imports
(Barbados) Limited subsidiary that totaled approximately $2.5 million during the
fourth quarter of fiscal 1998.  The impairment loss was classified as a
component of selling, general and administrative expense for the year ended May
30, 1998.  No other impairment losses were recognized during the quarters ended
August 29, 1998 or August  28, 1999.

                                       9
<PAGE>

    Included in Note 3 is a discussion of management's planned actions to
improve its current financial condition.  The planned actions include a thorough
review of each location and operation to determine what further actions are
required to return the Company to sustained profitability.  Although the Company
believes no further impairment losses are required at August 28, 1999, future
strategic actions could result in additional store closings and material
restructuring charges and impairment losses.


8.  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.  123 - ACCOUNTING FOR STOCK-
    ---------------------------------------------------------------------------
    BASED COMPENSATION
    ------------------

    In December 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, which became effective for
fiscal years beginning after December 15, 1995. SFAS No. 123 requires employee
stock-based compensation to be either recorded or disclosed at its fair value.
Management continues to account for employee stock-based compensation under
Accounting Principles Board Opinion No. 25 and did not adopt the new accounting
provision for employee stock-based compensation under SFAS No. 123. The
additional required disclosures have been included in the Company's fiscal year
end financial statements in the Company's Annual Report on Form 10-K for the
fiscal year ended May 29, 1999.


9.  ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
    ------------------------------------------------------------

    The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
SFAS No. 133, in July 1999.  SFAS No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; earlier adoption is
allowed.  The statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value.  Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting.  The Company has not yet determined the effect that adoption of SFAS
No. 133 will have or when the provisions of the statement will be adopted.
However, the Company currently expects that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a material
effect on the Company's results of operations or financial position.


10. ADVERTISING
    -----------

    The Company expenses the costs of advertising as advertisements are printed
and distributed.  The Company's advertising expenses consist primarily of
advertisements with local, regional and national travel magazines, which are
produced on a periodic basis and distributed to visiting tourists.
Additionally, fees are expensed as paid for promotional "port lecturer" programs
directed primarily at cruise ship passengers.


11. COMMITMENTS AND CONTINGENCIES
    -----------------------------

Relationship with Rolex
-----------------------

    The Company had historically operated as the exclusive authorized retailer
for Montrex Rolex, S.A. and its affiliates (collectively, Rolex) on the islands
on which the Company operates.  Following execution of the Agreement and Plan of
Merger, dated as of February 4, 1998 (the "Merger Agreement"), with Destination
Retail Holdings Corporation ("DRHC") and certain of its affiliates, Rolex
suspended shipments of its products to the Company and indicated that it did not
believe it would be in its best interest to begin a business relationship with
DRHC.  Following termination of the Merger Agreement, on June 9, 1998, the
Company made numerous attempts to rebuild its business relationship with Rolex.
However, on July 15, 1998, the Company announced that it had learned that Rolex
had decided not to resume shipments of its watches to the Company for retail
sale through the Company's stores.  The Company received its last shipment of
Rolex products in January 1998.

                                       10
<PAGE>

    Sales of Rolex watches accounted for 3%, 26% and 24% of the Company's sales
in fiscal 1999, 1998 and 1997, respectively.  Rolex is the only manufacturer
whose products accounted for more than 10% of the Company's sales in fiscal 1998
and 1997.  In order to mitigate the impact on sales of the loss of Rolex
products, the Company is exploring opportunities for expanding existing, and
adding new, world class product lines in both watches and jewelry. In addition,
the Company is increasing the showcase space allocated to jewelry in certain of
its larger stores to accommodate a greater variety of moderate to higher priced
fashion merchandise, including diamond, tanzanite, pearl and pearl accent
classifications.

    To the extent that the Company is unable to mitigate the impact on sales of
the loss of Rolex products by expanding existing, and adding new, world class
product lines in both watches and jewelry, the Company believes that the loss of
Rolex will have a material adverse effect on the Company's results of operations
for the fiscal year ending May 27, 2000 and beyond.


Income Taxes
------------

    Under an agreement, which expired at the end of August 1998 (subject to
renewal), L.S. Wholesale benefited from a lower tax rate on its income earned
outside the United States Virgin Islands, which had been taxed at a rate of 3.7%
up through the end of fiscal 1998.

    The Company has submitted its application for renewal of benefits and has
been verbally notified that the Industrial Development Commission (the "IDC")
has recommended to the Governor of the U.S.V.I. that the Company be awarded up
to 75% of the benefits which the Company enjoyed in the past.  If such benefits
were granted at the 75% benefit rate, the effective tax rate for L.S. Wholesale
would be approximately 9.3%.

    The Company anticipates that it will be notified with respect to such
renewal within the 60-day period in which the Governor is permitted under
applicable law to determine the extent of the benefits, which the Company will
receive.  Until it receives notification with respect to the renewal, the
Company must pay and is recording taxes on all of the Company's U.S.V.I. income
at the statutory rate of 37.4%.  However, if the renewal is granted, management
believes that the lower tax rate will be applied retroactively to the end of
August 1998 and the Company will be reimbursed for any excess payments; however,
there is no assurance that this will occur.  If the IDC benefit is not granted,
then all of the Company's U.S.V.I. based income will be taxed at the statutory
rate of 37.4% and the Company will be subject to a higher gross receipt tax.
Such non-renewal may have a material adverse effect on the Company's results of
operations.

    As the Company operates in multiple tax jurisdictions, it is subject to
various tax exposure. At this time, in the opinion of management any resulting
liability would not have a material impact on the Company's financial position.

Employee Defalcation Loss
-------------------------

    On March 11, 1998, the Company filed a civil action in the Territorial Court
of the Virgin Islands against Lorraine Quetel, a former employee of the Company,
Lydia Magras and Bon Voyage Travel, Inc. The Company alleges that such parties
were involved in the employee defalcation that management believes occurred
during the Company's fiscal year ended May 31, 1997. The Company is seeking a
preliminary injunction and damages against the former employee and the other
parties allegedly involved in the theft against the Company.

                                       11
<PAGE>

    On January 19, 1999, the defendant, Lydia Magras, filed a petition for
Bankruptcy (Chapter 7) in the United States Bankruptcy Court, District of
St. Thomas. A Notice of Appearance was filed on February 2, 1999 on behalf of
the Company. A trustee was appointed in this matter at the meeting of the
creditors held on May 20, 1999.

    The Company is also party to various pending legal claims and proceedings.
In the opinion of management of the Company, these suits and claims should not
result in final judgments or settlements which, in the aggregate, would have a
material adverse effect on the Company's financial condition or results of
operations.  See Part II - Other Information, Item 1 "Legal Proceedings."

Destination Retail Holdings Corporation
---------------------------------------

    On June 10, 1998, the Company filed a civil action in the United States
District Court for the District of Delaware against DRHC, Stephen G.E. Crane,
DRHC's controlling shareholder, Young Caribbean Jewelry Company Limited, a
Cayman Islands corporation, Alliance International Holdings Limited, a Bahamian
corporation, and CEI Distributors Inc., a British Virgin Islands corporation,
each an affiliate of DRHC.  The Company alleges breach of the Merger Agreement,
among the Company, DRHC and certain affiliates of DRHC and also alleges claims
of misrepresentation and civil conspiracy, among other causes of action.   The
Company is seeking monetary damages, including, without limitation,
consequential damages relating to harm to its business.  On July 15, 1998, the
defendants moved to dismiss the Complaint on jurisdictional grounds.  On March
31, 1999, the court issued an order denying the defendants' motions to dismiss.
On May 21, 1999, the defendants filed their Answer, Affirmative Defenses,
Counterclaims and Third Party Complaint.  The defendants allege counterclaims
against the Company and others for fraud, negligent misrepresentations, breach
of the covenant of good faith and fair dealing and breach of the Merger
Agreement, unfair competition and business libel, among others, primarily
stemming from their allegations that the Company was responsible for their
failure to consummate the Merger Agreement.

    The costs associated with this matter, which consist primarily of legal and
investment banking fees, amounted to approximately $.2 million and $2.7 million
in fiscal 1999 and 1998, respectively, and have been recorded in selling,
general and administrative expense in the accompanying consolidated financial
statements.

Class Action Lawsuit
--------------------

    On March 22, 1999, a class action complaint was filed in the United States
District Court for the District of Delaware against the Company, certain of its
existing and former officers and directors, DRHC and Stephen G.E. Crane.  The
complaint alleges that the defendants violated federal securities laws by
failing to disclose that DRHC's financing commitment to purchase the Company's
shares expired on April 30, 1998, before the Company's stockholders were
scheduled to vote to approve the merger between the Company and DRHC at the
May 8, 1998 special meeting of stockholders. The plaintiffs are seeking monetary
damages, including, without limitation, reasonable expenses in connection with
this action. On August 5, 1999, the Company moved to dismiss the complaint. This
motion remains pending. At this early juncture, management of the Company is not
in a position to evaluate the outcome of this action. As a result, at this time,
management of the Company is unable to determine the financial impact this
action may have on the Company's financial condition or results of operations.

12. SUBSEQUENT EVENT
    ----------------

St. Barthelmey Store
--------------------

    On August 31, 1999, the Company consummated the sale of the goodwill and
inventory of its store located on the island of St. Barthelmey pursuant to a
purchase and sale agreement with a third party for an aggregate amount equal to
$1.3 million.  The Company will record a gain on this transaction in the second
quarter of fiscal year 2000.

                                       12
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

FORWARD-LOOKING STATEMENTS

    This quarterly report on Form 10-Q contains certain statements that are
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995 and releases issued by the Securities
and Exchange Commission.  The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements.  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 differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.  The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.

    The future operating results and performance trends of the Company may be
affected by a number of factors, including, without limitation, the following:
(i) the Company's ability to obtain alternative financing to provide it with
funds to pay off its existing lenders and to fund its working capital needs,
(ii) the Company's ability to maintain its relationship with its existing
lenders, including with respect to the negotiation of the extension of the
Forbearance Agreement, (iii) the frequency of tourist visits to the locations
where the Company maintains retail stores, (iv) the Company's ability to retain
relationships with its major suppliers of product for resale, (v) the Company's
ability to mitigate the impact on sales of the loss of Rolex products by
expanding existing, and adding new, world class product lines in both watches
and jewelry, (vi) weather in the Company's markets, (vii) actions of the
Company's competitors and the Company's ability to respond to such actions and
(viii) economic conditions that affect the buying patterns of the Company's
customers.  In addition to the foregoing, the Company's actual future results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth in the Company's various filings with
the Securities and Exchange Commission and of changes in general economic
conditions, changes in interest rates and/or exchange rates and changes in the
assumptions used in making such forward-looking statements.

RECENT DEVELOPMENTS

NASDAQ Listing
--------------

    On June 7, 1999, The Nasdaq Stock Market, Inc. ("NASDAQ") notified the
Company that the Company will not remain eligible for continued listing on the
Nasdaq National Market System ("NMS") unless its common stock demonstrates
compliance with NASDAQ's $1.00 minimum bid price requirement during the period
ending September 6, 1999. On July 9, 1999, NASDAQ notified the Company that the
Company also was not in compliance with NASDAQ's $5 million minimum public float
value requirement. The Company has requested a hearing as permitted by
applicable NASDAQ procedure and has been notified that such hearing will be held
on October 14, 1999. NASDAQ has informed the Company that the delisting
procedures have been stayed pending such hearing. The Company has been notified
that the NASDAQ staff has recommended that the hearing panel delist the Company
from NMS as a result of its belief that the Company did not provide a definitive
plan to achieve near term compliance with the continued listing requirements or
to sustain such compliance over an extended period of time. There is no
assurance that the Company's NMS listing will not cease after October 14, 1999.
In the event that NASDAQ denies continued listing following such hearing, the
Company believes that it will be eligible to trade on NASDAQ'S over-the-counter
bulletin board.

Year 2000 Readiness Disclosure
------------------------------

    The statements in the following section include "Year 2000 readiness
disclosure" within the meaning the Year 2000 Information and Readiness
Disclosure Act.

                                       13
<PAGE>

    Year 2000.  "Y2K Compliance" refers to the ability for information systems,
    ---------
software programs, computer hardware and other computer enhanced equipment to
properly handle the processing of dated material properly for the year 2000 and
beyond.  Many existing computer programs and databases use two digits to
identify a year in the date field (i.e., 98 would represent 1998).  These
programs and databases were designed and developed without considering the
impact of the upcoming millennium.  If not corrected, many computer systems
could fail or create erroneous results relating to the year 2000.  If the
Company or its significant suppliers fail to make necessary modifications and
conversions on a timely basis, the year 2000 issue could have a material adverse
effect on Company operations.  However, the impact cannot be quantified at this
time. The Company believes that its competitors face a similar risk. Information
contained in this Annual Report pertains to the initiatives undertaken by the
Company to insure full compliance with Y2K processing prior to the year 2000.

    Company's State of Readiness.  The Company has developed plans to address
    ----------------------------
the possible exposures related to the impact on its computer systems of the year
2000 issue.  Key financial, information and operational systems, including
equipment with embedded microprocessors, have been, or are currently being,
inventoried and assessed, and detailed plans have been, or are currently being,
developed for the required systems modifications or replacements.  Progress
against these plans is monitored and reported to management on a regular basis.
Implementation of required changes to critical systems is expected to be
completed prior to the end of the calendar year.  The Company is also focusing
on major suppliers to assess their compliance. The Company has received
assurances from certain suppliers that such suppliers expect to be year 2000
compliant and is seeking such assurances from its other material suppliers.
Nevertheless, there can be no assurance that there will not be a material
adverse effect on the Company if third party governmental or business entities
do not convert or replace their systems in a timely manner and in a way that is
compatible with the Company's systems.  In the event a material supplier is not
year 2000 compliant, the Company's business, financial condition and results of
operations could be materially and adversely affected.

    Compliance readiness analysis was conducted to determine the impact and
requirements associated with all operational aspects of the Company, both
internally and externally.  Plans have been developed to modify, upgrade or
replace equipment and software where necessary.  Procedures were instituted to
require all new and future contracts with outside vendors to include a Y2K
compliance in all products provided to the Company.  Additionally, vendors
providing services to the Company, such as security systems or banking services,
have been required to submit a statement of Y2K compliance.

    Outside servicers were contracted to upgrade all merchandising, warehouse
and most financial systems. The majority of these systems were upgraded in May
1999 to full Y2K compliance.  Upgrading and testing of all point of sale ("POS")
and store systems was completed during the second quarter of fiscal 2000.  A
parallel test of the upgraded payroll system was completed by the end of
September 1999.  The Company has determined that its existing general ledger
system, which has been upgraded to be compliant with Y2K requirements, should be
replaced with a more efficient system.  As a result, a project plan has been
developed and initiated with completion anticipated prior to December 31, 1999.

    Costs to Address Year 2000 Compliance.  Costs associated with year 2000
    -------------------------------------
compliance have been primarily associated with acquiring outside contract
personnel that have been required to modify and implement the various software
systems.  Some equipment has been necessary as well as travel expense related to
the POS roll out.  Estimated total expenses related to the Y2K compliance will
be approximately $600,000.  It is management's belief that with the actions
taken and proposed by the Company, the Company will be Y2K compliant before the
beginning of year 2000.  Continued testing and re-evaluation will occur to
insure full compliance.  With efforts to this point and plans for finalizing
compliance, management believes that it has significantly reduced any material
adverse effect on the Company's business due to potential Y2K issues.  However,
there can be no assurance that the Company will be able to identify and address
all year 2000 issues before problems arise.

                                       14
<PAGE>

    Contingency Plan.  As the Company is already operating in its fiscal year
    ----------------
2000, in July 1999, the Company upgraded its existing general ledger package to
a version that has been certified as being Y2K compliant.

    The Company has developed a contingency plan to restore its store
operations, merchandising and logistics, financial systems and computer
operations in the event of a year 2000 failure.  The Company has operating plans
to guide key managers in the case of any material systems failure throughout the
Company. As mentioned previously and as a contingent strategy, the Company has
upgraded and tested to Y2K standards its current financial system and currently
expects to have a more efficient replacement financial system that is Y2K
compliant in place before the end of the calendar year.

    The preceding "Year 2000 Readiness Disclosure" contains various forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. These forward-looking statements represent the Company's beliefs or
expectations regarding future events. When used in the "Year 2000 Readiness
Disclosure", the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, the Company's expectations as to when it
will complete the modification and testing phases of its year 2000 project plan
as well as its year 2000 contingency plans; its estimated cost of achieving Year
2000 readiness; and the Company's belief that its internal systems will be year
2000 compliant in a timely manner. All forward-looking statements involve a
number of risks and uncertainties that could cause the actual results to differ
materially from the projected results. Factors that may cause these differences
include, but are not limited to, the availability of qualified personnel and
other information technology resources; the ability to identify and remediate
all date sensitive lines of computer code or to replace embedded computer chips
in affected systems or equipment; and the actions of governmental agencies or
other third parties with respect to year 2000 problems.

SUBSEQUENT EVENT

St. Barthelmey Store
--------------------

    On August 31, 1999, the Company consummated the sale of the goodwill and
inventory of its store located on the island of St. Barthelmey pursuant to a
purchase and sale agreement with a third party for an aggregate amount equal to
$1.3 million.  The Company will record a gain on this transaction in the second
quarter of fiscal year 2000.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 28, 1999

GENERAL

    The Company operated 22 luxury gift and jewelry stores as of August 28,
1999.  However, subsequent to August 28, 1999, the Company consummated the sale
of its store located on St. Barthelmey for an aggregate amount of $1.3 million,
thus reducing the current number of stores to 21.  See "--Subsequent Event--
St. Barthelmey Store."

Net Sales
---------

    Net sales for the first quarter ended August 29, 1999, were $13.8 million,
an 18.6% reduction from net sales of $17.0 million for the corresponding period
last year.  Net sales for comparable stores decreased approximately 8.9% for the
quarter ended August 28, 1999 compared to the corresponding period last year.

    Management attributes this reduction in sales primarily as a result of the
absence of Rolex products in the Company's stores.  See Part I, Item 1 "Notes to
Consolidated Financial Statements (unaudited)." Excluding the impact of Rolex
sales, sales in comparable stores grew by 5.2%.

                                       15
<PAGE>

Gross Profit
------------

    Gross profit as a percentage of net sales was 33.3% for the first quarter
ended August 28, 1999 as compared to 45.2% for the same period last year.
Management attributes this margin reduction to short term measures taken to
raise liquidity.  The Company took margin reductions in older merchandise and
discontinued categories to improve its mix of merchandise and liquidity.

Selling, General and Administrative Expenses
--------------------------------------------

    Selling, General and Administrative Expenses ("SG&A") for the first quarter
ended August 28, 1999 were $8.2 million, or approximately 59.0% of net sales as
compared to $9.3 million, or approximately 54.5% of net sales for the
corresponding period last year.  The increase in SG&A expense as a percentage of
net sales is primarily attributable to the reduction in net sales for the three
month period ended August 28, 1999.  The exclusion of Rolex sales in the first
quarter ended August 28, 1999 compared to the prior year contributed to the
higher SG&A cost as a percent of net sales. In addition, management also
attributes the increase in SG&A to added costs for legal and consulting fees
associated with the Company's actions taken during the first quarter of fiscal
2000 to address the financial condition of the Company.

Other
-----

    Net interest expense for the first quarter ended August 28, 1999 was
$277,000 compared to $345,000 for the corresponding period last year.  The
decrease in net interest expense reflects lower average borrowings compared to
the corresponding period last year.

    The Company's effective tax rates for the three-month periods ended
August 28, 1999 and August 29, 1998 were approximately 2.6% and 0.0%,
respectively.

Liquidity and Capital Resources
-------------------------------

    Net cash used in operations during the three-month period ended August 28,
1999 was $3.5 million, compared to $3.5 million for the corresponding period
last year.  Net cash used was able to remain constant with the prior year
despite increased losses due to reduction in inventory levels.

    Historically, the Company has utilized unsecured credit facilities with the
Company's two lead banks to support its inventory and capital requirements,
which fluctuate during the year due to the seasonal nature of the Company's
business, and to maintain and remodel its existing stores.  As a result of
negotiations with its two lead banks regarding the Company's noncompliance with
certain financial covenants contained in the original loan agreements with the
banks and the nonpayment of amounts totaling approximately $1.5 million due
under the revolving term loan with one of the Company's banks, the Company and
its subsidiaries entered into a Forbearance Agreement, effective as of April 1,
1999 that effectively froze the Company's line of credit at its then and current
level of $17.5 million.  This amount consists of approximately $13.3 million in
outstanding cash borrowings and approximately $4.2 million in contingent stand-
by letters of credit.  Pursuant to the Forbearance Agreement, the banks agreed,
through August 31, 1999, not to exercise their rights and remedies under the
existing loan documents with respect to existing defaults and certain expected
future defaults.  In exchange, the Company and its subsidiaries granted a
security interest to the banks against their personal property.  The Forbearance
Agreement also sets forth certain criteria that the Company had to meet
regarding the Company's inventory levels.  The banks indicated that they would
not make any additional borrowings to the Company during the term of the
Forbearance Agreement.

    The forbearance period under the Forbearance Agreement expired, and the
Company is currently in default under certain of the covenants contained in such
Forbearance Agreement. The Company, however, is currently in negotiations with
its banks regarding an extension of the term of the Forbearance Agreement to
enable the Company to find alternative financing to pay off the existing lenders
and to fund its working capital needs. The Company currently is negotiating the
terms and conditions of the extension, which the Company believes will be
granted until the end of November 1999. There is no assurance that such
extension will be on favorable terms to the Company or that alternative
financing will be obtained during the extension period. If the Company is unable
to fulfill all of the conditions to such extension, the banks may exercise their
rights and remedies under the existing loan documents, including
                                       16
<PAGE>

declaring all amounts immediately due under the loan agreements. If the banks
accelerate the outstanding loans and declare amounts outstanding under such loan
agreements immediately due, the Company does not believe that it will have
sufficient funds available to make such payments and such action by the banks
will have a material adverse effect on the Company. The Company currently is
actively exploring other financing alternatives. At this time, however, the
Company does not have any firm commitments from other lenders or third parties
to provide it with funds that would be used to pay off its existing lenders or
to finance its working capital. There is no assurance that the Company will be
successful in obtaining any other financing.

    Outstanding borrowings against these aforementioned now secured credit
facilities totaled $9.1 million and $7.8 million as of August 28, 1999 and
August 29, 1998, respectively.  Outstanding letters of credit against these
credit facilities totaled $4.2 million and $4.1 million as of August 28, 1999
and August 29, 1998, respectively.  Additionally, in February 1996, the Company
secured term debt of approximately $8.9 million at an annual interest rate of
7.25%, payable monthly. The principal was payable in equal quarterly payments
over a four-year period commencing March 1997. As of August 28, 1999 and August
29, 1998, the principal outstanding on the term debt was approximately $4.2
million and $6.1 million, respectively. The weighted average interest rates
incurred during fiscal 1999, 1998 and 1997 were approximately 8.4%, 8.1% and
7.9%, respectively.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
        ----------------------------------------------------------

    None.

                                       17
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings
         -----------------

    On March 11, 1998, the Company filed a civil action in the Territorial Court
of the Virgin Islands (Civil Action No. 98-229) against Lorraine Quetel, a
former employee of the Company, Lydia Magras and Bon Voyage Travel, Inc.  The
Company alleges that such parties were involved in the employee defalcation that
management believes occurred during the Company's fiscal year ended May 31,
1997.  The Company is seeking a preliminary injunction and damages against the
former employee and the other parties allegedly involved in the theft against
the Company.

    On January 19, 1999, the defendant, Lydia Magras, filed a petition for
Bankruptcy (Chapter 7) in the United States Bankruptcy Court, District of St.
Thomas.  A Notice of Appearance was filed on February 2, 1999 on behalf of the
Company.  A trustee was appointed, but due to a conflict of interest, he has
withdrawn from the case.  Anna Paieonsky was appointed as trustee in this matter
at the meeting of the creditors held on May 20, 1999.

    On June 10, 1998, the Company filed a civil action (the "Complaint") in the
United States District Court for the District of Delaware (Civil Action No. 98-
315-SLR) against DRHC, Stephen G.E. Crane, DRHC's controlling shareholder, Young
Caribbean Jewelry Company Limited, a Cayman Islands corporation, Alliance
International Holdings Limited, a Bahamian corporation, and CEI Distributors
Inc., a British Virgin Islands corporation, each an affiliate of DRHC. The
Company alleges breach of the Merger Agreement among the Company, DRHC and
certain affiliates of DRHC and also alleges claims of misrepresentation and
civil conspiracy, among other causes of action. The Company is seeking monetary
damages, including, without limitation, consequential damages relating to harm
to its business. On July 15, 1998, the defendants moved to dismiss the Complaint
on jurisdictional grounds. On March 31, 1999, the court issued an order denying
the defendants' motions to dismiss. On May 21, 1999, the defendants filed their
Answer, Affirmative Defenses, Counterclaims and Third Party Complaint. The
defendants allege counterclaims against the Company and others for fraud,
negligent misrepresentations, breach of the covenant of good faith and fair
dealing and breach of the Merger Agreement, unfair competition and business
libel, among others, primarily stemming from their allegations that the Company
was responsible for their failure to consummate the Merger Agreement.

    On March 22, 1999, a class action complaint was filed in the United States
District Court for the District of Delaware (Civil Action No.99-176) against the
Company, certain of its former officers and directors, DRHC and Stephen G.E.
Crane.  The complaint alleges that the defendants violated federal securities
laws by failing to disclose that DRHC's financing commitment to purchase the
Company's shares expired on April 30, 1998, before the Company's stockholders
were scheduled to vote to approve the merger between the Company and DRHC at the
May 8, 1998 special meeting of stockholders.  The plaintiffs are seeking
monetary damages, including, without limitation, reasonable expenses in
connection with this action.  On August 5, 1999, the Company moved to dismiss
the complaint.  This motion remains pending.

    The Company is involved in various other legal proceedings which, in the
opinion of management, will not result in a material adverse effect on the
financial condition or results of operations.

                                       18
<PAGE>

ITEM 6.  Exhibits and Reports of Form 8-K
         --------------------------------

(a)  Exhibits

     3.1   The Amended and Restated Certificate of Incorporation of the Company
           is incorporated herein by reference to Exhibit 3.3 to Amendment No. 1
           to the Company's Registration Statement on Form S-1, Registration
           No. 33-40907, filed with the Securities and Exchange Commission on
           July 10, 1992 ("Amendment No. 1 to the Form S-1").

     3.2   The Amended and Restated By-Laws of the Company are incorporated
           herein by reference to Exhibit 3.3 to the Company's Current Report on
           Form 8-K filed with the Securities and Exchange Commission on
           February 24, 1999.

    10.44  Termination Subsequent of Change in Control between L.S. Wholesale,
           Inc., Little Switzerland, Inc. and Raoul Mills, dated as of October
           1, 1998 is filed herewith as Exhibit 10.44.

    27.1   Financial Data Schedule is filed herewith as Exhibit 27.1.


(b)  Reports on Form 8-K during the quarter ended August 28, 1999. The
     registrant filed the following Current Reports on Form 8-K during the three
     month period ended August 28, 1999:

     1.    On June 18, 1999, the Company filed a Current Report on Form 8-K
           disclosing that the Company had received notification from The Nasdaq
           Stock Market, Inc. ("NASDAQ") that the Company will not remain
           eligible for continued listing on the Nasdaq National Market System
           ("NMS") unless its common stock demonstrated compliance with NASDAQ's
           $1.00 minimum bid price during the period ending September 6, 1999.

     2.    On July 19, 1999, the Company filed a Current Report on Form 8-K
           disclosing that the Company had received notification from NASDAQ
           that the Company will not remain eligible for continued listing on
           the NMS unless its common stock demonstrates compliance with NASDAQ's
           $5 million minimum public float value during the period ending
           October 7, 1999.

     3.    On August 25, 1999, the Company filed a Current Report on Form 8-K
           announcing that Robert L. Baumgardner had been named as the Company's
           President and Chief Executive Officer, effective August 17, 1999. Mr.
           Baumgardner also was appointed as a Class I Director, increasing the
           Board to six members.

                                       19
<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.


                                     LITTLE SWITZERLAND, INC.


Date: October 12, 1999               /s/ Patrick J. Hopper
                                     -------------------------------------------
                                     Patrick J. Hopper
                                     Chief Financial Officer,
                                     Vice President and Treasurer
                                     [Authorized Officer and
                                     Principal Financial and Accounting Officer]

                                       20