<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended JUNE 24, 2000
                                                 -------------

                         Commission file number 1-12082

                              HANOVER DIRECT, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


               DELAWARE                              13-0853260
        -----------------------             ---------------------------------
        (State of incorporation)            (IRS Employer Identification No.)


1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY               07087
--------------------------------------------            --------------
  (Address of principal executive offices)               (Zip Code)


                                 (201) 863-7300
                                -----------------
                               (Telephone number)


Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X  NO
                                             --    --
Common stock, par value $.66 2/3 per share: 213,772,980 shares outstanding as of
August 3, 2000.


<PAGE>   2


                              HANOVER DIRECT, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

Part I - Financial Information                                                                             Page
                                                                                                           ----

<S>                                                                                                       <C>
    Item 1.  Financial Statements

        Condensed Consolidated Balance Sheets -
           June 24, 2000 and December 25, 1999.............................................................  3

        Condensed Consolidated Statements of Income (Loss) -
           thirteen and twenty-six weeks ended June 24, 2000 and June 26, 1999 ............................  5

        Condensed Consolidated Statements of Cash Flows -
           twenty-six weeks ended June 24, 2000 and June 26, 1999..........................................  6

        Notes to Condensed Consolidated Financial Statements...............................................  7

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

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk.................................... 17

Part II - Other Information

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

    Item 4.  Submission of Matters to a Vote of Security-Holders........................................... 18

    Item 5.  Other Information............................................................................. 18

    Item 6.  Exhibits and Reports on Form 8-K.............................................................. 18

    Signature.............................................................................................. 19
</TABLE>



                                       2
<PAGE>   3




PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                      HANOVER DIRECT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                             JUNE 24,            DECEMBER 25,
                                                                2000                1999
                                                       ------------------      --------------
ASSETS

<S>                                                       <C>                  <C>
Current Assets:
      Cash and cash equivalents                             $     1,250          $      2,849
      Accounts receivable, net                                   27,922                29,287
      Inventories                                                64,480                54,816
      Prepaid catalog costs                                      21,644                20,305
      Deferred tax asset, net                                     3,300                 3,300
      Other current assets                                        2,622                 2,935
                                                            -----------          ------------
                              Total Current Assets              121,218               113,492
                                                            -----------          ------------

Property and equipment, at cost:
      Land                                                        4,634                 4,634
      Buildings and building improvements                        23,367                23,269
      Leasehold improvements                                      9,840                 9,491
      Furniture, fixtures and equipment                          56,137                53,863
      Construction in progress                                    4,995                 1,990
                                                            -----------          ------------
                                                                98,973                93,247
      Accumulated depreciation and amortization                (50,571)              (46,360)
                                                            -----------          ------------
      Property and equipment, net                                48,402                46,887

      Goodwill, net                                              16,075                16,336
      Deferred tax asset, net                                    11,700                11,700
      Other assets                                                3,007                 3,004
                                                            -----------          ------------
                              Total Assets                  $   200,402          $    191,419
                                                            ===========          ============
</TABLE>



           See notes to condensed consolidated financial statements.

                                       3
<PAGE>   4



                      HANOVER DIRECT, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                              JUNE 24,         DECEMBER 25,
                                                                                2000              1999
                                                                              ----------       ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                           <C>             <C>
Current Liabilities:
     Short-term borrowings                                                    $  25,000        $      --
     Current portion of long-term debt and capital lease obligations              3,678            3,257
     Accounts payable                                                            63,423           63,549
     Accrued liabilities                                                         17,283           24,284
     Customer prepayments and credits                                             4,459            4,412
                                                                              ---------        ---------
                    Total Current Liabilities                                   113,843           95,502
                                                                              ---------        ---------

Non-current Liabilities:
     Long-term debt                                                              54,102           39,578
     Other liabilities                                                            2,460            2,474
                                                                              ---------        ---------
                    Total Non-current Liabilities                                56,562           42,052
                                                                              ---------        ---------
                    Total Liabilities                                           170,405          137,554
                                                                              ---------        ---------

Shareholders' Equity:
     Series B Convertible Additional Preferred Stock, $10 stated
      value, authorized, issued and outstanding: none at June 24,
      2000 and 634,900 shares at December 25, 1999                                   --            6,318
     Common Stock, $.66 2/3  par value, authorized 300,000,000
      shares; issued 214,426,365 shares at June 24, 2000 and
      211,519,511 shares at December 25, 1999                                   142,951          141,013
     Capital in excess of par value                                             308,821          301,088
     Accumulated deficit                                                       (417,984)        (390,763)
                                                                               --------        ---------
                                                                                 33,788           57,656
Less:
     Treasury stock, at cost (652,552 shares at June 24, 2000 and                (1,829)          (1,829)
     December 25, 1999)
     Notes receivable from sale of Common Stock                                  (1,962)          (1,962)
                                                                              ---------        ---------
                    Total Shareholders' Equity                                   29,997           53,865
                                                                              ---------        ---------

                    Total Liabilities and Shareholders' Equity                $ 200,402        $ 191,419
                                                                              =========        =========
</TABLE>





           See notes to condensed consolidated financial statements.

                                       4
<PAGE>   5




                     HANOVER DIRECT, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
               (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             13 WEEKS ENDED                  26 WEEKS ENDED
                                                                  -------------------------------     ------------------------------

                                                                     JUNE 24,        JUNE 26,         JUNE 24,           JUNE 26,
                                                                       2000           1999              2000               1999
                                                                   -----------    ------------      ------------       ------------
<S>                                                               <C>             <C>               <C>              <C>
Net Revenues

Operating costs and expenses:                                      $143,406        $  131,237        $  273,556       $   258,951
                                                                   --------          --------        ----------       -----------
     Cost of sales and operating expenses                            96,147            82,624           184,377           164,528
     Write-down of inventory of discontinued catalogs (recovery)         --              (324)               --              (324)
     Selling expenses                                                37,053            34,072            69,020            66,018
     General and administrative expenses                             19,074            15,882            36,927            30,329
     Depreciation and amortization                                    2,479             2,243             4,938             4,544
                                                                   --------          --------        ----------       -----------
                                                                    154,753           134,497           295,262           265,095
                                                                   --------          --------        ----------       -----------
(Loss) from operations                                              (11,347)           (3,260)          (21,706)           (6,144)
                                                                   --------          --------        ----------       -----------
     Interest expense, net                                            2,309             2,333             5,323             3,480
                                                                   --------          --------        ----------       -----------
(Loss) before income taxes                                          (13,656)           (5,593)          (27,029)           (9,624)
     Income tax provision                                                30               201               105               394
                                                                   --------          --------        ----------       -----------
Net (loss)                                                          (13,686)           (5,794)          (27,134)          (10,018)


Preferred stock dividends                                                --               158                87               317
                                                                   --------          --------        ----------       -----------
Net (loss) applicable to common shareholders                       $(13,686)         $ (5,952)       $  (27,221)       $  (10,335)
                                                                   ========          ========        ==========        ==========

Net (loss) per share:
     Net (loss) per share - basic and diluted                      $   (.06)         $   (.03)       $     (.13)       $     (.05)
                                                                   ========          ========        ==========        ==========
     Weighted average common shares outstanding -
     basic and diluted (thousands)                                  213,553           210,634           212,742           210,539
                                                                   =========         ========        ==========        ==========

</TABLE>
           See notes to condensed consolidated financial statements.


                                       5


<PAGE>   6

                      HANOVER DIRECT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS OF DOLLARS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                        FOR THE 26 WEEKS ENDED
                                                                                          ----------------------------------------
                                                                                               JUNE 24,                   JUNE 26,
                                                                                                2000                       1999
                                                                                           -----------                   -------
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                                        <C>                      <C>
Net (loss)                                                                                 $   (27,134)             $    (10,018)
Adjustments to reconcile net (loss) to net cash (used)
     by operating activities:
     Depreciation and amortization, including deferred fees                                      6,804                     5,705
     Provision for doubtful accounts                                                             2,322                     1,143
     Write-down of inventory of discontinued catalogs (recovery)                                    --                      (324)
     Compensation expense related to stock options                                               2,474                     1,394
Changes in assets and liabilities:
     Accounts receivable                                                                          (957)                    5,310
     Inventories                                                                                (9,664)                    9,336
     Prepaid catalog costs                                                                      (1,339)                   (4,758)
     Accounts payable                                                                             (126)                  (17,331)
     Accrued liabilities                                                                        (5,678)                     (989)
     Customer prepayments and credits                                                               47                       169
     Other, net                                                                                   (630)                     (734)
                                                                                           -----------                ----------
Net cash (used) by operating activities                                                        (33,881)                  (11,097)
                                                                                           -----------                ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisitions of property and equipment                                                     (5,991)                   (1,010)
     Proceeds from sale of Blue Ridge Associates                                                   838                        --
                                                                                           -----------                ----------
Net cash (used) by investing activities                                                         (5,153)                   (1,010)
                                                                                           -----------                ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings under Congress revolving loan facility                                 $    27,644              $      8,545
     Net borrowings (payments) under Congress term loan facility                                11,344                      (750)
     Borrowings under Richemont line of credit facility                                         25,000                        --
     Redemption of Term Financing Facility                                                     (16,000)                       --
     Redemption of Industrial Revenue Bonds                                                     (8,000)                       --
     Payment of debt issuance costs                                                             (2,325)                     (998)
     Proceeds from issuance of Common Stock                                                        848                       425
     Series B Convertible Additional Preferred Stock dividends                                    (920)                       --
     Other, net                                                                                   (156)                     (195)
                                                                                           -----------                ----------
Net cash provided by financing activities                                                       37,435                     7,027
                                                                                           -----------                ----------
Net decrease in cash and cash equivalents                                                       (1,599)                   (5,080)
Cash and cash equivalents at the beginning of the year                                           2,849                    12,207
                                                                                           -----------                ----------
Cash and cash equivalents at the end of the period                                         $     1,250              $      7,127
                                                                                           ===========                ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:

     Interest                                                                              $     3,395              $      2,186
                                                                                           ===========                ==========
     Income taxes                                                                          $       172              $        579
                                                                                           ===========                ==========
 Non-cash investing and financing activities:
      Capital lease obligations                                                            $       144              $         81
                                                                                           ===========                ==========
      Redemption of Series B Convertible Additional Preferred Stock                        $     6,349              $         --
                                                                                           ===========                ==========
</TABLE>
           See notes to condensed consolidated financial statements.

                                       6
<PAGE>   7


                      HANOVER DIRECT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.         BASIS OF PRESENTATION

           The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not include all information and footnotes necessary for a
fair presentation of financial condition, results of operations and cash flows
in conformity with generally accepted accounting principles. Reference should be
made to the annual financial statements, including the footnotes thereto,
included in the Hanover Direct, Inc. (the "Company") Annual Report on Form 10-K
for the fiscal year ended December 25, 1999. In the opinion of management, the
accompanying unaudited interim condensed consolidated financial statements
contain all material adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial condition, results of operations and
cash flows of the Company and its consolidated subsidiaries for the interim
periods. Operating results for interim periods are not necessarily indicative of
the results that may be expected for the entire year. Certain prior year amounts
have been reclassified to conform to the current year presentation.

2.         RETAINED EARNINGS RESTRICTIONS

           The Company is restricted from paying dividends at any time on its
Common Stock or from acquiring its capital stock by certain debt covenants
contained in agreements to which the Company is a party.

3.         NET (LOSS) PER SHARE

           Net (loss) per share is computed using the weighted average number of
common shares outstanding in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." As a net
loss was incurred for the periods reported in the accompanying condensed
consolidated statements of income (loss), the weighted average number of shares
used in the calculation for diluted net loss per share excludes stock options
and convertible preferred stock.

4.         SEGMENT REPORTING

           The Company has two reportable segments according to the criteria
established by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information": direct commerce and business-to-business ("B-to-B")
services. The direct commerce segment is comprised of the Company's portfolio of
branded specialty mail-order catalogs and connected Internet Web sites, as well
as its retail operations, all of which market products directly to the consumer.
Revenues for the direct commerce segment are derived primarily from the sale of
merchandise through the Company's catalogs, Internet Web sites and retail
outlets. Revenues for the direct commerce segment are also derived from the
Company's various upsell initiatives. The B-to-B services segment represents the
Company's e-commerce support and fulfillment operations. External revenues for
the B-to-B services segment are derived primarily from e-commerce transaction
services, such as order processing, customer care, and shipping and distribution
services initiated via the Internet. Inter-segment revenues for the B-to-B
services segment are derived from the performance of the aforementioned services
to the direct commerce segment in accordance with an intercompany services
agreement. These services are provided to the direct commerce segment whether
orders are placed through the Internet or through more traditional mail-in or
telephone call-in mediums.

           The Company's management reviews income (loss) from operations to
evaluate performance and allocate resources.


                                       7
<PAGE>   8

           Reportable segment data were as follows (in thousands of dollars):

<TABLE>
<CAPTION>


RESULTS FOR THE 13 WEEKS                     DIRECT                B-TO-B             ELIMINATIONS/
ENDED JUNE 24, 2000:                        COMMERCE              SERVICES              ALL OTHER           CONSOLIDATED
                                       -------------------   --------------------   ------------------   -------------------
<S>                                     <C>                   <C>                   <C>                  <C>
Net Revenues from External Customers     $       136,323       $          7,083     $               -    $          143,406
Inter-segment Revenues                                 -                 23,581               (23,581)                    -

Income/ (Loss) from Operations                     4,023                (10,902)               (4,468)              (11,347)
Interest Income/(Expense)                         (1,609)                  (540)                 (160)               (2,309)
                                       -------------------   --------------------   ------------------   -------------------
Income/ (Loss) before Income Taxes       $         2,414     $          (11,442)    $          (4,628)   $          (13,656)
                                       ===================   ====================   ==================   ====================



RESULTS FOR THE 13 WEEKS
ENDED JUNE 26, 1999:


Net Revenues from External Customers     $        130,185      $           1,052      $            -     $           131,237
Inter-segment Revenues                                  -                 24,967             (24,967)                      -

Income/ (Loss) from Operations                      1,737                 (4,997)                  -                  (3,260)
Interest Income/(Expense)                            (585)                (1,748)                  -                  (2,333)
                                       -------------------   -------------------    ------------------   --------------------
Income/ (Loss) before Income Taxes       $          1,152      $          (6,745)     $            -     $            (5,593)
                                       ===================   ====================   ==================   ====================


<CAPTION>
RESULTS FOR THE 26 WEEKS                     DIRECT                B-TO-B             ELIMINATIONS/
ENDED JUNE 24, 2000:                        COMMERCE              SERVICES              ALL OTHER           CONSOLIDATED
                                       -------------------   --------------------   ------------------   --------------------
<S>                                     <C>                   <C>                   <C>                  <C>

Net Revenues from External Customers    $        259,927       $         13,629       $            -     $           273,556
Inter-segment Revenues                                 -                 46,679              (46,679)                      -

Income/ (Loss) from Operations                     3,748                (18,675)              (6,779)                (21,706)
Interest Income/(Expense)                         (3,127)                (1,640)                (556)                 (5,323)
                                       -------------------   --------------------   ------------------   ---------------------
Income/ (Loss) before Income Taxes      $            621       $        (20,315)      $       (7,335)    $           (27,029)
                                       ===================   ====================   ==================   ====================

RESULTS FOR THE 26 WEEKS
ENDED JUNE 26, 1999:


Net Revenues from External Customers    $        257,198       $          1,753       $            -     $           258,951
Inter-segment Revenues                                 -                 49,984              (49,984)                      -

Income/ (Loss) from Operations                     2,443                 (8,587)                   -                  (6,144)
Interest Income/(Expense)                           (879)                (2,601)                   -                  (3,480)
                                       -------------------   --------------------   ------------------   --------------------
Income/ (Loss) before Income Taxes      $          1,564      $         (11,188)      $            -     $            (9,624)
                                        =================     ===================   ===================  ====================
</TABLE>


                                       8
<PAGE>   9
           During the first quarter of 2000, the Company, as part of its ongoing
strategic initiative to reposition itself as both a specialty direct marketer
and as a provider of B-to-B e-commerce transaction services, modified its
business segmentation, resulting in the reclassification of certain general and
administrative expenses from its direct commerce and B-to-B services segments to
the corporate level. Accordingly, the Company's "Eliminations/All Other"
category now includes these corporate operating expenses as well as
inter-segment eliminations, and non-reportable operating segments (primarily
the Company's Always in Style joint venture). Segmented income/(loss) from
operations for the thirteen-weeks and twenty-six weeks ended June 26, 1999, on
a pro-forma basis to reflect this modification, would have been $2.3 million
and  $3.7 million for the direct commerce segment, $(5.2) million and $(8.7)
million for the B-to-B services segment and $(0.4) million and $(1.2) million
for all other, respectively.

5.       CONVERSION OF SERIES B CONVERTIBLE ADDITIONAL PREFERRED STOCK

           In February 2000, all 634,900 outstanding shares of the Company's
Series B Convertible Additional Preferred Stock issued in connection with the
Company's 1995 acquisition of Aegis Safety Holdings Inc., publisher of The
Safety Zone catalog, were redeemed via the issuance of 2,193,317 shares of the
Company's Common Stock. The market value for the Company's shares on the date
of redemption was $2.75 per share. Additionally, the Company made a $0.9
million payment for all unpaid cumulative preferred dividends.

6.       CONTINGENCIES

           A class action lawsuit was commenced on March 3, 2000 entitled Edwin
L. Martin v. Hanover Direct, Inc. and John Does 1 through 10, bearing case no.
CJ2000-177 in the State Court of Oklahoma (District Court in and for Sequoyah
County). Plaintiff commenced the action on behalf of himself and a class of
persons who have at any time purchased a product from the Company and paid for
an "insurance charge." The complaint sets forth claims for breach of contract,
unjust enrichment, recovery of money paid absent consideration, fraud and a
claim under the New Jersey Consumer Fraud Act. The complaint alleges that the
Company charges its customers for delivery insurance even though, among other
things, the Company's common carriers already provide insurance and the
insurance charge provides no benefit to the Company's customers. Plaintiff also
seeks a declaratory judgment as to the validity of the delivery insurance. The
damages sought are (i) an order directing the Company to return to the plaintiff
and class members the "unlawful revenue" derived from the insurance charges,
(ii) declaring the rights of the parties, (iii) permanently enjoining the
Company from imposing the insurance charge, (iv) awarding threefold damages of
less than $75,000 per plaintiff and per class member, and (v) attorney's fees
and costs. The Company's motion to dismiss is pending and discovery has been
commenced.

           At the end of January 2000, the Company received a letter from the
Federal Trade Commission ("FTC") conducting an inquiry into the marketing of The
Shopper's Edge club to determine whether, in connection with such marketing, any
entities have engaged in (1) unfair or deceptive acts or practices in violation
of Section 5 of the FTC Act and/or (2) deceptive or abusive telemarketing acts
or practices in violation of the FTC's Telemarketing Sales Rule. The inquiry was
undertaken pursuant to the provisions of Section 6, 9 and 10 of the FTC Act.
Following such an investigation, the FTC may initiate an enforcement action if
it finds "reason to believe" that the law is being violated. When there is
"reason to believe" that a law violation has occurred, the FTC may issue a
complaint setting forth its charges. If the respondent elects to settle charges,
it may sign a consent agreement (without admitting liability) by which it
consents to entry of a final order and waives all right to judicial review. If
the FTC accepts such a proposed consent, it places the order on the record for
sixty days of public comment before determining whether to make the order final.
The Company believes that it complied with all enumerated aspects of the
investigation. It has not received notice of an enforcement action or a
complaint against it.

7.       SUBSEQUENT EVENTS

         Effective August 7, 2000, the Company and Richemont Finance S.A., the
Company's largest shareholder owning approximately 48.2% of the Company's Common
Stock ("Richemont"), entered into a binding agreement for the private sale by
the Company of a new series of the Company's preferred stock, Series A
Cumulative Participating Preferred Stock, par value $.01 per share, to Richemont
or one of its affiliates for a purchase price of $70.0 million. The net proceeds
of such sale, estimated to be approximately $67.5 million, will be used to repay
and retire all amounts outstanding under the Richemont $10.0 million Line of
Credit and the Richemont $25.0 million Line of Credit (as hereafter defined) and
for development of the Company's fulfillment and distribution centers with the
balance to be used for working capital and general corporate purposes.

         The preferred stock to be sold to Richemont will bear a dividend at the
annual rate of 15% payable quarterly in cash or in kind, will have a liquidation
preference equal to its purchase price (plus accrued and unpaid dividends), will
have only such voting rights as are required by law (except in the case of
certain defaults in the payment of dividends) and will be redeemable on the
fifth anniversary of the date of issuance or earlier under certain circumstances
involving a change of control, asset disposition or equity sale (all as
defined). The sale and issuance of the preferred stock was approved by the
Company's Transactions Committee and its independent Directors as well as its
lender. The closing of the sale of the preferred stock is subject to customary
closing conditions but does not require shareholder consent. Such closing is
expected to take place by the end of August 2000.

         Additionally, the Company negotiated an amendment, dated August 8,
2000 effective April 28, 2000, to its credit facility with Congress Financial
Corporation which modified certain financial covenants contained in the credit
facility requiring it to maintain minimum levels of net worth and working
capital. The amendment also obligates the Company to deliver the letter of
intent to Congress setting forth Richemont's firm commitment to purchase 1.4
million shares of the aforementioned preferred stock by no later than August
14, 2000, with the closing of the purchase transaction occurring no later than
September 22, 2000 (unless such date is extended by Congress in writing).


                                       9
<PAGE>   10



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

           The following table sets forth, for the fiscal periods indicated, the
percentage relationship to revenues of certain items in the Company's Condensed
Consolidated Statements of Income (Loss).
<TABLE>
<CAPTION>
                                                                                            13 WEEKS ENDED
                                                                          ----------------------------------------------
                                                                              JUNE 24,                     JUNE 26,
                                                                                 2000                         1999
                                                                           ---------------             ------------------
<S>                                                                        <C>                         <C>
Net revenues                                                                     100.0%                       100.0%
Cost of sales and operating expenses                                              67.1                         62.7
Selling expenses                                                                  25.8                         26.0
General and administrative expenses                                               13.3                         12.1
Depreciation and amortization                                                      1.7                          1.7
(Loss) from operations                                                            (7.9)%                       (2.5)%

</TABLE>

RESULTS OF OPERATIONS - THIRTEEN-WEEKS ENDED JUNE 24, 2000 COMPARED WITH
THIRTEEN-WEEKS ENDED JUNE 26, 1999

           Net (Loss). The Company reported a net loss of $(13.7) million or
$(.06) per share for the thirteen-weeks ended June 24, 2000 compared with a net
loss of $(5.8) million or $(.03) per share for the comparable period last year.
The per share amounts were calculated based on weighted average shares
outstanding of 213,553,491 and 210,634,049 for the current and prior year
periods, respectively. This increase in weighted average shares was due to the
February 2000 redemption of the Company's Series B Convertible Additional
Preferred Stock via the issuance of 2,193,317 shares of the Company's Common
Stock as well as shares issued in connection with the Company's stock option
plans.

           Compared to the comparable period last year, the $7.9 million
increase in net loss was primarily due to:

(i)         higher distribution and systems development costs primarily related
            to the expansion of the Company's business-to-business ("B-to-B")
            e-commerce transaction services operation; and

(ii)        higher general and administrative expenses,

partially offset by higher demand and product margins for the Company's core
catalog offerings.

           Revenues. Revenues increased $12.2 million (9.3%) for the
thirteen-week period ended June 24, 2000 to $143.4 million from $131.2 million
for the comparable period in 1999. This increase was primarily due to higher
revenues for the Company's core catalog offerings and revenues from the
Company's third party B-to-B e-commerce transaction services operation partly
offset by 1999 revenue from the Company's discontinued catalogs. Revenues from
core catalogs increased by $12.6 million (10.1%) due to higher demand for most
merchandise offerings. The number of customers having made a purchase from the
Company's catalogs during the 12 months preceding June 24, 2000 remained at
approximately 4 million, consistent with the number at December 25, 1999, and
the Company circulated approximately 88 million catalogs during the 2000 period
versus approximately 75 million catalogs during the 1999 thirteen-week period.
Revenues from discontinued catalogs during the second quarter of 1999 were $6.4
million.

                                       10
<PAGE>   11



           Revenues for the Company's B-to-B e-commerce transaction services
operation increased by $6.0 million from $1.1 million in the 1999 thirteen-week
period to $7.1 million for the thirteen-weeks ended June 24, 2000. This
reflected an increase in the third party client base for the Company's Internet
order processing, customer care and shipping and distribution services.

           Cost of Sales and Operating Expenses. Cost of sales and operating
expenses increased to 67.1% of revenues for the thirteen-weeks ended June 24,
2000 compared to 62.7% of revenues for the comparable period in 1999. The
increase was primarily due to higher distribution and systems development costs,
which included higher costs related to an increase in headcount as well as
higher consulting and facility/equipment rental expenses, primarily related to
the expansion of the Company's B-to-B e-commerce transaction services operation,
and higher merchandise postage expense. This was partially offset by higher
catalog product margins due to a decrease in the Company's cost of merchandise,
a higher percentage of which is now internationally sourced at lower costs.

           Selling Expenses. Selling expenses decreased to 25.8% of revenues for
the thirteen-weeks ended June 24, 2000 from 26.0% for the comparable period in
1999, primarily due to a higher revenue base derived from the Company's B-to-B
e-commerce transaction services operation. This was partially offset by lower
catalog productivity attributable to an increase in overall circulation,
including a 24% increase in prospecting which traditionally carries lower
response rates, as well as higher paper costs.

           General and Administrative Expenses. General and administrative
expenses were 13.3% of revenues for the thirteen-weeks ended June 24, 2000
versus 12.1% of revenues for the comparable period in 1999. This increase was
primarily due to higher personnel-related expenses and a higher provision for
doubtful accounts. Additionally, the Company incurred higher professional and
consulting fees attributable to the Company's strategic initiative to reposition
itself as two separate business units.

           Depreciation and Amortization. Depreciation and amortization remained
at 1.7% of revenues for the thirteen-weeks ended June 24, 2000 and for the
comparable period in 1999.

           Loss from Operations. The Company's loss from operations increased by
$8.1 million to $(11.4) million for the thirteen-weeks ended June 24, 2000 from
a loss of $(3.3) million for the comparable period in 1999. The Company's
results are comprised of the following segments:

-     Direct Commerce: Income from operations of $4.0 million for the
      thirteen-weeks ended June 24, 2000 compares to income from operations of
      $1.7 million for the thirteen-weeks ended June 26, 1999. The $2.3 million
      increase was primarily due to higher demand and product margins for the
      Company's core catalog offerings, partially offset by higher catalog costs
      reflecting higher paper costs as well as an increase in circulation,
      higher merchandise postage expense, and higher personnel-related expenses.

-     B-to-B Services: Loss from operations of $(10.9) million for the
      thirteen-weeks ended June 24, 2000 compares to a loss from operations of
      $(5.0) million for the thirteen-weeks ended June 26, 1999.  The $5.9
      million increase was primarily due to higher distribution and  systems
      development costs, which included higher costs related to an  increase in
      headcount as well as higher consulting and facility/equipment  rental
      expenses, primarily related to the expansion of the Company's  B-to-B
      e-commerce transaction services operation, and a higher provision  for
      doubtful accounts.

                                       11
<PAGE>   12



-     All Other: Loss from operations was $(4.5) million for the thirteen-weeks
      ended June 24, 2000. This reflected the 2000 inclusion of $3.9 million of
      certain corporate level general and administrative expenses ($0.4 million
      of similar expenses were included in the direct commerce and B-to-B
      services segments during 1999) and 2000 losses related to the start-up of
      the Company's Always In Style joint venture. The 2000 general and
      administrative expenses included higher personnel-related expenses and, in
      addition, the Company incurred higher professional and consulting fees
      related to the Company's strategic initiative to reposition itself as two
      separate business units.

            Interest Expense, Net. Interest expense, net was approximately $2.3
million for both the thirteen weeks ended June 24, 2000 and the thirteen-weeks
ended June 26, 1999 as higher average borrowings and interest rates during 2000
are fully offset by lower debt issuance costs.

            Income Taxes. The Company recorded a state tax provision of less
than $0.1 million for the thirteen-week period ended June 24, 2000, compared to
a state tax provision of $0.2 million for the comparable period in 1999.

RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED JUNE 24, 2000 COMPARED WITH THE
TWENTY-SIX WEEKS ENDED JUNE 26, 1999

<TABLE>
<CAPTION>

                                                                   26 WEEKS ENDED
                                                        -----------------------------------------------
                                                            JUNE 24,                      JUNE 26,
                                                               2000                         1999
                                                         ---------------             ------------------
<S>                                                      <C>                         <C>
Net revenues                                                   100.0%                          100.0%
Cost of sales and operating expenses                            67.4                            63.4
Selling expenses                                                25.2                            25.5
General and administrative expenses                             13.5                            11.7
Depreciation and amortization                                    1.8                             1.8
(Loss) from operations                                          (7.9)%                          (2.4)%
</TABLE>


           Net (Loss). The Company reported a net loss of $(27.1) million or
$(.13) per share for the twenty-six weeks ended June 24, 2000 compared with a
net loss of $(10.0) million or $(.05) per share for the comparable period last
year. The per share amounts were calculated based on weighted average shares
outstanding of 212,741,607 and 210,539,416 for the current and prior year
periods, respectively. This increase in weighted average shares was due to the
February 2000 redemption of the Company's Series B Convertible Additional
Preferred Stock via the issuance of 2,193,317 shares of the Company's Common
Stock as well as shares issued in connection with the Company's stock option
plans.

            Compared to the comparable period last year, the $17.1 million
increase in net loss was primarily due to:

(i)         higher distribution and systems development costs primarily related
            to the expansion of the Company's B-to-B e-commerce transaction
            services operation;

(ii)        higher general and administrative expenses; and

(iii)       higher interest expense/debt issuance costs,

partially offset by higher demand and margins for the Company's core catalog
offerings.

                                       12
<PAGE>   13



           Revenues. Revenues increased $14.6 million (5.6%) for the twenty-six
week period ended June 24, 2000 to $273.6 million from $259.0 million for the
comparable period in 1999. This increase was primarily due to higher revenues
for the Company's core catalog offerings and the Company's third party B-to-B
e-commerce transaction services operation, partly offset by 1999 revenue from
the Company's discontinued catalogs. Revenues from core catalogs increased by
$17.6 million (7.2%) due to higher demand for most merchandise offerings. The
Company circulated approximately 159 million catalogs during the 2000 period
versus approximately 144 million catalogs during the 1999 period. Revenues from
discontinued catalogs during the first six months of 1999 were $14.8 million.

           Revenues for the Company's B-to-B e-commerce transaction services
operation increased by $11.8 million from $1.8 million in the corresponding
1999 period to $13.6 million for the twenty-six weeks ended June 24, 2000. This
reflected an increase in the third party client base for the Company's Internet
order processing, customer care and shipping and distribution services.

           Cost of Sales and Operating Expenses. Cost of sales and operating
expenses increased to 67.4% of revenues for the twenty-six weeks ended June 24,
2000 compared to 63.4% of revenues for the comparable period in 1999. The
increase was primarily due to higher distribution and systems development costs,
which included higher costs related to an increase in headcount as well as
higher consulting and facility/equipment rental expenses, primarily related
to the expansion of the Company's B-to-B e-commerce transaction services
operation, and higher merchandise postage expense. This was partially offset by
higher catalog product margins due to a decrease in the Company's cost of
merchandise, a higher percentage of which is now internationally sourced at
lower costs.

           Selling Expenses. Selling expenses decreased to 25.2% of revenues for
the twenty-six weeks ended June 24, 2000 from 25.5% for the comparable period in
1999, primarily due to a higher revenue base derived from the Company's B-to-B
e-commerce transaction services operation. This was partially offset by lower
catalog productivity attributable to an increase in overall circulation,
including a 21% increase in prospecting which traditionally carries lower
response rates, as well as higher paper costs.

           General and Administrative Expenses. General and administrative
expenses were 13.5% of revenues for the twenty-six weeks ended June 24, 2000
versus 11.7% of revenues for the comparable period in 1999. This increase was
primarily due to higher personnel-related expenses and a higher provision for
doubtful accounts. Additionally, the Company incurred higher professional and
consulting fees attributable to the Company's strategic initiative to reposition
itself as two separate business units.

           Depreciation and Amortization. Depreciation and amortization remained
at 1.8% of revenues for the twenty-six week period June 24, 2000 from the
comparable period in 1999.

           Loss from Operations. The Company's loss from operations increased by
$15.6 million to $(21.7) million for the twenty-six weeks ended June 24, 2000
from a loss of $(6.1) million for the comparable period in 1999. The Company's
results are comprised of the following segments:

-     Direct Commerce: Income from operations of $3.8 million for the twenty-six
      weeks ended June 24, 2000 compares to income from operations of $2.5
      million for the twenty-six weeks ended June 26, 1999. The $1.3 million
      increase was primarily due to higher demand and product margins for the
      Company's core catalog offerings, partially offset by higher catalog costs
      reflecting higher paper costs as well as an increase in circulation,
      higher merchandise postage expense, and higher personnel-related expenses.

                                       13
<PAGE>   14


-     B-to-B Services: Loss from operations of $(18.7) million for the
      twenty-six weeks ended June 24, 2000 compares to a loss from operations
      of $(8.6) million for the twenty-six weeks ended June 26, 1999. The $10.1
      million increase was primarily due to higher distribution and systems
      development costs, which included higher costs related to an increase in
      headcount as well as higher consulting and facility/equipment rental
      expenses, primarily related to the expansion of the Company's B-to-B
      e-commerce transaction services operation, and a higher provision for
      doubtful accounts.

-     All Other: Loss from operations was $(6.8) million for the twenty-six
      weeks ended June 24, 2000. This reflects the 2000 inclusion of $5.7
      million of certain corporate level general and administrative expenses
      ($1.2 million of similar expenses were included in the direct commerce
      and B-to-B services segments during 1999) and 2000 losses related to the
      start-up of the Company's Always In Style joint venture. The 2000 general
      and administrative expenses primarily included higher personnel-related
      expenses and, in addition, the Company incurred higher professional and
      consulting fees related to the Company's strategic initiative to
      reposition itself as two separate business units.

           Interest Expense, Net. Interest expense, net increased $1.8 million
to $5.3 million for the twenty-six weeks ended June 24, 2000 compared to $3.5
million for the comparable period last year. This was primarily due to higher
average borrowings and interest rates during 2000, as well as higher debt
issuance costs incurred during the first quarter as a result of the March 2000
refinancing of the Company's credit facilities.

           Income Taxes. The Company recorded state tax provisions of $0.1
million and $0.4 million for the twenty-six weeks ended June 24, 2000 and June
26, 1999, respectively.

Liquidity and Capital Resources

           Net cash used in operations: During the twenty-six weeks ended June
24, 2000, net cash used by operating activities of $33.9 million was primarily
due to the funding of net losses, an increase in inventory due to a change in
buying strategy to supply increased catalog demand, and a decrease in accrued
liabilities primarily due to the payment of personnel-related obligations. The
net losses incurred were primarily the result of necessary spending for the
continuing development and expansion of the Company's B-to-B e-commerce
transaction services operation.

           Net cash used by investing activities: During the twenty-six weeks
ended June 24, 2000, net cash used by investing activities of $5.2 million was
primarily due to capital expenditures of $6.0 million, partly offset by proceeds
of $0.8 million from the sale of the Company's investment in Blue Ridge
Associates. The capital expenditures were primarily for new equipment purchases
for the Company's new electronic fulfillment and distribution facility in
Maumelle, Arkansas, as well as computer hardware and software purchases to
upgrade the Company's systems platform.

           Net cash provided by financing activities: During the twenty-six
weeks ended June 24, 2000, net cash provided by financing activities of $37.4
million was primarily due to a net increase in borrowings of $40.0 million,
partially offset by the payment of debt issuance costs of $2.3 million primarily
related to the March 2000 refinancing of the Company's credit facilities. During
March 2000, the Company refinanced $24.0 million of borrowings under the Term
Financing Facility and Industrial Revenue Bonds with additional borrowings under
the Congress Credit Facility (as hereafter defined). Furthermore, primarily
during the second quarter of 2000, the Company borrowed $25.0 million under
the Richemont $25.0 million unsecured line of credit facility to fund its
B-to-B e-commerce transaction services operation (see below).

                                       14
<PAGE>   15
           Congress Credit Facility: On March 24, 2000, the Company amended its
credit facility with Congress Financial Corporation ("Congress") to provide the
Company with a maximum credit line of up to $82.5 million (the "Congress Credit
Facility"). The Congress Credit Facility, as amended, expires on January 31,
2004 and is comprised of a revolving loan facility, a $17.5 million Tranche A
Term Loan and a $7.5 million Tranche B Term Loan. Total cumulative borrowings,
however, are subject to limitations based upon specified percentages of
eligible receivables and eligible inventory, and the Company is required to
maintain $3.0 million of excess credit availability at all times. The Congress
Credit Facility, as amended, is secured by all the assets of the Company and
places restrictions on the incurrence of additional indebtedness and on the
payment of common stock dividends. Additionally, the Company is subject to
certain financial covenants requiring it to maintain minimum levels of net
worth and working capital and achieve specified quarterly earnings/(loss)
before interest, taxes, depreciation and amortization ("EBITDA") targets.

           The amended Congress Credit Facility replaced the original $65.0
million revolving line of credit facility with Congress as well as the
Company's $16.0 million Term Financing Facility and $8.0 million of Industrial
Revenue Bonds. Both the Term Financing Facility and the Industrial Revenue
Bonds were supported by letters of credit issued by UBS, AG and guaranteed by
Richemont Finance S.A., a significant shareholder of the Company ("Richemont"),
which letters of credit were scheduled to expire on March 31, 2000. The Company
utilized $24.0 million of proceeds under the amended Congress Credit Facility
to reimburse UBS, AG for drawings on the letters of credit made by the trustees
of the Term Financing Facility and the Industrial Revenue Bonds, both of which
were required to be redeemed upon the expiration of the letters of credit.

           As of June 24, 2000, the Company had $56.7 million of borrowings
outstanding under the amended Congress Credit Facility comprised of $32.8
million under the revolving loan facility, and $16.4 million and $7.5 million of
Tranche A Term Loans and Tranche B Term Loans, respectively. The Company may
draw upon the amended Congress Credit Facility to fund working capital
requirements as needed.

           Richemont $10.0 Million Line of Credit Facility: The Company is
party to a $10.0 million unsecured line of credit facility (the "Richemont
$10.0 million Line of Credit") with Richemont. The maximum amount available to
be drawn under the Richemont $10.0 million Line of Credit (the "Maximum Amount")
was initially $10.0 million and will be reduced on a dollar-for-dollar basis
for each dollar of equity contributed to the Company or any of its subsidiaries
after March 24, 2000 by Richemont or any subsidiary or affiliate of Richemont.
If the excess availability under the Congress Credit Facility is less than $3.0
million, the Company will be required to borrow under the Richemont $10.0
million Line of Credit, and pay to Congress the amount such that the excess
availability under the Congress Credit Facility after such payment will be $3.0
million. The Company may also borrow under the Richemont $10.0 million Line of
Credit up to $5.0 million to pay trade creditors in the ordinary course of
business. The Richemont $10.0 million Line of Credit will remain in place until
the Congress Credit Facility is terminated or the Maximum Amount is reduced to
zero. As of June 24, 2000, there were no borrowings outstanding under the
Richemont $10.0 million Line of Credit.

           Richemont $25.0 Million Line of Credit Facility: On March 1, 2000,
the Company became a party to a $25.0 million unsecured line of credit
facility (the "Richemont $25.0 million Line of Credit") with Richemont to obtain
the necessary funding from Richemont to continue the development and expansion
of the Company's B-to-B e-commerce transaction services operation. The Richemont
$25.0 million Line of Credit will mature on the earlier of December 30, 2000 or
the date on which Richemont makes an equity infusion in the Company or any of
the Company's subsidiaries (such earlier date, the "Maturity Date"). As of June
24, 2000, there were $25.0 million of borrowings outstanding under the Richemont
$25.0 million Line of Credit.

           Effective August 7, 2000, the Company and Richemont entered into a
binding agreement for the private sale by the Company of a new series of the
Company's preferred stock to Richemont or one of its affiliates for an aggregate
purchase price of $70 million. The sale is expected to be completed by the end
of August 2000. The net proceeds of such sale, estimated to be approximately
$67.5 million, will be used to repay and retire all amounts outstanding under
the Richemont $10.0 million Line of Credit and the Richemont $25.0 million Line
of Credit and for development of the Company's fulfillment and distribution
centers with the balance to be used for working capital and general corporate
purposes. In light of this capital infusion, the Company will reorient its
business plan to accelerate achieving self-funding status. This reorientation
will likely reduce the rate of increase in the Company's IT spending, reduce
structural costs and reduce capital commitments towards new initiatives,
contributing to an increase in operational efficiencies. This reorientation is
consistent with the change that the Company perceives in the capital markets,
away from valuing businesses based on revenue growth and towards valuing
businesses based on cash availability and the timing of profitability. In
conjunction with this reorientation, the Company will continue its exploration
begun in the second half of 1999 of potential strategic options and financial
offerings, including targeting potential strategic, financial and operating
parties that could both complement and accelerate the Company's business
initiatives for the purpose of maximizing shareholder value, and obtaining
access to funds that would permit the Company to redeem the preferred stock to
be issued to Richemont.

           General: At June 24, 2000, the Company had $1.3 million in cash and
cash equivalents compared with $2.8 million at December 25, 1999. Working
capital and current ratios at June 24, 2000 were $7.4 million and 1.06 to 1
versus $18.0 million and 1.19 to 1 at December 25, 1999. Total cumulative
borrowings, including financing under capital lease obligations, as of June 24,
2000 aggregated $82.8 million, $54.1 million of which is classified as
long-term. Remaining availability under the Company's credit facilities, as of
June 24, 2000, was $19.3 million ($20.6 million including cash on hand). Capital
commitments at June 24, 2000 totaled approximately $5 million principally for
machinery and equipment for the Company's fulfillment and distribution centers.
The Company believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future primarily with the proceeds of the
proposed capital infusion from Richemont together with borrowings under the
Congress Credit Facility.



                                       15
<PAGE>   16
SEASONALITY

           The revenues and business for both the direct commerce and B-to-B
services operating segments are seasonal. The Company processes and ships more
catalog orders during the fourth quarter holiday season than in any other
portion of the year. Many of the Company's clients for e-commerce transaction
services experience similar seasonal trends resulting in increased order
processing during the holiday season. Accordingly, the Company recognizes a
disproportionate share of annual revenues during the last three months of the
year.

RECENTLY ISSUED ACCOUNTING STANDARDS

            In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
the Company is required to adopt at the beginning of fiscal year 2001. SFAS No.
133 establishes new accounting and reporting standards for derivative financial
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. The Company currently does not engage in
derivative and hedging activities. The effect, if any, on the Company's
financial statements has not yet been determined by the Company.


FORWARD LOOKING STATEMENTS

The following statements may be deemed to be forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995:

"In light of this capital infusion, the Company will reorient its business plan
to accelerate achieving self-funding status."

"This reorientation will likely reduce the rate of increase in the Company's IT
spending, reduce structural costs and reduce capital commitments towards new
initiatives, contributing to an increase in operational efficiencies."

"The Company believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future primarily with the proceeds of the
proposed capital infusion from Richemont together with borrowings under the
Congress Credit Facility."

Cautionary Statements

The following material identifies important factors that could cause actual
results to differ materially from those in the forward looking statements
identified above:

A general deterioration of economic conditions in the United States leading to
a reduction in consumer spending generally, or specifically with reference to
the types of merchandise which the Company offers in its catalogs or over the
Internet, or which are offered by its third-party fulfillment clients.

The failure of the Internet generally to achieve the projections made for it
with respect to growth of e-commerce or otherwise.  The imposition of
regulatory, tax or other requirements with respect to Internet sales.  Actual
or perceived technological difficulties or security issues with respect to
conducting e-commerce over the Internet generally or through the Company's
websites or those of its third-party fulfillment clients specifically.

A business failure of, or liquidity problems experienced by, one or more of the
Company's third-party fulfillment clients. The ability of the Company to enter
into new third-party fulfillment contracts and/or maintain existing third-party
fulfillment contracts.

The ability of the Company to equip and open its new fulfillment center at the
same time it is receiving inventory from customers who require fulfillment
services in time for the fall and holiday selling seasons.

The ability of the Company to attract and retain senior and mid-level
management generally (including in the erizon sales force and in the management
of the catalogs) and specifically with the requisite experience in e-commerce
or Internet businesses.

The risk that key vendors or suppliers may reduce or withdraw trade credit to
the Company, convert the Company to a cash basis or otherwise change credit
terms, or require the Company to provide letters of credit to support its
purchase of inventory, increasing the Company's cost of capital and impacting
the Company's ability to obtain merchandise in a timely manner.

The inability of the Company to timely obtain and distribute merchandise
leading to an increase in backorders and cancellations.

An increase in postage, printing and paper prices and/or the inability of the
Company to reduce expenses generally as required.

The inability of the Company to access the capital markets due to market
conditions generally and the Company's business situation specifically and/or
the inability of the Company to close the proposed sale of preferred stock to
Richemont in a timely fashion.

Cost constraints and the inability to access sufficient additional capital to
maintain and upgrade the Company's information technology platform in order
to serve the e-commerce needs of companies doing business (or desiring to do
business) on the Internet.

The Company's dependence to date on Richemont and its affiliates for financial
support and the fact that they are not under any obligation ever to provide any
additional support in the future.




                                       16
<PAGE>   17




ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

                                       17
<PAGE>   18




PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           See Note 5. Contingencies, of the Notes to the Condensed Consolidated
Financial Statements included in Part I, Item 1 of this report for a discussion
of the status of certain legal proceedings pending against the Company and its
subsidiaries.


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

        See Part II, Item 4 of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 25, 2000 for the results of the votes taken at
the Company's 2000 annual meeting held on May 4, 2000.

ITEM 5. OTHER INFORMATION

        Effective August 7, 2000, the Company and Richemont, the Company's
largest shareholder owning approximately 48.2% of the Company's Common Stock,
entered into a binding agreement for the private sale by the Company of a new
series of the Company's preferred stock, Series A Cumulative Participating
Preferred Stock,  par value $.01 per share, to Richemont or one of its
affiliates for a purchase price of $70 million.  The net proceeds of such sale,
estimated to be approximately $67.5 million,  will be used to repay and retire
all amounts outstanding under the Richemont $10.0 million Line of Credit and the
Richemont $25.0 million Line of Credit and for development of the Company's
fulfillment and distribution centers with the balance to be used for working
capital and general corporate purposes.

        The preferred stock to be sold to Richemont will bear a dividend at the
annual rate of 15% payable quarterly in cash or in kind, will have a liquidation
preference equal to its purchase price (plus accrued and unpaid dividends), will
have only such voting rights as are required by law (except in the case of
certain defaults in the payment of dividends) and will be redeemable on the
fifth anniversary of the date of issuance or earlier under certain circumstances
involving a change of control, asset disposition or equity sale (all as
defined). The sale and issuance of the preferred stock was approved by the
Company's Transactions Committee and its independent Directors as well as its
lender. The closing of the sale of the preferred stock is subject to customary
closing conditions but does not require shareholder consent. Such closing is
expected to take place by the end of August 2000.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1    Intercompany Services Agreement by and between erizon, Inc. and Hanover
        Brands,  Inc.
10.2    Sixteenth Amendment to Loan and Security Agreement dated as of August
        8, 2000 by and among Congress Financial Corporation and the Company and
        certain of its subsidiaries.
10.3    Commitment Letter dated August 7, 2000 between the Company and
        Richemont Finance S.A.

27      Financial Data Schedule (EDGAR filing only).

(b) Reports on Form 8-K

None

                                       18

<PAGE>   19

                                   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.



HANOVER DIRECT, INC.

Registrant

       By: /s/ Brian C. Harriss
          -----------------------------------------------
           Brian C. Harriss
           Senior Vice-President and Chief Financial Officer
           (On behalf of the Registrant and as principal financial officer)





       Date: August 8, 2000


                                       19