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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9169

BERNARD CHAUS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)





New York 13-2807386
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

1410 BROADWAY, NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(212) 354-1280

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




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


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

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

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant on September 29, 1995 was $41,342,351.

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



Date Class Shares Outstanding
- ---------------------- --------------------------------- ----------------------

September 29, 1995 Common Stock, $0.01 par value 21,108,641




Location in Form 10-K in which
Documents Incorporated by Reference Incorporated
- ---------------------------------------------------------- ----------------------------

Portions of registrant's Proxy Statement for the Annual Part III
Meeting of Stockholders to be held in November 1995.

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PART I

ITEM 1. BUSINESS.

GENERAL

The Company designs, arranges for the manufacture of and markets an
extensive range of women's career and casual sportswear and dresses which are
marketed principally under the CHAUS(Registered Trademark) and CHAUS SPORT
(Registered Trademark) trademarks. In late fiscal 1994, the Company initiated
a corporate restructuring program characterized by a strengthened management
team, reduced selling, general and administrative expenses and, in an effort
to capitalize on the Company's well-recognized brand name, a return to its
historic product positioning. The Company's enhanced product line is being
repositioned at the high end of the "upper moderate" through the opening
price points of the "better" categories. The Company recently entered into a
license agreement (the "Nautica License Agreement") with Nautica Apparel Inc.
("Nautica"), a leading name in men's apparel, under which the Company will
design, contract for the manufacture of and market a new women's apparel line
under the Nautica(Registered Trademark) brand name.

CORPORATE STRATEGY/REPOSITIONING

The following summarizes the major aspects of the Company's restructuring
and its new corporate strategy.

Strengthen Management Team. At the core of the restructuring effort has
been the recruitment of seasoned industry professionals, led by the hiring in
September 1994 of Andrew Grossman, the then President of Jones Apparel Group
Inc., as the Company's new Chief Executive Officer. In connection with the
hiring of Mr. Grossman, the Company created a new Office of the Chairman,
consisting of Josephine Chaus, Chairwoman of the Board and principal
stockholder of the Company, and Mr. Grossman, to direct its new strategy and
its operations. Other additions to the core management team include Wayne
Miller, the Company's Executive Vice President and Chief Financial Officer,
Judith Leech, the Company's Vice President-Design, and Donna Poach, the
Company's Vice President-Production.

Increase Operating Leverage. The Company began implementing an aggressive
expense reduction program in late fiscal 1994 which was primarily responsible
for a $10.6 million reduction in selling, general and administrative expenses
in fiscal 1995. Key initiatives behind the cost savings include a headcount
reduction, the centralization of certain operating and administrative
functions, the closing of office locations, the consolidation of distribution
facilities and the closing of selected Company outlet stores. Because certain
of the cost reductions were not in effect for all of fiscal 1995, the Company
believes that selling, general and administrative expenses will be lower in
fiscal 1996 than in fiscal 1995.

Strategic Product Positioning. The Company is refocusing its product lines
to offer higher quality merchandise positioned at the high end of the "upper
moderate" through the opening price points of the "better" categories. The
Company believes that its product quality in terms of fabric choice, trimming
and fit is comparable to, yet priced below, its competitors' "better"
offerings.

Collections Merchandising Strategy. As part of the Company's product
repositioning strategy, the Company has shifted its attention from single,
fashion-driven items to collections with an emphasis on updated traditional
styling. This shift to collections has enabled the Company to move away from
commodity pricing for single, fashion-driven items and to reduce the levels
of goods sold at off-price. The Company believes that there is a general
shift in the industry back to ensemble dressing, and the Company's collection
approach allows it to take advantage of such trend.

Door Penetration; Door Expansion. The Company believes that it is
currently underpenetrated within its customers compared to other major
women's apparel manufacturers. The Company will seek to increase the number
of individual stores ("doors") within store groups owned by its major
customers in which its products are distributed and to increase the amount of
retail floor space allocated to its products.

Capitalize on Capabilities through Nautica Relationship. The Company
believes that the Nautica License Agreement represents an opportunity for
growth. This relationship with Nautica will provide the

1






Company with access to "better" to "bridge" departments while creating an
alliance with a leading company in the apparel industry. Under the Nautica
License Agreement, the Company is obligated, among other things, to raise at
least $10.0 million in equity capital by December 31, 1995. See "--License
Agreement with Nautica" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

PRODUCTS

The Company's products are divided into three principal product
categories: (i) career sportswear; (ii) weekend casual sportswear; and (iii)
dresses. As part of its restructuring/repositioning strategy, the Company has
shifted its product focus from single, fashion-driven items to full
collections with an emphasis on traditional styling. With this repositioning,
the Company also has enhanced its design and quality with, in certain cases,
an increase in price points to the high end of the "upper moderate" through
the opening price points of the "better" categories. The Company's career and
weekend casual sportswear are marketed as coordinated groups of jackets,
skirts, pants, blouses, sweaters and related accessories which, while sold as
separates, are coordinated by styles, color schemes and fabrics and are
designed to be merchandised and worn together. The Company believes that the
target consumers for its products are women aged 25 to 55.

The Company produces collections of each of these product lines for each
of its six principal selling seasons: Spring I, Spring II, Summer, Fall I,
Fall II and Holiday. Spring and Fall traditionally have been the Company's
major selling seasons. Beginning in fiscal 1996, the Company has combined the
Spring I and Spring II seasons into one Spring season, thus reducing the
selling seasons to five.

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



CAREER SPORTSWEAR WEEKEND CASUAL SPORTSWEAR DRESSES
---------------------------- ---------------------------- ------------------------

BRAND NAMES Chaus Chaus Sport Chaus Dresses
Chaus Woman Chaus Woman
Chaus Petite Chaus Petite Dresses

PRODUCT OFFERINGS Jackets, Skirts, Pants, Casual Jackets, Sweaters, One-Piece Dresses,
Shorts, Blouses, Shirts, Skirts, Pants, Shirts, Knit Two-Piece Dresses,
Knit Tops, Sweaters Tops Pantsuits, Social
Dresses

INDUSTRY CATEGORIES Upper Moderate and Lower Upper Moderate and Lower Upper Moderate and Lower
Better Better Better


During fiscal 1995, the suggested retail prices of the Company's products
ranged between $15.00 and $108.00. The Company's jackets ranged in price
between $40.00 and $108.00, its dresses ranged in price between $48.00 and
$106.00, its blouses and sweaters ranged in price between $32.00 and $76.00,
its skirts and pants ranged in price between $25.00 and $56.00, and its knit
tops and bottoms ranged in price between $15.00 and $60.00. As the Company
repositions its price points at the high end of the "upper moderate" through
the opening price points of the "better" categories, it anticipates that the
suggested retail price range of its products will increase during fiscal
1996.

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The following table sets forth a breakdown by percentage of the Company's
net sales by product category for fiscal 1993 through fiscal 1995:



FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------

Career Sportswear
Chaus 31% 29% 31%
Chaus Woman 12 12 13
Chaus Petite 8 6 4
-------- -------- --------
Total 51 47 48
Weekend Casual
Sportswear 30 28 35
Dresses 12 13 12
Other (1) 7 12 5
======== ======== ========
Total 100% 100% 100%
======== ======== ========

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(1) Includes sales by outlet stores, offset by intercompany profit
eliminations. Also includes, for fiscal 1993 and fiscal 1994, (a) the
Company's JOSEPHINE and JEANSWEAR labels, which produced blouses and
jeans, respectively, until the beginning of fiscal 1995 when the
Company ceased producing garments using these labels and (b) a
Canadian joint venture that the Company terminated in June 1994.

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

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

Dresses. The Company produces dresses under the CHAUS DRESSES, CHAUS WOMAN
DRESSES and CHAUS PETITE DRESSES labels. The Company offers an extensive line
of dresses from daytime to evening wear, as well as dresses for the working
woman.

LICENSE AGREEMENT WITH NAUTICA

In September 1995, the Company entered into the Nautica License Agreement
under which the Company will have an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto
Rico. The Company's licensed Nautica product line will be distributed in
major department and specialty stores, at "better" to "bridge" price points
in Nautica designed in-store shops. Nautica has developed significant
brand-name recognition with its men's apparel lines. This relationship will
provide the Company with exposure to "better" to "bridge" departments, while
creating an alliance with a leading company in the apparel industry. The
Company expects to make the first sales of its licensed Nautica products
during the first quarter of fiscal 1997. The Company's license from Nautica
is limited to women's sportswear collections including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets, and outerwear and
sportswear dresses bearing the Nautica brand names and marks. The Company's
license from Nautica excludes business dresses, suits, coats and raincoats
that are not part of a sportswear collection. The license also excludes
shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.

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The initial term of the Nautica License Agreement runs through December
31, 1999, and is thereafter renewable for up to two periods of three years
each, provided that certain conditions are met (including the successful
attainment of certain sales targets and the requirement that Andrew Grossman
continue in his position as Chief Executive Officer during the term of the
Nautica License Agreement). Under the Nautica License Agreement, the Company
is obligated to raise at least $10.0 million in equity capital by December
31, 1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Financial
Condition, Liquidity and Capital Resources" for information concerning the
Company's contemplated equity offering. The Company's obligations also
include minimum royalty and advertising payments and the construction of a
separate showroom for the display of the Company's licensed Nautica products.
Under the Nautica License Agreement, the Company intends to dedicate a full
operational merchandising and retail development group to its licensed
Nautica product line.

Pursuant to the terms of the Nautica License Agreement, the Company has
granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).

CUSTOMERS

The Company's products are sold nationwide in an estimated 2,500
individual stores operated by approximately 100 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.

During fiscal 1995, approximately 76% of the Company's net sales were made
to its nine largest customers, as compared to 75% in fiscal 1994 and 74% in
fiscal 1993. Except for Dillard's Department Stores, which accounted for 23%
of net sales in 1995, 16% of net sales in 1994 and 13% of net sales in 1993,
no single customer accounted for more than 10% of the Company's net sales
during such fiscal years; however, certain of the Company's customers are
under common ownership. When considered together as a group under common
ownership, sales to nine department store customers owned by The May
Department Stores Company ("May") accounted for approximately 13% of net
sales in fiscal 1995, 14% of net sales in fiscal 1994 and 17% of net sales in
fiscal 1993. Additionally, sales to nine department store companies owned by
Federated Department Stores ("Federated") accounted for approximately 11% of
the Company's net sales in fiscal 1995 and would have accounted for 12% of
net sales in fiscal 1994 and 10% in fiscal 1993 had the Federated/Macy's
merger been completed at the beginning of such periods. As a result of the
Company's dependence on these customers, they may have the ability to
influence the Company's business decisions. The loss of or significant
decrease in business from any of its major customers would have a material
adverse effect on the Company's financial position and results of operations.

SALES AND MARKETING

The Company's selling operation is highly centralized. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms. The Company has an in-house sales
force of 24, all of whom are located in the New York City showrooms. Senior
management, principally Josephine Chaus and Richard Baker (President),
actively participate in the planning of the Company's marketing and selling
efforts. The Company does not employ independent sales representatives or
operate regional sales offices, but it does participate in various regional
merchandise marts. This sales structure enables management to control the
Company's selling operation more effectively, to limit travel expenses, as
well as to deal directly with, and be readily accessible to, major customers.

Products are marketed to department and specialty store customers during
"market weeks," generally four to five months in advance of each of the
Company's selling seasons. The Company assists its customers in allocating
their purchasing budgets among the items in the various product lines to
enable

4






consumers to view the full range of the Company's offerings in each
collection. During the course of the retail selling seasons, the Company
monitors its product sell-through at retail in order to directly assess
consumer response to its products.

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

The Company maintains a limited cooperative advertising program under
which it reimburses, in certain circumstances, a portion of a customer's
advertising expenditures promoting the Company's products up to a maximum
percentage of the customer's purchases. Except for this cooperative
advertising program, the Company has not engaged in any direct advertising to
the public. Cooperative advertising expenditures were approximately $1.9
million, $1.6 million and $0.8 million in fiscal 1993, 1994 and 1995,
respectively.

DESIGN

The Company's products and certain of the fabrics from which they are made
are designed by an in-house staff of fashion designers. The 11-person design
staff, headed by Judith Leech, monitors current fashion trends and changes in
consumer preferences. Josephine Chaus and Andrew Grossman, who are
instrumental in the design function, meet regularly with the design staff to
create, develop and coordinate the seasonal collections. The Company believes
that its design staff is known for its distinctive styling and its ability to
contemporize fashion classics. Emphasis is placed on the coordination of
outfits and quality of fabrics to encourage the purchase of more than one
garment.

MANUFACTURING AND DISTRIBUTION

The Company believes that outsourcing its manufacturing maximizes its
flexibility while avoiding significant capital expenditures, work-in-process
buildup and the costs of a large workforce. The Company does not own any
manufacturing facilities; all of its products are manufactured in accordance
with its design specifications and production schedules through arrangements
with independent manufacturers. A substantial amount (approximately 90%) of
its product is manufactured by approximately 35 key independent suppliers
located primarily in South Korea, Hong Kong, Taiwan, Sri Lanka, China,
Indonesia and elsewhere in the Far East. Approximately 10% of the Company's
products are manufactured in Israel, India and the Caribbean Basin. No
contractual obligations exist between the Company and its manufacturers
except on an order-by-order basis. During fiscal 1995, the Company purchased
approximately 57% of its finished goods from its ten largest manufacturers,
including approximately 11% of its purchases from its largest manufacturer.
Contracting with foreign manufacturers enables the Company to take advantage
of prevailing lower labor rates and to use a skilled labor force to produce
high quality products.

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

The Company's technical production support staff located in New York City
produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design

5






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

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

The Company uses a broad range of fabrics in the production of its
clothing, consisting of synthetic fibers (including polyester and acrylic),
natural fibers (including cotton and wool), and blends of natural and
synthetic fibers. The Company does not have any formal, long-term
arrangements with any fabric or other raw material supplier. During fiscal
1995, virtually all of the fabrics used in the Company's products were
ordered from the Company's five largest suppliers, which are located in
Japan, Taiwan and Korea. The Company selects the fabrics to be purchased,
which are generally produced for it in accordance with its own
specifications. To date, the Company has not experienced any significant
difficulty in obtaining fabrics or other raw materials and considers its
sources of supply to be adequate.

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

IMPORTS AND IMPORT RESTRICTIONS

The Company's arrangements with its manufacturers and suppliers are
subject to the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances, the imposition
of export duties, political and social instability, currency revaluations and
restrictions on the transfer of funds. Bilateral agreements between exporting
countries, including those from which the Company imports substantially all
of its products, and the United States' imposition of quotas limits the
amount of certain categories of merchandise, including substantially all
categories of merchandise manufactured for the Company, that may be imported
into the United States. Furthermore, the majority of such agreements contain
"consultation clauses" which allow the United States to impose at any time
restraints on the importation of categories of merchandise which, under the
terms of the agreements, are not subject to specified limits. The bilateral
agreements through which quotas are imposed have been negotiated under the
framework established by the Arrangement Regarding International Trade in

6






Textiles, known as the Multifiber Arrangement ("MFA") which has been in
effect since 1974. The United States has recently concluded international
negotiations known as the "Uruguay Round" in which a variety of trade matters
were reviewed and modified. Quotas established under the MFA will be
gradually phased out over a ten year transition period, after which the
textile and clothing trade will be fully integrated into the General
Agreement on Trade and Tariffs ("GATT") and will be subject to the same
disciplines as other sections. The GATT agreement provides for expanded
trade, improved market access, lower tariffs and improved safeguard
mechanisms.

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

Substantially all of the Company's products are subject to United States
customs duties. In the ordinary course of business, the Company, from time to
time, is subject to claims by the United States Customs Service ("Customs")
for duties and other charges, is entitled to refunds from Customs due to
overpayment of duties by the Company and may be required to pay penalties
with respect to underpayment of duties. The Company conducted an internal
review, on its own initiative, with respect to the declared price of certain
of its imported finished goods to determine whether such price had been
understated because of a failure to include the cost of raw materials
provided by the Company to certain of its manufacturers, as well as the cost
of shipping such raw materials by air freight to such manufacturers. During
fiscal 1987, the Company made a voluntary tender to Customs of duties and
other charges believed to be due with regard to such finished goods and as a
result, in accordance with routine administrative procedure in voluntary
disclosure and tender situations, Customs initiated an audit to verify the
accuracy of the Company's submission and records. The Company tendered $0.5
million to Customs in December 1991 as an offer-in-compromise in order to
settle this matter. In November 1994, the Company received a letter from
Customs notifying it that the offered amount of $0.5 million had been
accepted in full settlement of any and all claims against the Company. Such
liability had been provided for in a prior year.

OUTLET STORES

At June 30, 1995, the Company had 31 outlet stores as compared to 34
stores at June 30, 1994. The outlet stores operate throughout the country in
traditional factory outlet centers in locations intended to minimize conflict
with the Company's major retail department store customers. As part of the
Company's continued restructuring, four outlet stores were closed during
fiscal 1995. An additional three outlet stores were closed in July 1995, and
the Company plans to close six more outlet stores during the remainder of
fiscal 1996 and does not intend to open any new stores in the near future.
The Company also has realigned its outlet store business to reflect the
changes it has made in its pricing and product strategy. As the Company has
reduced its inventory levels, it will seek to utilize its outlet stores as
more of a sale point for current merchandise without negatively impacting its
department store sales.

BACKLOG

At September 14, 1995, the Company's order book reflected unfilled
customer orders for approximately $48.0 million of merchandise (compared to a
backlog of $62.6 million at September 20, 1994), all of which is scheduled
for delivery during fiscal 1996. Starting in the first quarter of fiscal
1996, the Company has eliminated one selling season by combining Spring I and
Spring II, partially accounting for

7






the decrease in backlog. At September 20, 1994, Spring I bookings accounted
for approximately $7.5 million of the backlog; at September 14, 1995, there
were no Spring I season bookings. The September 1994 backlog included $2.4
million of Holiday bookings of the Company's Dress division; no such bookings
are included in backlog for the later period due to timing differences in the
selling season. In addition, many customers cut back their orders for the
Company's products in fiscal 1995 to see what the retail demand would be for
the Company's repositioned, higher-quality/higher-priced product line. A
portion of the decline in backlog was attributable to this cutback.

Order book data at any date are materially affected by the timing of the
initial showing of collections to the trade, as well as by the timing of
recording of orders and of shipments. Accordingly, the Company believes that
order book data do not provide meaningful period to period comparisons as of
specific dates, and comparisons of backlog information with such information
as of specific dates for prior periods are not necessarily indicative of
future results. The Company does not believe that cancellations, rejections
or returns will materially reduce the amount of sales realized from such
backlog.

TRADEMARKS

CHAUS(Registered Trademark), CHAUS ESSENTIAL(Registered Trademark), CHAUS
SPORT(Registered Trademark), CHAUS WOMAN(Registered Trademark) and MS.
CHAUS(Registered Trademark) are registered trademarks of the Company in the
United States for use on ladies' garments. These trademarks are renewable in
the years 2004, 2008, 2002, 2004 and 2005, respectively. JOSEPHINE(Registered
Trademark) is also a registered trademark of the Company in the United
States, renewable in the year 2001, for use on ladies' blouses and sweaters.
The Company considers its trademarks to have significant value in the
marketing of its products.

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

COMPETITION

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

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

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

EMPLOYEES

At June 30, 1995, the Company employed 595 full-time employees as compared
with 797 full-time employees at June 30, 1994. This total includes 83 in
managerial and administrative positions, approximately 113 in production,
production administration and design, 259 in marketing, merchandising and
sales (including 235 employees in the retail outlet store operation) and 68
in distribution. Of the Company's total employees, 72 were located in the Far
East. The Company is a party to a collective bargaining agreement with the
Amalgamated Workers Union, Local 88, covering 103 full-time employees. This
agreement expires in August 1996.

8






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

EXECUTIVE OFFICERS

The executive officers of the Company are:



NAME AGE POSITION
- ---------------- ----- ----------------------------------------------------

Josephine Chaus 44 Chairwoman of the Board and member, Office of the
Chairman
Andrew Grossman 36 Chief Executive Officer and member, Office of the
Chairman
Richard A. Baker 49 President
Wayne S. Miller 38 Executive Vice President--Finance and
Administration, Chief Financial Officer and
Secretary
Michael Root 46 President--Ms. Chaus
Michael Bakert 47 President--Retail Division
Karen A. Maloney 38 Vice President--Corporate Controller


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

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

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

Richard A. Baker served as the President of the Company since February 15,
1993 and served as a director of the Company from February 1993 to September
1994. From 1986 to 1992 Mr. Baker was employed by Esprit de Corp., a firm
engaged in the apparel business, first as president of Esprit Sport and then,
for five years as president of Esprit de Corp. Womenswear.

Wayne S. Miller joined the Company as Executive Vice President--Finance
and Administration and Chief Financial Officer of the Company in June 1994
and was appointed Secretary of the Company in November 1994. From April 1994
to June 1994 Mr. Miller served as Crisis Manager at USA Classic, Inc., an
apparel company. From February 1994 to March 1994 he was a consultant to
various apparel companies. From October 1990 to January 1994 he was President
and Chief Executive Officer of Publix Group, L.P., an apparel company, which
filed a petition for reorganization under chapter 11 of the federal
bankruptcy laws ("Chapter 11") in June 1993. Prior to that Mr. Miller was
Chief Financial Officer at Basco All-American Sportswear Corp.

Michael Root has been President of the Company's Ms. Chaus Division since
July 1993. From 1991 to July 1993 he was employed by Impressions, an apparel
company, as President, Dress Division. From 1987 through 1990, he was a
partner in Susan Bennett, a dress and suit company. He was President of the
dress division at SK & Company, a women's apparel company, from 1983 to 1987.
From 1979 to 1983 he was President--Dress Division of the Company.

Michael Bakert has been President of the Company's Retail Division from
1994 to the present. From 1990 to 1994, he was Vice President Director of
Retail for Carole Little, a women's apparel company. From 1985 to 1990, he
was Vice President Director of Stores of Phillip Van Heusen, an apparel and

9






accessory manufacturer. From 1983 to 1985, he was regional director for
National Shirt Shops, an apparel retailer. From 1978 to 1983, he was district
manager for Chess King, a subsidiary of The Melville Corporation, an apparel
and accessory retailer.

Karen A. Maloney has been Vice President--Corporate Controller since July
1995. From December 1990 through July 1995, she was employed by Bidermann
Industries Corp., an apparel company that filed a petition for reorganization
under Chapter 11 in July 1995, as Assistant Controller--Financial Reporting
(December 1990 through May 1992) and as Vice President, Controller (June 1992
to July 1995). From March 1986 through May 1990 she was employed by Federal
Paper Board Company, a paper and forest products company, in various
management positions.

ITEM 2. PROPERTIES.

The Company's principal executive offices are located at 1410 Broadway in
New York City, where the Company leases approximately 41,000 square feet, of
which approximately 10,000 square feet have been vacated as part of the
Company's restructuring plan. These facilities also house the Company's
showrooms and its sales, design, production and merchandising staffs. This
space is occupied under several leases expiring through July 1996. Net base
rental expense aggregated approximately $1.4 million, $2.1 million and $2.2
million in fiscal 1993, 1994 and 1995, respectively, and is expected to
aggregate approximately $2.3 million in fiscal 1996. Chaus also leases
approximately 19,000 square feet of space at 520 Eighth Avenue in New York
City, which houses its technical production support facilities (including its
sample and pattern makers). Net base rental expense for this space aggregated
approximately $0.4 million in fiscal 1993 and fiscal 1994 and $0.3 million in
fiscal 1995. The lease for this facility expires in January 1997 and the
Company expects the aggregate base rental expense to be approximately $0.2
million in fiscal 1996.

During fiscal 1995, the Company consolidated its warehouse and
distribution centers into one building, reducing the leased square footage
from approximately 390,000 square feet to approximately 275,000 square feet.
This facility houses the Company administrative and finance personnel, its
computer operations, one retail outlet store and its warehouse and
distribution center. The leases for the Secaucus facilities expire in 1996.
Base rental expense for the Secaucus facilities aggregated approximately $1.8
million in fiscal 1993, $2.4 million in fiscal 1994 and $1.5 million in
fiscal 1995. The base rental expense is expected to aggregate approximately
$1.5 million in fiscal 1996.

Office locations are also leased in Hong Kong, Korea and Taiwan, with
annual aggregate rental expense of approximately $0.5 million for fiscal
1995. In prior years, the Company also leased foreign office locations in the
Philippines and Italy. The aggregate rental payments including these
locations approximated $0.7 million in both fiscal 1993 and fiscal 1994. In
July 1995, the Company closed its Taiwan office and anticipates that
aggregate annual rental expense in fiscal 1996 will approximate $0.3 million.

The Company also leases space for its outlet stores operation. The annual
aggregate base rental expense for such facilities, with the average store
utilizing approximately 3,000 square feet in fiscal 1995, was approximately
$1.9 million in fiscal 1995 and is expected to be approximately $1.5 million
for fiscal 1996. For fiscal 1993 and fiscal 1994 the base rental expense for
the outlet stores' operations was $1.6 million and $1.9 million,
respectively.

ITEM 3. LEGAL PROCEEDINGS.

In 1992, Federal Judge Shirley Wohl Kram dismissed with prejudice as
time-barred the Amended Complaint against the Company and others in
consolidated class actions entitled Phifer v. Chaus et al., Goldschlack v.
Chaus et al., Susman v. Chaus et al., and I. Bibcoff Inc. Pension Trust Fund
v. Chaus et al., (which claims had alleged misstatements and omissions in the
Company's July 1986 prospectus delivered in connection with the 1986 Offering
and its 1986 and 1987 annual reports). On April 19, 1993, a Class Action
Complaint was filed in the Superior Court of New Jersey, Hudson County,
against the Company and others, including the Company's lead underwriter in
the Company's initial public offering of Common Stock in 1986 (the "1986
Offering"). Allegations in such complaint were common law fraud and negligent
misrepresentation in the sale of the Company's stock in the 1986 Offering,
which allegations were substantially similar to the claims that were
dismissed with prejudice in the federal court. One of the plaintiffs from the
federal action was originally a party in this action in state court.

10






On June 18, 1993, the Company received by mail a copy of Jury Demand Class
Action in the Superior Court of New Jersey, Hudson County entitled Theodore
M. Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The Complaint
was amended in September 1993 to delete Lisa Phifer as a plaintiff. On May
27, 1994, the Company moved to dismiss the Complaint and/or to deny or limit
class status. In a decision rendered in November 1994, the Superior Court
denied the plaintiff's motion for the class certification and dismissed all
claims against the director defendants (Josephine Chaus and the Estate of
Bernard Chaus) and all claims not based upon actual reliance. With the denial
of class certification, absent a successful appeal, the plaintiff's claims
would not have a material adverse affect on the Company. In any event,
management believes that such action is without merit.

A claim for indemnification has been asserted by the Company's former
underwriters against the Company. The indemnification claim demands repayment
of the legal fees and expenses incurred by such underwriters in connection
with the consolidated class actions entitled Phifer v. Chaus, et al.
Discussions are ongoing with counsel for such underwriters to resolve this
claim.

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

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

None.

PART II

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

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




High Low
-------- --------
FISCAL 1994
First Quarter ......... $3.750 $2.625
Second Quarter ......... 3.125 1.750
Third Quarter ......... 2.625 1.625
Fourth Quarter ......... 3.750 1.750

FISCAL 1995
First Quarter ......... 4.375 1.750
Second Quarter ......... 6.125 3.625
Third Quarter ......... 5.000 3.625
Fourth Quarter ......... 5.750 2.875


As of September 29, 1995, the Company had approximately 1,166 stockholders
of record.

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

11






ITEM 6. SELECTED FINANCIAL DATA.

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

STATEMENT OF OPERATIONS DATA:



FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net sales .......................................... $232,444 $254,190 $235,819 $ 206,332 $ 181,697
Cost of goods sold ................................. 192,369 196,415 187,423 186,594 149,097
----------- ---------- ----------- ----------- -----------
Gross profit ....................................... 40,075 57,775 48,396 19,738 32,600
Selling, general and administrative expenses ...... 51,600 50,016 57,410 55,400 44,794
Restructuring expenses ............................. -- -- -- 5,300(3) 1,200(3)
Unusual expenses ................................... -- -- -- 1,900(4) 8,333(4)
Interest expense ................................... 1,968 2,474 2,322 3,439 5,976
Other income (expense), net ........................ 654 479 449 (190) 91
----------- ---------- ----------- ----------- -----------
(Loss) income before income tax (benefit) provision
and extraordinary item ............................ (12,839) 5,757 (10,887) (46,491) (27,612)
Income tax (benefit) provision ..................... (835) 2,245 102 264 301
----------- ---------- ----------- ----------- -----------
(Loss) income before extraordinary item ............ (12,004) 3,512 (10,989) (46,755) (27,913)
Extraordinary item ................................. -- 1,957(1) -- -- --
----------- ---------- ----------- ----------- -----------
Net (loss) income .................................. $(12,004) $ 5,469 $(10,989) $(46,755) $(27,913)
=========== ========== =========== =========== ===========
Net (loss) income per share (2) .................... $ (0.66) $ 0.30 $ (0.60) $ (2.55) $ (1.40)
=========== ========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding ..................... 18,234 18,363 18,272 18,352 19,910
=========== ========== =========== =========== ===========


BALANCE SHEET DATA:



AS OF JUNE 30,
--------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- ---------- -----------
(IN THOUSANDS)

Working capital (deficiency) ................. $57,397 $51,964 $40,923 $ 3,342 $(13,914)
Total assets ................................. 82,571 86,489 90,208 51,619 28,660
Short-term debt, including current portion of
long-term debt .............................. -- 9,910 17,504 21,365 18,698
Long-term debt ............................... 24,730 14,820 14,730 18,789 21,066
Stockholders' equity (deficiency) ............ 37,683 43,328 33,147 (13,614) (32,379)

- ---------------
(1) Represents a benefit from the utilization of a net operating loss
carryforward.

(2) Computed by dividing net (loss) income by the weighted average number
of Common and Common Equivalent Shares outstanding during the years.
For the fiscal years ended 1991, 1993, 1994 and 1995, Common
Equivalent Shares were not included in the calculation as their
inclusion would have been antidilutive.

(3) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.9 million for employee severances, and, in fiscal 1995, $1.2
million of employee severance.

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

12






ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

GENERAL

In 1992, the Company perceived a shift in demand in the women's retail
apparel industry toward lower price points. In order to sustain sales in a
difficult retail environment, the Company introduced new products at lower
prices to meet this perceived demand, thus altering its historic corporate
strategy of aiming toward the high end of "upper moderate" price points. As a
result of intense competition in this lower priced segment of the market,
where the Company had a limited operating history, sales of the Company's
products slowed, inventory levels increased and the Company was forced to
sell a larger portion of its products through off-price channels.

Toward the end of fiscal 1994, the Company initiated a major restructuring
of its operations in order to return to its historic product positioning and
regain profitability. The focus of the Company's restructuring has been to
strengthen its management team, reduce selling, general and administrative
expenses and reposition its product line. Andrew Grossman joined the Company
in September 1994 and implemented a product and pricing repositioning
strategy, most of the financial benefits of which the Company expects to be
realized in future periods. In anticipation of the repositioned product lines
and as a result of continued weak product demand, the Company has limited the
production of its product lines pending the return of adequate demand. The
Company has realized an increase in its gross margin in fiscal 1995 to 17.9%
up from 9.6% in fiscal 1994, primarily resulting from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued high levels of
promotional allowances. The impact of the restructuring on the Company's
selling, general and administrative expenses has been more immediate:
selling, general and administrative expenses decreased from $55.4 million in
fiscal 1994 to $44.8 in fiscal 1995. Nearly half of this decrease resulted
from staff reductions throughout the Company from a high point of 1,009 in
fiscal 1993 to 595 at the end of fiscal 1995. In addition, the Company
decided to close a number of its unprofitable outlet stores and does not
intend to open any new stores in the foreseeable future. Because certain of
the cost reductions were not in effect for the full fiscal 1995 year, the
Company believes that selling, general and administrative expenses will be
lower in fiscal 1996 than in fiscal 1995. In order to support the development
and growth of the Company's licensed Nautica product line, however, selling,
general and administrative expenses are expected to increase in subsequent
years.

RESULTS OF OPERATIONS

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



FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------

Net sales ................................... 100.0% 100.0% 100.0%
Gross profit ................................ 20.5 9.6 17.9
Selling, general and administrative expenses 24.3 26.9 24.7
Restructuring expenses ...................... -- 2.6 0.7
Unusual expenses ............................ -- 0.9 4.6
Interest expense ............................ 1.0 1.7 3.3
Net loss .................................... (4.7) (22.7) (15.4)


Fiscal 1995 Compared to Fiscal 1994

In fiscal 1995, net sales decreased by $24.6 million, or 11.9%, compared
to the prior year. The decrease was primarily due to a general reduction in
production levels in most of the Company's product lines, in addition to the
elimination of its jeans line and curtailed international operations. Net
sales for fiscal 1995 included sales to off-price channels of $40.4 million,
compared to $91.3 million in fiscal 1994. Off-price sales as a percentage of
net sales declined from 44.3% in fiscal 1994 to 22.2% in fiscal 1995.

13






Sales by the Company's outlet stores increased by $1.1 million compared to
the prior year. The increase was primarily due to the impact of full year
sales by four outlet stores opened in fiscal 1994 and the incremental impact
of one store opened early in fiscal 1995, partially offset by the closing of
four outlet stores in fiscal 1995 and a 2.0% decline in same store sales.

Gross profit as a percentage of net sales increased to 17.9% from 9.6% as
compared to the prior fiscal year. As discussed above, the increase, as a
percentage of net sales, resulted primarily from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued higher levels of
promotional allowances.

Selling, general and administrative expenses decreased by $10.6 million,
from 26.9% of net sales in fiscal 1994 to 24.7% of net sales in fiscal 1995.
This decrease was primarily attributable to the implementation of cost
reduction programs throughout the organization. Payroll and related costs
accounted for almost half of the decrease. Other areas with significant
decreases included freight, rent, cooperative advertising, professional fees,
and travel and entertainment.

In connection with the corporate restructuring program discussed above,
during the first quarter of fiscal 1995 the Company recorded restructuring
expenses of $1.2 million. These costs primarily related to employee severance
as the Company continued to reduce overhead costs. In January 1995, the
Company signed favorable early termination agreements with the landlords of
certain retail outlet stores, for which the Company had taken a reserve as
part of its restructuring expenses at June 30, 1994. As a result, the Company
was able to reduce the restructuring reserve, accrued in 1994, by
approximately $1.3 million. The benefit of this reduction was offset by
certain additional expenses provided for by the Company relating to
prospective continued restructuring of its retail and overseas operations.

During the first quarter of fiscal 1995, the Company recorded unusual
expenses of $7.8 million primarily related to the costs associated with the
signing of the Company's new Chief Executive Officer. During the fourth
quarter of fiscal 1995, the Company recorded $0.5 million in unusual expenses
related to certain legal matters.

Interest expense increased compared with the prior year, primarily due to
higher average bank borrowings at higher rates. In addition, in the third and
fourth quarters of fiscal 1995, the Company recorded non-cash charges of $0.5
and $0.7 million, respectively, for the warrants issued for credit support
received from its principal stockholder. See "-- Financial Condition,
Liquidity and Capital Resources."

Fiscal 1994 Compared to Fiscal 1993

In fiscal 1994, net sales decreased (principally in the Chaus and Chaus
Sport product lines) by $29.5 million, or 12.5%, compared to the prior fiscal
year . The sales decrease primarily resulted from lower average unit selling
prices, particularly through off-price channels, and higher promotional
allowances to accelerate sell-through at the retail level.The Company reduced
domestic standard selling prices and anticipated a more favorable business
trend which would have enabled it to increase sales; however, the
unanticipated continuation of reduced consumer spending in the women's
apparel industry resulted in a lower volume of purchasing of the Company's
products. As a result, the Company sold fewer units at regular price,
liquidated excess inventory at reduced prices and had higher promotional
allowances to accelerate and increase sell-through at the retail level.

Sales by the Company's outlet stores increased by $2.6 million compared to
the prior year. The increase was primarily due to three new outlet stores
opened, partially offset by the closing of one outlet store and a 3.5%
decline in same store sales.

Gross profit as a percentage of net sales decreased to 9.6% from 20.5% as
compared to the prior year. The decrease was primarily attributable to the
disposal of excess inventories at higher discounts to off-price channels, as
well as to an increase in promotional allowances.

Selling, general and administrative expenses, as a percentage of net
sales, increased to 26.9% from 24.3% as compared to the prior year, primarily
due to lower sales volume. The actual dollar expense decrease of $2.0 million
resulted from a $3.0 million savings in headcount reductions, offset by a
$1.0 million increase in Company outlet store expenses.

14






In the fourth quarter of fiscal 1994, the Company recorded restructuring
expenses of approximately $5.3 million. The restructuring expenses included
approximately $2.1 million for the closing of selected outlet stores,
approximately $2.5 million for the consolidation and closing of office and
warehouse space and approximately $0.7 million for employee severance.

In addition, in the fourth quarter of fiscal 1994, the Company recorded
unusual expenses of $1.9 million, consisting primarily of expenses arising
from the abandonment of fixed assets, certain legal matters, and the winding
down of the Company's Canadian joint venture.

Interest expense increased compared with the prior fiscal year, primarily
due to a higher level of bank borrowings as well as the impact of higher
interest rates and increased balances on the subordinated debt.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

General

Net cash used in operating activities was $29.1 million in fiscal 1993,
$5.0 million in fiscal 1994, and $4.8 million in fiscal 1995. The net cash
used in operating activities in fiscal 1995 resulted primarily from the net
loss of $27.9 million, inclusive of $5.3 million of non-cash charges,
reductions in accounts payable of $1.4 million and accrued expenses of $1.2
million, offset somewhat by decreases in accounts receivable of $9.9 million
and inventories of $9.3 million.

Historically, the Company has not required major capital expenditures. In
fiscal 1994 and 1995, purchases of fixed assets were $1.4 million and $0.4
million, respectively, consisting primarily of improvements in the Company's
New Jersey warehouse facilities, New York design and showroom facilities, and
additional computer and telecommunications equipment. In fiscal 1996, the
Company anticipates capital expenditures of approximately $0.5 million,
consisting primarily of expenditures for its warehouses and design facilities
and the purchase of additional computer software systems.

Amended Financing Agreement

The Company and BNY Financial Corporation ("BNYF") entered into a
financing agreement in July 1991, which was amended and restated effective as
of February 21, 1995, and further amended effective as of September 28, 1995
(the "Amended Financing Agreement"). The September 28, 1995 amendment to the
Amended Financing Agreement is sometimes referred to herein as the "September
Amendment." The Amended Financing Agreement provides the Company with a $60
million credit facility for letters of credit and direct borrowings, with a
sublimit for loans and advances of $40 million ($47 million for the period
from October 1, 1995 to November 30, 1995). The amount of financing available
is based upon a formula incorporating eligible receivables and inventory,
cash balances, other collateral, and permitted overadvances, all as defined
in the Amended Financing Agreement. At September 30, 1995, the Company had an
overadvance position of approximately $5.9 million under the Amended
Financing Agreement. The Amended Financing Agreement is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. During the first, second and fourth quarters of fiscal 1995, the
Company was not in compliance with its covenants concerning working capital
and net worth under the Amended Financing Agreement. BNYF has waived such
noncompliance, however, and, pursuant to the September Amendment, has relaxed
such covenants. The Amended Financing Agreement currently contains certain
financial covenants, including a covenant permitting a tangible net worth
deficit of not more than $11.5 million as of September 30, 1995, $12.5
million as of December 31, 1995, $13.5 million as of March 31, 1996 and $14.5
million as of June 30, 1996. In addition, the Company is required to maintain
a working capital deficiency of not more than $14.0 million as of September
30, 1995, $14.5 million as of December 31, 1995, $15.0 million as of March
31, 1996 and $15.5 million as of June 30, 1996. In the event of an equity
infusion, such covenants are to increase by 50% of the amount of such
infusion. Such covenants for periods after June 30, 1996 are to be modified
based upon the Company's business plan each year during the term.

Interest on direct borrowings is payable monthly at an annual rate equal
to the higher of (i) The Bank of New York's prime rate (8.75% at September
30, 1995) plus a margin between 0.5% and 1.5%, depending

15






on the level of overadvances, and (ii) the Federal Funds Rate in effect
(5.75% at September 30, 1995) plus a margin between 1.0% and 2.0%, depending
on the level of overadvances. The annual default interest rate is 2.5% over
prime. The Amended Financing Agreement required the payment of a due
diligence and facility fee aggregating $0.6 million during fiscal 1995. In
addition, there is an annual commitment fee of 0.375% on the unused portion
of the line, payable monthly, and letter of credit fees equal to 0.125% of
the outstanding letter of credit balance, payable monthly. The Amended
Financing Agreement also provides for the payment of minimum annual service
charges of $0.6 million. The Company may terminate the Amended Financing
Agreement upon 90 days' prior written notice at any time, subject to
termination fees. BNYF may terminate the Amended Financing Agreement after
February 21, 1998, upon 60 days' written notice to the Company.

Credit Support

Josephine Chaus has arranged for a letter of credit (the "Letter of
Credit") in various amounts since April 1994 in return for which BNYF has
increased the availability under the Amended Financing Agreement. As part of
the negotiations with BNYF in connection with the Amended Financing
Agreement, in February 1995 Josephine Chaus increased the Letter of Credit to
$10.0 million and extended its term until October 31, 1995 (the "February
Increase/Extension"). In September 1995, Ms. Chaus further extended the term
of the Letter of Credit to January 31, 1996 (the "September Extension").
Subsequently, in connection with the September Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the "July Option"). In addition, in February 1995, Ms. Chaus provided a
$5.0 million personal guarantee (the "Guarantee"), to be in effect during the
Amended Financing Agreement's three-year term.

In consideration of the February Increase/Extension, the Guarantee and the
September Extension, a special committee of the board of directors,
consisting of disinterested directors of the Company (the "Special
Committee") authorized the issuance, subject to stockholder approval, of the
warrants to purchase an aggregate of 1,580,000 shares of Common Stock at
prices ranging between $4.05 and $6.75 per share. Because Ms. Chaus possesses
the power to vote more than 50% of the outstanding shares of Common Stock,
Ms. Chaus's affirmative vote in favor of the issuance of the 1995 Warrants to
her is sufficient to approve such issuance without the vote of any other
stockholders. Ms. Chaus has advised the Company that she intends to vote all
of her shares in favor of such issuance. As a result, the Company has
reflected the issuance of the warrants for the February Increase/Extension
and the Guarantee at June 30, 1995. The value of such warrants ($0.7 million)
was included as a charge to interest expense with a corresponding increase to
additional paid in capital. Ms. Chaus received warrant compensation for her
provision of the Guarantee only through October 31, 1995. Thereafter, for
each three-month period of the Guarantee, Ms. Chaus will receive cash
compensation of $50,000. The issuance of the warrants for the September
Extension will be recorded in fiscal 1996. In the event the Company (upon a
determination of the Special Committee) exercises the July Option, Ms. Chaus
will be entitled to certain additional warrants (in an amount and upon terms
to be determined by the Special Committee in a manner consistent with past
practices, and subject to receipt of a letter of a nationally recognized
investment banking firm as to the commercial reasonableness thereof). See
Notes 6 and 7 to Notes to the Company's Consolidated Financial Statements.

Issuance of Stock in Exchange for Debt

In September 1994, Josephine Chaus loaned $7.2 million to the Company in
exchange for promissory notes bearing interest at 12% per annum. Proceeds of
such cash infusion were used for costs and associated expenses related to the
signing of the Company's new Chief Executive Officer. In November 1994, upon
the request of the Special Committee, in order to provide additional equity
to the Company, to enhance the Company's balance sheet and to accommodate
BNYF, Josephine Chaus exchanged such notes, including accrued interest
thereon of $0.2 million, for 1,914,500 shares of the Company's Common Stock
(based upon a purchase price of $3.85 per share). See Note 7 to Notes to the
Company's Consolidated Financial Statements.

16






Subordinated Debt

The Company has outstanding at June 30, 1995, $21.1 million of
subordinated notes payable to Josephine Chaus (the "Subordinated Notes"). In
September 1995, Josephine Chaus extended the maturity date on all of the
Subordinated Notes (which were to mature on April 1, 1996) to July 1, 1996.
In connection with the Company's proposed public offering (see "--Nautica
License Agreement/Future Financing Requirements"), Ms. Chaus has agreed to
extend the maturity date of the Subordinated Notes to July 1, 1998, subject
to the consummation of such offering. The Company has been unable to pay
principal or interest, with certain exceptions, under the Subordinated Notes
as a result of covenants in the Amended Financing Agreement. See Note 7 to
Notes to the Company's Consolidated Financial Statements.

Letter of Credit Financing

In June 1995, the Company and a major trading company entered into a sales
and letter of credit financing agreement (the "S&F Agreement") providing the
Company with up to $2.0 million in short-term financing (subject to various
terms and conditions as defined in the S&F Agreement) for the production of
its products overseas and secured by such products and related intangible
assets. Either party may terminate the S&F Agreement upon 30 days' written
notice to the other party.

Nautica License Agreement/Future Financing Requirements

In September 1995, the Company entered into the Nautica License Agreement
pursuant to which the Company will arrange for the manufacture of, market,
distribute and sell a new women's career and casual sportswear line under the
Nautica name. The Nautica License Agreement runs through December 31, 1999
and is contingent upon the Company raising a minimum of $10.0 million in
equity capital by December 31, 1995. Additionally, the Company is required to
devote at least $7.0 million to the fulfillment of the Company's obligations
under the Nautica License Agreement, including related capital expenditures.
The Company's obligations also include minimum royalty and advertising
payments and the construction of a separate showroom for the display of the
Company's licensed Nautica products.

The Company has filed a Registration Statement on Form S-2 on October 10,
1995 with respect to a proposed underwritten public offering of 5,000,000
shares of Common Stock (plus up to an additional 750,000 shares of Common
Stock which the Underwriters have an option to purchase to cover
over-allotments, if any). The Company anticipates that such offering will be
consummated prior to December 31, 1995 although there can be no assurance as
to the successful consummation of such offering or the timing thereof. The
Company intends to use approximately $7.0 million of the net proceeds from
the offering to develop and market the Company's licensed Nautica product
line, and the remaining net proceeds to support the growth of the Company's
existing product lines.

At June 30, 1995, the Company had a working capital deficiency of $13.9
million. The Company requires the availability of sufficient cash flow and
borrowing capacity to finance its existing product lines and to develop and
market its licensed Nautica product lines. The Company expects to satisfy
such requirements through cash flow from operations, its line of credit under
the Amended Financing Agreement, and the proceeds of the proposed public
offering, and, in the near term, continued credit support from Josephine
Chaus.

The Company will seek to satisfy its operating requirements without
utilizing continued credit support from Ms. Chaus, although there can be no
assurance that it will be successful in doing so. The Company has no
understanding with Ms. Chaus pursuant to which Ms. Chaus would extend the
Letter of Credit beyond July 31, 1996. If the proposed public offering is not
consummated, the Company would require a further extension of the Letter of
Credit, or an alternative source of financing, to satisfy its operating
requirements after July 31, 1996. In addition, although BNYF historically has
waived compliance with certain covenants and permitted certain overadvances
and has, pursuant to the September Amendment, agreed to relax such covenants
and permit specified levels of overadvances through June 30, 1996, there can
be no assurance that it will continue to do so in the future. Moreover,
growth of the Company's existing product lines and/or the development of the
Company's licensed

17






Nautica product line could increase the amount of the potential shortfall in
borrowing availability after the current fiscal year. If the proposed public
offering is not consummated by December 31, 1995 and no alternative source of
equity is raised to satisfy the requirements under the Nautica license,
Nautica would have the right to terminate the Nautica License Agreement.

INFLATION

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

SEASONALITY

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

Information with respect to the directors of the Company is incorporated
by reference to the information to be set forth under the heading "Election
of Directors" in the Company's definitive proxy statement relating to its
1995 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
(the "Company's 1995 Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

Information called for by Item 11 is incorporated by reference to the
information to be set forth under the heading "Executive Compensation" in the
Company's 1995 Proxy Statement.

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

Information called for by Item 12 is incorporated by reference to the
information to be set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1995 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information called for by Item 13 is incorporated by reference to the
information to be set forth under the headings "Executive Compensation" and
"Certain Transactions" in the Company's 1995 Proxy Statement.

18






PART IV

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

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

(b) The Company did not file a Form 8-K during the last quarter of its
fiscal year ended June 30, 1995.

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



SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

3.1 Restated Certificate of Incorporation (the "Restated Certificate") of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-1, Registration No. 33-5954 (the "1986 Registration Statement").
3.11 Amendment dated November 18, 1987 to the Restated Certificate (incorporated by
reference to Exhibit 3.11 of the Company's Registration Statement on Form S-2,
Registration No. 33-63317 (the "1995 Registration Statement").
3.2 By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q for the quarter ended December 31, 1987).
3.3 Amendment dated September 13, 1994 to By-Laws (incorporated by reference to
Exhibit 10.105 of the Company's Form 10-Q for the quarter ended September 30,
1994).
10.1 Restricted Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-K for the year ended June 30, 1987 (the "1987 Form 10-K")).
10.2 1986 Stock Option Plan, as amended and restated as of January 1, 1987 (the "1986
Stock Option Plan") (incorporated by reference to Exhibit 10.2 of the Company's
Form 10-K for the year ended July 1, 1989 (the "1989 Form 10-K")).
10.3 Amendment No. 1 to the 1986 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the 1989 Form 10-K).
10.4 Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the 1986
Registration Statement).
10.5 Agreement, dated August 28, 1987, between Amalgamated Workers Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.3 of
the 1987 Form 10-K).
10.6 Agreement, dated September 1, 1990, between Amalgamated Workers . Union Local 88,
R.W.D.S.U., AFL-CIO and Company, and the Collective Bargaining Agreement, dated
September 1, 1984 related thereto (incorporated by reference to Exhibit 10.16 of
the Company's Form 10-K for the year ended June 30, 1990).
10.7 Lease, dated January 29, 1987, between L.H. Charney Associates and the Company,
of space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.19 of the 1987 Form 10-K).


19







SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

10.8 Lease, dated July 27, 1987, between L. H. Charney Associates and the Company, of
space at the Company's facility at 1410 Broadway, New York, New York
(incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the
year ended July 2, 1988 (the "1988 Form 10-K")).
10.9 Agreement dated December 3, 1990 among Bernard Chaus, Inc., Bernard Chaus,
Josephine Chaus and National Union Fire Insurance Company of Pittsburgh, Pa., the
Company's directors and officers liability carrier ((incorporated by reference to
Exhibit 10.31 of the Company's Form 10-Q for the quarter ended December 31,
1990).
10.10 Employment Agreement, dated July 1, 1991, between the Company and Josephine Chaus
(incorporated by reference to Exhibit 10.39 of the Company's Form 10-K for the
year ended June 30, 1991).
10.11 Employment Agreement, dated November 4, 1991 between Michael Fieman and the
Company (incorporated by reference to Exhibit 10.60 of the Company's Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K")).
10.12 Employment Agreement, dated February 15, 1993 between Richard A. Baker and the
Company (incorporated by reference to Exhibit 10.71 of the Company's Form 10-K
for the year ended June 30, 1993 (the "1993 Form 10-K")).
10.13 Employment Agreement, dated July 1, 1993 between Michael Root and the Company
(incorporated by reference to Exhibit 10.72 of the 1993 Form 10-K).
10.14 Employment Agreement dated June 3, 1994 between the Company and Wayne Miller
(incorporated by reference to Exhibit 10.89 of the Company's Form 10-K for the
year ended June 30, 1994 (the "1994 Form 10-K")).
10.15 Employment Agreement dated September 1, 1994 between the Company and Andrew
Grossman with Stock Option Agreement dated as of September 1, 1994 by and between
the Company and Andrew Grossman (incorporated by reference to Exhibit 10.90 of
the 1994 Form 10-K).
10.16 Settlement Agreement dated as of September 1994 among Nicole Eskenazi, the
Company and certain others (incorporated by reference to Exhibit 10.91 of the
1994 Form 10-K).
10.17 Severance agreement dated as of June 16, 1994 between the Company and Anthony M.
Pisano (incorporated by reference to Exhibit 10.92 of the 1994 Form 10-K).
10.18 Waiver dated September 23, 1993 to the Restated and Amended Financing Agreement
between the Company and BNY Financial Corporation (the "Financing Agreement")
effective July 1, 1992 (incorporated by reference to Exhibit 10.82 of the 1993
Form 10-K).
10.19 Waiver dated November 5, 1993 to the Financing Agreement (incorporated by
reference to Exhibit 10.83 of the Company's Form 10-Q for the quarter ended
September 30, 1993).
10.20 Amendment, effective October 1, 1993, to the Financing Agreement (incorporated by
reference to Exhibit 10-84 of the Company's Form 10-Q for the quarter ended
December 31, 1993 (the "December 1993 Form 10-Q")).


20







SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

10.21 Waiver dated January 13, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.85 of the December 1993 Form 10-Q).
10.22 Waiver dated February 10, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.86 of the December 1993 Form 10-Q).
10.23 Waiver dated May 4, 1994 to the Financing Agreement (incorporated by reference to
Exhibit 10.87 of the Company's Form 10-Q for the quarter ended March 31, 1994).
10.24 Waiver dated September 20, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.93 of the 1994 Form 10-K).
10.25 Agreement, dated June 15, 1988, between the Company and Bernard Chaus and
Josephine Chaus, amending the terms of the Company's subordinated promissory
notes to each of them, each in the principal amount of $7,365,000, the form of
which was filed as Exhibit 10.13 of the 1986 Registration Statement (incorporated
by reference to Exhibit 10.11 of the 1988 Form 10-K).
10.26 Agreement, dated May 17, 1990 between the Company and Bernard Chaus and Josephine
Chaus amending the terms of the Company's subordinated promissory notes to each
of them, each in the principal amount of $7,365,000, the form of which was filed
as Exhibit 10.13 of the 1986 Registration Statement.
10.27 Agreement, dated February 21, 1991 between the Company and Bernard Chaus and
Josephine Chaus amending the terms of the Company's subordinated promissory notes
to each of them, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.74 of the 1993 Form 10-K).
10.28 Subordinated promissory notes dated March 12, 1991, between the Company and
Bernard Chaus and Josephine Chaus, separately, each in the amount of $5,000,000
(incorporated by reference to Exhibit 10.75 of the 1993 Form 10-K).
10.29 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.76 of the 1993 Form 10-K).
10.30 Agreement, dated July 31, 1991, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.77 of the 1993 Form 10-K).
10.31 Agreement, dated July 15, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $5,000,000
(incorporated by reference to Exhibit 10.78 of the 1993 Form 10-K).


21







SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

10.32 Agreement, dated October 30, 1992, between the Company and the Estate of Bernard
Chaus and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of $7,365,000
(incorporated by reference to Exhibit 10.79 of the 1993 Form 10-K).
10.33 Demand Notes, dated June 30, 1993, between the Company and the Estate of Bernard
Chaus and Josephine Chaus, each in the principal amount of $1,520,216
(incorporated by reference to Exhibit 10.80 of the 1993 Form 10-K).
10.34 Agreement, dated September 21, 1993, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal amount of
$7,365,000 (incorporated by reference to Exhibit 10.81 of the 1993 Form 10-K).
10.35 Subordinated promissory notes dated August 1, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $208,716 (incorporated by reference to Exhibit 10.94 of the 1994 Form 10-K).
10.36 Subordinated promissory note dated August 1, 1993, between the Company and
Josephine Chaus in the amount of $1,311,500 (incorporated by reference to Exhibit
10.95 of the 1994 Form 10-K.)
10.37 Subordinated Promissory Note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus in the amount of $1,000,000 (incorporated by reference to
Exhibit 10.96 of the 1994 Form 10-K).
10.38 Subordinated promissory note dated August 1, 1993, between the Company and the
Estate of Bernard Chaus, in the amount of $311,500 (incorporated by reference to
Exhibit 10.97 of the 1994 Form 10-K).
10.39 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $181,056 (incorporated by reference to Exhibit 10.98 of the 1994 Form 10-K).
10.40 Subordinated promissory notes dated December 31, 1993, between the Company and
Josephine Chaus and the Estate of Bernard Chaus, separately, each in the amount
of $412,950 (incorporated by reference to Exhibit 10.99 of the 1994 Form 10-K).
10.41 Agreements dated September 9, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $5,000,000 (incorporated by
reference to Exhibit 10.100 of the 1994 Form 10-K).
10.42 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $1,520,216 (incorporated by
reference to Exhibit 10.101 of the 1994 Form 10-K).
10.43 Agreements dated October 18, 1993, between the Company and Josephine Chaus and
the Estate of Bernard Chaus, separately, reflecting amendments to subordinated
promissory notes, each in the principal amount of $7,365,000 (incorporated by
reference to Exhibit 10.102 of the 1994 Form 10-K).


22







SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

10.44 Agreement dated December 31, 1993, between the Company and Josephine Chaus
reflecting amendments to a subordinated promissory note in the principal amount
of $1,311,500 (incorporated by reference to Exhibit 10.103 of the 1994 Form
10-K).
10.45 Agreement dated December 31, 1993, between the Company and the Estate of Bernard
Chaus, reflecting amendments to subordinated promissory notes, in the principal
amounts of $1,000,000 and $311,500 (incorporated by reference to Exhibit 10.104
of the 1994 Form 10-K).
10.46 Agreement dated November 9, 1994, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.107 of the Company's Form 10-Q for the quarter ended
September 30, 1994 (the "September 1994 Form 10-Q")).
10.47 Agreement dated November 9, 1994, between the Company and the Estate of Bernard
Chaus extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.108 of the September 1994 Form 10-Q).
10.48 Agreement dated December 19, 1994, assigning the subordinated notes from the
Estate of Bernard Chaus to Josephine Chaus (incorporated by reference to Exhibit
10.110 of the Company's Form 10-Q for the quarter ended December 30, 1994 (the
"December 1994 Form 10-Q").
10.49 Agreement dated January 11, 1995, between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.111 of the December 1994 Form 10-Q).
10.50 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
32,500 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.112 of the Company's Form 10-Q for the quarter ended
March 31, 1995 (the "March 1995 Form 10-Q")).
10.51 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
206,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.113 of the March 1995 Form 10-Q).
10.52 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
338,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.114 of the March 1995 Form 10-Q).
10.53 Agreement dated November 22, 1994 between the Company and Josephine Chaus issuing
640,000 warrants to purchase Common Stock of the Company (incorporated by
reference to Exhibit 10.115 of the March 1995 Form 10-Q).
10.54 Waiver dated November 7, 1994, to the Financing Agreement (incorporated by
reference to Exhibit 10.106 of the September 1994 Form 10-Q).
10.55 Waiver dated February 10, 1995 to the Financing Agreement (incorporated by
reference to Exhibit 10.109 of the December 1994 Form 10-Q).
10.56 Agreement effective February 21, 1995 (the "Amended Financing Agreement") between
the Company and BNY Financial Corporation restating and amending the Financing
Agreement (incorporated by reference to Exhibit 10.116 of the March 1995 Form
10-Q).


23







SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- --------------- ---------------

10.57 Waiver dated September 14, 1995 to the Amended Financing Agreement (incorporated
by reference to Exhibit 10.5 of the 1995 Registration Statement).
10.58 Agreement effective as of September 28, 1995 relating to the Amended Financing
Agreement (incorporated by reference to Exhibit 10.58 of the 1995 Registration
Statement).
10.59 Agreement dated April 28, 1995 between the Company and Josephine Chaus extending
the due dates on subordinated promissory notes (incorporated by reference to
Exhibit 10.117 of the March 1995 Form 10-Q).
10.60 Agreement dated September 8, 1995 between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated by
reference to Exhibit 10.60 of the 1995 Registration Statement).
10.61 License Agreement dated as of September 6, 1995 between the Company and Nautica
Apparel Inc. (incorporated by reference to Exhibit 10.61 of the 1995 Registration
Statement, confidential portions of which have been omitted and filed separately
with the Commission subject to an order granting confidential treatment).
10.62 Amendment No. 2 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1990 Annual Meeting of Stockholders).
10.63 Amendment No. 3 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Stockholders).
10.64 Amendment No. 4 to the 1986 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement for its 1993 Annual Meeting of Stockholders).
10.65 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
extending the due dates on subordinated promissory notes and clarifying the
subordination provision (incorporated by reference to Exhibit 10.65 of the 1995
Registration Statement).
10.66 Agreement dated October 9, 1995, between the Company and Josephine Chaus,
providing the Company with an option to extend a Letter of Credit to July 31,
1996 (incorporated by reference to Exhibit 10.66 of the 1995 Registration
Statement).
*21 List of Subsidiaries of the Company.
*27 Financial Data Schedule.

- ---------------
* Filed herewith.

24






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, on October 11, 1995

BERNARD CHAUS, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on October 11,
1995.



SIGNATURE TITLE
- --------------------------- ---------------------------------------

/s/ Richard A. Baker President
---------------------------
Richard A. Baker

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

/s/ Andrew Grossman Chief Executive Officer and Office of
--------------------------- the Chairman
Andrew Grossman

/s/ Karen A. Maloney Vice President -- Corporate Controller
---------------------------
Karen A. Maloney

/s/ Wayne S. Miller Executive Vice President -- Finance and
--------------------------- Administration, Chief Financial Officer
Wayne S. Miller & Secretary

/s/ Philip G. Barach Director
---------------------------
Philip G. Barach

/s/ John W. Burden, III Director
---------------------------
John W. Burden, III

/s/ S. Lee Kling Director
---------------------------
S. Lee Kling

/s/ Harvey M. Krueger Director
---------------------------
Harvey M. Krueger


25






BERNARD CHAUS, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

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




Reports of Independent Auditors F-2
Consolidated Balance Sheets--June 30, 1994 and 1995 F-4
Consolidated Statements of Operations--Years Ended June 30, 1993, 1994 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficiency)--Years Ended June 30,
1993, 1994 and 1995 F-6
Consolidated Statements of Cash Flows--Years Ended June 30, 1993, 1994 and 1995 F-7
Notes to Consolidated Financial Statements F-8
The following consolidated financial statement schedule of Bernard Chaus, Inc. and
subsidiaries is included in Item 14(a)(2):
Schedule II--Valuation and Qualifying Accounts F-17


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

F-1






REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Bernard Chaus, Inc.

We have audited the accompanying consolidated balance sheets of Bernard
Chaus, Inc. and subsidiaries as of June 30, 1994 and June 30, 1995 and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the years then ended. Our audit also included the financial
statement schedule listed in the Index at item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements and financial
statement schedule present fairly, in all material respects, the financial
position of Bernard Chaus, Inc. and subsidiaries at June 30, 1994 and June
30, 1995, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

New York, New York
October 6, 1995

F-2






REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Bernard Chaus, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Bernard Chaus, Inc. and subsidiaries
for the year ended June 30, 1993. Our audit also included the financial
statement schedule listed in the index at Item 14(a) for the year ended June
30, 1993. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations, cash flows and changes in stockholders' equity of Bernard Chaus,
Inc. and subsidiaries for the year ended June 30, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.

ERNST & YOUNG LLP

New York, New York
August 18, 1993

F-3






BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)



JUNE 30, JUNE 30,
1994 1995
---------- ----------

ASSETS
Current Assets
Cash and cash equivalents ..................................... $ 468 $ 418
Accounts receivable, less allowances of $6,340 and $4,226 .... 17,757 7,646
Inventories ................................................... 25,503 16,203
Prepaid expenses .............................................. 3,743 1,523
---------- ----------
Total current assets ........................................ 47,471 25,790
Fixed assets -- net ............................................ 3,612 2,392
Other assets ................................................... 536 478
---------- ----------
$ 51,619 $ 28,660
========== ==========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities ............................................
Notes payable -- banks ........................................ $ 21,115 $ 18,698
Subordinated promissory notes -- current ...................... 250 --
Accounts payable .............................................. 14,290 12,922
Accrued expenses .............................................. 6,710 5,549
Accrued restructuring expenses ................................ 1,764 2,535
---------- ----------
Total current liabilities ................................... 44,129 39,704
Subordinated promissory notes .................................. 18,789 21,066
Accrued restructuring expenses ................................. 2,315 269
---------- ----------
65,233 61,039
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, authorized shares --1,000,000;
outstanding shares -- none
Common stock, $.01 par value; authorized shares --50,000,000;
issued shares -- 18,975,031 at June 30, 1994 and 21,073,081
at June 30, 1995 ............................................. 190 211
Additional paid-in capital .................................... 40,226 49,353
Deficit ....................................................... (52,550) (80,463)
Less: Treasury stock, at cost -- 622,700 shares ............... (1,480) (1,480)
---------- ----------
Total stockholders' deficiency .............................. (13,614) (32,379)
---------- ----------
$ 51,619 $ 28,660
========== ==========


See accompanying notes to consolidated financial statements.

F-4






BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



FISCAL YEAR ENDED JUNE 30,
---------------------------------------
1993 1994 1995
------------ ------------ -----------

Net sales .................................... $ 235,819 $ 206,332 $ 181,697
Cost of goods sold ........................... 187,423 186,594 149,097
------------ ------------ -----------
Gross profit ................................. 48,396 19,738 32,600
Selling, general and administrative expenses 57,410 55,400 44,794
Restructuring expenses ....................... -- 5,300 1,200
Unusual expenses ............................. -- 1,900 8,333
------------ ------------ -----------
(9,014) (42,862) (21,727)
Interest expense ............................. (2,322) (3,439) (5,976)
Other income (expense), net .................. 449 (190) 91
------------ ------------ -----------

Loss before provision for income taxes ...... (10,887) (46,491) (27,612)
Provision for income taxes ................... 102 264 301
------------ ------------ -----------
Net loss ..................................... $ (10,989) $ (46,755) $ (27,913)
============ ============ ===========
Net loss per share ........................... $ (0.60) $ (2.55) $ (1.40)
============ ============ ===========
Weighted average number of common shares
outstanding ................................. 18,272,000 18,352,000 19,910,000
============ ============ ===========


See accompanying notes to consolidated financial statements.

F-5






BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)



COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL
------------ -------- --------

Balance at July 1, 1992 . 18,735,508 $187 $39,427
Net loss ................. -- -- --
Exercise of stock options 239,523 3 805
------------ -------- ------------
Balance at June 30, 1993 18,975,031 190 40,232
Net loss ................. -- -- --
Restricted stock purchase
and retirement -- net .. -- -- (6)
------------ -------- ------------

Balance at June 30, 1994 18,975,031 190 40,226
Net loss .................
Exchange of notes for
common stock ............ 1,914,500 19 7,352
Issuance of warrants .... -- -- 1,136
Exercise of stock options 183,550 2 639
------------ -------- ------------
Balance at June 30, 1995 21,073,081 $211 $49,353
============ ======== ============


(RESTUBBED TABLE CONTINUED FROM ABOVE)



TREASURY STOCK
RETAINED ----------------------
EARNINGS NUMBER OF
(DEFICIT) SHARES AMOUNT TOTAL
----------- --------- ---------- ---------

Balance at July 1, 1992 . $ 5,194 622,700 $(1,480) $ 43,328
Net loss ................. (10,989) -- -- (10,989)
Exercise of stock options -- -- -- 808
----------- --------- ---------- ----------
Balance at June 30, 1993 (5,795) 622,700 (1,480) 33,147
Net loss ................. (46,755) -- -- (46,755)
Restricted stock purchase
and retirement -- net .. -- -- -- (6)
----------- --------- ---------- ----------

Balance at June 30, 1994 (52,550) 622,700 (1,480) (13,614)
Net loss ................. (27,913) (27,913)
Exchange of notes for
common stock ............ -- -- -- 7,371
Issuance of warrants .... -- -- -- 1,136
Exercise of stock options -- -- -- 641
----------- --------- ---------- ----------
Balance at June 30, 1995 $(80,463) 622,700 $(1,480) $(32,379)
=========== ========= ========== ==========


See accompanying notes to consolidated financial statements.

F-6






BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



YEAR ENDED JUNE 30,
-------------------------------------
1993 1994 1995
----------- ----------- -----------

Operating Activities
Net loss .......................................... $(10,989) $(46,755) $(27,913)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization .................... 1,553 2,485 1,305
Loss on disposal of fixed assets ................. -- 1,192 358
(Recovery of) provision for losses on accounts
receivable ...................................... (25) 117 225
Non-cash interest expense ........................ -- 2,436 3,584
Changes in operating assets and liabilities:
Accounts receivable .............................. 2,764 12,688 9,886
Inventories ...................................... (26,097) 20,471 9,300
Prepaid expenses and other assets ................ (2,655) 2,094 2,278
Accounts payable ................................. 4,588 (5,199) (1,368)
Accrued expenses ................................. 1,808 1,372 (1,161)
Accrued restructuring expenses ................... -- 4,079 (1,275)
----------- ----------- -----------
Net Cash Used In Operating Activities .............. (29,053) (5,020) (4,781)
Investing Activities
Purchases of fixed assets ......................... (2,275) (1,357) (443)
----------- ----------- -----------
Net Cash Used In Investing Activities .............. (2,275) (1,357) (443)
Financing Activities
Net proceeds (repayments) from short-term bank
borrowings ....................................... 14,881 6,234 (2,417)
Principal payments on subordinated promissory
notes ............................................ (7,377) (750) (250)
Proceeds from issuance of subordinated promissory
notes ............................................ -- -- 7,200
Purchase and retirement of restricted stock ...... -- (6) --
Net proceeds from exercise of options ............. 808 -- 641
----------- ----------- -----------
Net Cash Provided By Financing Activities ......... 8,312 5,478 5,174
----------- ----------- -----------

Decrease In Cash And Cash Equivalents .............. (23,016) (899) (50)
Cash and Cash Equivalents, Beginning of Year ...... 24,383 1,367 468
----------- ----------- -----------
Cash and Cash Equivalents, End of Year ............. $ 1,367 $ 468 $ 418
=========== =========== ===========
Cash paid for:
Taxes ............................................. 308 61 7
Interest .......................................... 1,896 1,413 2,283
Supplemental schedule of non-cash financing
activities:
Exchange of subordinated promissory notes for
common stock .................................... -- -- 7,200
Issuance of warrants for credit support by
principal stockholder ........................... -- -- 1,136


See accompanying notes to consolidated financial statements.

F-7






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

1. BUSINESS

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

In the latter part of fiscal 1994, the Company initiated a restructuring plan
which entailed several initiatives to improve its financial position. These
initiatives included, among other things, a $7.2 million cash infusion from
Josephine Chaus to fund the costs associated with hiring Andrew Grossman as
its new Chief Executive Officer, negotiation of a new three year bank
financing agreement (the Amended Financing Agreement--see Note 6) with BNY
Financial Corporation, a wholly owned subsidiary of The Bank of New York
(BNYF), expiring in February 1998, overhead reductions, centralization of
certain functions, closing of selected outlet stores, and a reduction in
inventory levels.

In conjunction with the Amended Financing Agreement, Josephine Chaus provided
BNYF with collateral in the form of a $10 million letter of credit (the
Letter of Credit) which expires on January 31, 1996, and a $5 million
personal guarantee (the Guarantee) for the duration of the Amended Financing
Agreement. In September 1995, Ms. Chaus also provided the Company with an
option to extend the Letter of Credit until July 31, 1996 (see Note 6).

During fiscal 1995, operating expenses were reduced by $10.6 million and
inventories were reduced by $9.3 million. The Company closed three outlet
stores in July 1995, and plans to close six additional outlet stores during
the remainder of fiscal 1996. Additionally, the Company has announced its
intentions to raise equity capital, a portion of which will be used to
finance the working capital needs of its Nautica product line (see Note 11).

The Company's business plan requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and the
development and marketing of its new licensed Nautica lines. The Company
expects to satisfy such requirements through cash flow from operations, its
line of credit under the Amended Financing Agreement, the proceeds of the
proposed equity offering (see Note 11), and, in the near term, continued
credit support from Josephine Chaus. The Company will seek to satisfy its
operating requirements without utilizing credit support from Ms. Chaus,
although there can be no assurance that it will be successful in doing so.
The Company has no understanding with Ms. Chaus pursuant to which she would
extend the Letter of Credit beyond July 31, 1996.

Although there can be no assurance that the plans set forth above will
provide the Company with adequate resources, the Company believes that these
initiatives will have a positive impact on future operating results.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

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

Net Loss Per Share:

Net loss per share has been computed by dividing the applicable net loss by
the weighted average number of common shares outstanding during the year.
Common equivalent shares were not included as their inclusion would have been
antidilutive.

F-8






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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition:

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

Credit Terms:

The Company extends credit to its customers based upon an evaluation of the
customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1994 and 1995, approximately 41.5% and 44.7%,
respectively, of the Company's accounts receivable balances were due from
department store customers owned by three single corporate entities. Sales to
these three entities comprised approximately 13%, 17%, and 9%, respectively,
of the Company's net sales for fiscal 1993, approximately 16%, 14% and 9%,
respectively, of the Company's net sales for fiscal 1994, and approximately
23%, 13% and 7%, respectively, of the Company's net sales for fiscal 1995.

Cash Equivalents:

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

Inventories:

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

Fixed Assets:

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

Foreign Currency Transactions:

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

Employee Benefits:

The Company does not typically provide post-employment benefits to its
employees. Accordingly, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" has no material effect on
the Company's financial statements.

Income Taxes:

Effective July 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (Statement 109). Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss). Prior to the adoption of Statement 109, income tax
expense was determined using the deferred method. Deferred tax expense was
based on items of income and expenses that were reported in different years
in the financial statements and tax returns and were measured at the tax rate
in effect in the year the difference originated. As permitted by Statement
109, the Company has elected not to restate the financial statements of any
prior years. There was no effect of adopting this change.

F-9






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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications:

Certain reclassifications were made to the 1994 and 1993 financial statements
to conform to the 1995 presentation.

3. INVENTORIES

Inventories consist of:



JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)

Finished goods . $25,075 $13,248
Work-in-process 124 2,034
Raw materials .. 304 921
---------- ----------
$25,503 $16,203
========== ==========


Inventories include merchandise in transit (principally finished goods) of
approximately $11.2 million at June 30, 1994 and $4.8 million at June 30,
1995.

4. FIXED ASSETS

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



JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)

Furniture and equipment ..... $12,121 $11,878
Leasehold improvements ....... 9,303 8,251
---------- ----------
21,424 20,129
Less accumulated depreciation
and amortization ............ 17,812 17,737
---------- ----------
$ 3,612 $ 2,392
========== ==========


F-10






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

5. INCOME TAXES

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



JUNE 30, JUNE 30,
1994 1995
---------- ----------
(IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards .................. $ 17,800 $ 25,700
Costs capitalized to inventory for tax purposes .. 1,300 1,200
Accrued interest, subordinated debt/warrants ..... 1,000 2,400
Book over tax depreciation ........................ 1,600 2,100
Sales allowances not currently deductible ........ 2,600 2,200
Reserves and other items not currently deductible 700 600
---------- ----------
25,000 34,200
Valuation allowance for deferred tax assets ...... (25,000) (34,200)
---------- ----------
Net deferred tax asset ............................ $ 0 $ 0
========== ==========


There was a change in the valuation allowance for the year ended June 30,
1995 of $9.2 million.



FISCAL YEAR ENDED JUNE 30,
-----------------------------------
1993 1994 1995
---------- ----------- ----------
(IN THOUSANDS)

Benefit for federal
income taxes at the statutory
rate of 34.5% in 1993
and 35.0% in 1994 and 1995 ......... ($3,756) ($16,272) ($9,665)
State and local income taxes
net of federal tax benefit ......... 102 264 301
Executive compensation in excess of
amount deductible for tax purposes -- -- 2,100
Other ............................... -- -- 35
Effect of unrecognized tax loss
carryforwards ...................... 3,756 16,272 7,530
---------- ----------- ----------
Provision for income taxes .......... $ 102 $ 264 $ 301
========== =========== ==========



At June 30, 1995, the Company has a federal net operating loss carryforward
for income tax purposes of approximately $60 million, which will expire
between 2006 and 2010.

6. FINANCIAL AGREEMENTS

An amended and restated financing agreement with BNYF, originally entered
into in July, 1991, amended and restated effective as of February 21, 1995,
and further amended effective as of September 28, 1995 (the Amended Financing
Agreement) provides the Company with a $60 million credit facility for
letters of credit and direct borrowings, with a sublimit for loans and
advances of $40 million ($47 million for the period from October 1, 1995
through November 30, 1995). At June 30, 1995, the Company was in an
overadvance position of $5.3 million, with BNYF permitting overadvances up to
$6.0 million. The amount of financing available is based upon a formula
incorporating eligible receivables and inventory, cash balances, other
collateral, and permitted overadvances, all as defined in the Amended
Financing Agreement. The Amended Financing Agreement is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory.

F-11






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

6. FINANCIAL AGREEMENTS (Continued)

Interest on direct borrowings is payable monthly at an annual rate equal to
the higher of (i) The Bank of New York's prime rate (9.0% at June 30, 1995)
plus 0.5% (The Bank of New York prime rate plus 1.5% in the event the
Company's overadvance position exceeds the allowable overadvances) or (ii)
the Federal Funds Rate in effect plus 1% (Federal Funds Rate plus 2% in the
event the Company's overadvance position exceeds the allowable overadvances).
There is a commitment fee of 0.375% of the unused portion of the line,
payable monthly, and letter of credit fees equal to 0.125% of the outstanding
letter of credit balance, payable monthly. The Amended Financing Agreement
required the payment of a due diligence and facility fee aggregating $0.6
million during fiscal 1995. In addition, the Amended Financing Agreement
provides for the payment of minimum service charges of $0.5 million per
annum. The Company may terminate the Amended Financing Agreement upon 90
days' prior written notice at any time, subject to termination fees. BNYF may
terminate after February 21, 1998, upon 60 days' written notice to the
Company. The weighted average interest rate was 6.5%, 6.7% and 8.9% for the
years ended June 30, 1993, 1994 and 1995, respectively.

The Amended Financing Agreement contains covenants relative to minimum levels
of working capital and net worth and a cap on personal property leases. The
Company is also prohibited from declaring or paying dividends, or making
other distributions on its capital stock, with certain exceptions. During the
first, second and fourth quarters of fiscal year 1995, the Company was not in
compliance with certain financial covenants. BNYF has waived such
noncompliance.

As part of the renegotiation (see Note 7), in February 1995 Josephine Chaus
increased the Letter of Credit from $7.2 million to $10 million and extended
its term from April 15, 1995 to October 31, 1995 (the February
Increase/Extension) and has, in September 1995, further extended its term to
January 31, 1996 (the September Extension) and, in October 1995, provided the
Company with an option to further extend the Letter of Credit to July 31,
1996. Additionally, Ms. Chaus provided BNYF with the Guarantee. In
consideration for these actions, a Special Committee of the Company's Board
of Directors of the Company (the Special Committee) has authorized the
issuance of warrants (the 1995 Warrants) consisting of (a) warrants to
purchase 815,000 shares of the Company's Common Stock (the February Increase
Warrants) at an exercise price of $4.05 per share, (b) warrants to purchase
535,000 shares of the Company's common stock (the Guarantee Warrants) at an
exercise price of $4.05 per share and (c) warrants to purchase 230,000 shares
of the Company's common stock (the September Extension Warrants) at an
exercise price of $6.75 per share. The exercise prices of the February
Increase Warrants and the Guarantee Warrants are equal to 120% of the closing
price of the Company's Common Stock on the New York Stock Exchange (the NYSE)
on May 17, 1995, the day immediately preceding the date when the Special
Committee approved the issuance of such warrants; and the exercise price of
the September Extension Warrants is equal to 120% of the closing price of the
Company's Common Stock on the NYSE on September 14, 1995, the date when the
Special Committee approved the September Extension Warrants. The 1995
Warrants are subject to stockholder approval and receipt of an opinion from a
nationally recognized investment banking firm that the terms of the 1995
Warrants are commercially reasonable. The Guarantee Warrants reflect
compensation for the provision of the Guarantee only through October 31,
1995; thereafter, for each three month period of the Guarantee, Ms. Chaus
will receive cash compensation of $50,000.

The 1995 Warrants will be exercisable for five years from the date of
issuance and will be (in the case of the February Increase Warrants and the
Guarantee Warrants, but not the September Extension Warrants) fully
transferable. In addition, the Company has borne all out-of-pocket expenses
incurred by Josephine Chaus in providing the credit support, which thereby
reduced the number of warrants received by her accordingly. Josephine Chaus
will forfeit a pro rata portion of the February Increase Warrants and/or
Guarantee Warrants if the Letter of Credit and/or the Guarantee, as
applicable, is terminated before

F-12






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

6. FINANCIAL AGREEMENTS (Continued)

October 31, 1995; and will forfeit a pro rata portion of the September
Extension Warrants if the Letter of Credit is terminated before January 31,
1996.

Josephine Chaus possesses the power to vote more than 50% of the outstanding
shares of Common Stock. Consequently, the affirmative vote of Josephine Chaus
for the issuance of the 1995 Warrants to her is sufficient to approve such
issuance without the vote of any other stockholders. Josephine Chaus has
advised the Company that she intends to vote all of her shares in favor of
such issuance. As a result, the Company has recorded a charge to interest
expense with a corresponding increase to additional paid-in capital of $0.5
million for the issuance of the February Increase Warrants and the Guarantee
Warrants during the fourth quarter of fiscal 1995 and will reflect a charge
for the issuance of the September Extension Warrants during fiscal 1996.
Additionally, in consideration for credit support provided to the Company in
connection with the prior financing agreement with the BNYF, Josephine Chaus
was granted 1,216,500 warrants (the 1994 Warrants) exercisable through
November 22, 1999 at prices ranging between $2.25 to $4.62 per share. The
value of the 1994 Warrants has been included as a charge to interest expense
($0.7 million) during fiscal 1995 with a corresponding increase to paid-in
capital.

In June 1995, the Company and a major trading company entered into a sales
and financing agreement (the S&F Agreement) which provided the Company with
additional financing to purchase its products. Either party may terminate the
S&F Agreement upon 30 days' written notice to the other party.

7. SUBORDINATED PROMISSORY NOTES

The Company has outstanding at June 30, 1995, $21.1 million of subordinated
promissory notes payable to Josephine Chaus certain of which were originally
issued on June 30, 1986 and the remainder of which were issued in February
and March 1991 (the "Subordinated Notes"). The Company has been prohibited
from making payments of principal or interest on the Subordinated Notes since
1993 (with the exception of principal payments of approximately $.5 million,
$.3 million and $.3 million in November 1993, February 1994 and August 1994,
respectively) as a result of restrictive covenants under the prior financing
agreement and the Amended Financing Agreement. In September 1995, Josephine
Chaus extended the maturity date on all of the Subordinated Notes (which were
to mature on April 1, 1996) to July 1, 1996. In connection with the proposed
equity offering, Ms. Chaus subsequently agreed to extend the maturity date of
the Subordinated Notes to July 1, 1998, subject to the consummation of such
offering.

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

F-13






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

8. EMPLOYEE BENEFIT PLANS

Pension Plan:

Pursuant to a collective bargaining agreement, all of the Company's union
employees are covered by a defined benefit pension plan. Pension expense
amounted to approximately $28,000, $61,000 and $53,000 in fiscal 1993, 1994
and 1995, respectively. As of December 31, 1994, the actuarial present value
of the accumulated vested and non-vested plan benefits amounted to $0.4
million and net assets available for benefits amounted to $0.3 million.
Actuarial assumptions related to weighted average interest rate and weighted
average rate of return were 8.25% and 8.5%, respectively, for fiscal 1993,
and 8.0% and 8.5%, respectively, for both fiscal 1994 and 1995.

Savings Plan:

The Company has a savings plan (the Savings Plan) under which eligible
employees may contribute a percentage of their compensation and the Company
(subject to certain limitations) will match 50% of the employee's
contribution. Company contributions will be invested half in the Common Stock
of the Company and half in investment funds selected by the participant and
are subject to vesting provisions of the Savings Plan. Expense under the
Savings Plan was approximately $0.3 million, $0.3 million and $0.2 million in
fiscal 1993, 1994, and 1995, respectively. An aggregate of 100,000 shares of
Common Stock has been reserved for issuance under the Savings Plan.

Incentive Award Plan:

The Company maintains an incentive award plan (the Award Plan) pursuant to
which eligible participants may be awarded bonuses if net earnings of the
Company reach a predetermined level. No compensation has been awarded under
the Award Plan in the fiscal years ended June 30, 1993, 1994 and 1995.

Restricted Stock Plan:

In November 1987, the Company's stockholders approved the adoption of a
restricted stock plan (the Restricted Plan). Pursuant to the Restricted Plan,
250,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25 percent of such shares on each anniversary of their date
of allocation. As of June 30, 1995, no restricted shares have been granted
under this plan.

Stock Option Plan:

Pursuant to the Stock Option Plan (the Option Plan), the Company may grant to
eligible individuals incentive stock options, as defined in the Internal
Revenue Code, and non-incentive stock options. At the annual meeting of
stockholders in November 1993, the stockholders approved the increase in the
number of shares of Common Stock with respect to which options may be granted
from 1,500,000 shares to 2,500,000 shares. No stock options may be granted
subsequent to 1996 and the exercise price may not be less than 100% of the
fair market value on the date of grant for incentive stock options and 85% of
the fair market value on the date of grant for non-incentive stock options.

Grossman Option Plan:

At the annual stockholders meeting in November 1994, the stockholders
approved the issuance of options for the Company's new Chief Executive
Officer (the Grossman Option Plan) to purchase 3,000,000 shares of common
stock. Of this amount, 1,500,000 options were granted in September 1994 (and
included in the following table), and the balance were granted in September
1995 in connection with the extension of the term of his employment
agreement.

F-14






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

8. EMPLOYEE BENEFIT PLANS (Continued)



NON-INCENTIVE
STOCK OPTIONS
----------------------------
NUMBER OF EXERCISE PRICE
SHARES RANGE
----------- ---------------


Outstanding at June 30, 1992 .. 1,286,108 $2.375 -- $6.500
Options granted in fiscal 1993 86,906 $2.875 -- $9.375
Options canceled ............... (21,027) $4.250 - $5.375
Options exercised .............. (239,523) $2.375 -- $6.500
-----------
Outstanding at June 30, 1993 .. 1,112,464 $2.375 -- $9.375
Options granted in fiscal 1994 630,000 $1.875 -- $4.750
Options canceled ............... (323,316) $2.875 -- $6.500
-----------
Outstanding at June 30, 1994 .. 1,419,148 $1.875 -- $9.375
Options granted in fiscal 1995 2,186,688 $ 2.25 -- $4.750
Options canceled ............... (555,428) $2.000 -- $9.375
Options exercised .............. (183,550) $2.000 -- $4.750
-----------
Outstanding at June 30, 1995 .. 2,866,858 $1.875 -- $4.875
=========== ===============



The stock options become exercisable in annual 25% increments commencing one
year after issuance. As of June 30, 1995 options to purchase approximately
573,000 shares were exercisable.

At June 30, 1995, a total of approximately 5,363,000 shares of Common Stock
were reserved for issuance under the Stock Option, Savings and Grossman
Option Plans.

9. RESTRUCTURING AND UNUSUAL EXPENSES

Relative to the restructuring program discussed in Note 1, during the first
fiscal quarter of 1995 the Company recorded restructuring expenses of $1.2
million. These costs primarily related to employee severance as the Company
continued to reduce overhead costs.

In January 1995, the Company signed favorable early termination agreements
with the landlords of certain outlet stores, for which the Company had
previously provided a reserve as part of its restructuring expenses at June
30, 1994. As a result, the Company was able to reduce its restructuring
expenses by approximately $1.3 million. The benefit of this reduction was
offset, however, by certain additional expenses provided by the Company
related to its retail and overseas operations.

In fiscal 1994, the Company recorded restructuring expenses of $5.3 million.
These expenses included $2.1 million for closing selected outlet stores, $2.5
million for the consolidation and closing of office and warehouse space and
$0.7 million for employee severance.

During the first fiscal quarter of 1995, the Company recorded unusual
expenses of $7.8 million primarily related to costs associated with the
signing of the Company's new Chief Executive Officer. In the fourth quarter
of fiscal 1995, the Company recorded an additional $0.5 million related to
certain legal matters. During the fourth quarter of fiscal 1994, the Company
recorded $1.9 million of unusual expense consisting primarily of expenses
arising from the abandonment of fixed assets, certain legal matters and the
winding down of the Company's Canadian joint venture.

F-15






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

10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Lease Obligations:

The Company leases showroom, distribution and office facilities, retail
outlet facilities and equipment under various noncancellable operating lease
agreements which expire through 2005. Rental expense for the years ended June
30, 1993, 1994 and 1995 was approximately $8.1 million, $11.2 million
(approximately $3.7 million of which is included in restructuring expenses)
and $7.0 million, respectively.

The minimum aggregate rental commitments at June 30, 1995 are as follows (in
thousands):




Fiscal year ending:
1996 .............. $ 5,512
1997 .............. 2,644
1998 .............. 1,362
1999 .............. 1,116
2000 .............. 870
Subsequent to 2000 1,558
--------
$13,062
========


Letters of Credit:

The Company is contingently liable under letters of credit issued by banks to
cover contractual commitments for merchandise purchases of approximately
$11.0 million at June 30, 1995.

Litigation:

By order dated September 1, 1992, Federal Judge Shirley Wohl Kram dismissed
with prejudice as time-barred the Amended Complaint against the Company and
others, in the previously reported consolidated class actions entitled Phifer
v. Chaus et al., Goldschlack v. Chaus et al., Susman v. Chaus et al. and I.
Bibcoff Inc. Pension Trust Fund v. Chaus et al. In such actions, claims were
asserted against the Company and others, including the Company's lead
underwriters, for alleged misstatements and omissions contained in the
Company's July 1986 Prospectus delivered in connection with the Company's
initial public offering and its 1986 and 1987 Annual Reports. Plaintiffs's
attorneys filed a notice of appeal, which they subsequently withdrew subject
to the right to restore the appeal by January 8, 1993. No such appeal was
made and the action was automatically deemed dismissed with prejudice.

On April 19, 1993, a Class Action Complaint was filed in the Superior Court
of New Jersey, Hudson County, against the Company and others, including the
lead underwriter of the Company's 1986 initial public offering, alleging
common law fraud and negligent misrepresentation in the sale of the Company's
stock in its initial public offering, allegations that are substantially
similar to the claims that were dismissed with prejudice in the federal
court. One of the plaintiffs from the federal action was originally a party
in this action in state court. On June 18, 1993, the Company received by
mail, a copy of Jury Demand Class Action in the Superior Court of New Jersey,
Hudson County, entitled Theodore M. Wietecha and Lisa A. Phifer v. Bernard
Chaus, Inc. et al. The complaint was amended in September 1993 to delete Lisa
Phifer as a plaintiff. On May 27, 1994, the Company moved to dismiss the
complaint and/or to deny or limit class status. On May 27, 1994, the Company
moved to dismiss the complaint and/or to deny or limit class status. In a
decision rendered in November, 1994, the Superior Court denied the
plaintiff's motion for the class certification and dismissed all claims
against the director defendants (Josephine Chaus and the Estate of Bernard
Chaus) and all claims not based upon actual reliance.

With the denial of class certification, absent a successful appeal, the
plaintiff's claims would not have a material adverse affect on the Company.
In any event, management believes, based on the advice of counsel, that such
action is without merit.

F-16






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

10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

A claim for indemnification has been asserted by the Company's former
Underwriters against the Company. The indemnification claim demands repayment
of the legal fees and expenses incurred by the Underwriters in connection
with the consolidated class actions entitled Phifer v. Chaus, et al.
Discussions are ongoing with counsel for the Underwriters to resolve this
claim.

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

Employment Agreement:

The Company has entered into a number of employment agreements with various
senior executives. In addition to his $1 million salary, Mr. Grossman is
entitled to a bonus equal to 5% of the Company's annual net profits, as
defined, for the duration of his agreement, which expires in 2004.

11. SUBSEQUENT EVENTS

In September 1995, the Company entered into the Nautica License Agreement
under which the Company will have an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto
Rico. The Company's licensed Nautica product line will be distributed in
major department and specialty stores, at "better" to "bridge" price points
in Nautica designed in-store shops. Nautica has developed significant
brand-name recognition with its men's apparel lines. This relationship will
provide the Company with exposure to "better" to "bridge" departments, while
creating an alliance with a leading company in the apparel industry. The
Company expects to make the first sales of its licensed Nautica products
during the first quarter of fiscal 1997. The Company's license from Nautica
is limited to women's sportswear collections including coordinating knits,
blouses, wovens, sweaters, pants, skirts, jackets, and outerwear and
sportswear dresses bearing the Nautica brand names and marks. The Company's
license from Nautica excludes business dresses, suits, coats and raincoats
that are not part of a sportswear collection. The license also excludes
shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.

The initial term of the Nautica License Agreement runs through December 31,
1999, and is thereafter renewable for up to two periods of three years each,
provided that certain conditions are met (including the successful attainment
of certain sales targets and the requirement that Andrew Grossman continue in
his position as Chief Executive Officer during the term of the Nautica
License Agreement). Under the Nautica License Agreement, the Company is
obligated to raise at least $10.0 million in equity capital by December 31,
1995, and to devote at least $7.0 million to the fulfillment of its
obligations under the Nautica License Agreement. The Company's obligations
also include minimum royalty and advertising payments and the construction of
a separate showroom for the display of the Company's licensed Nautica
products. Under the Nautica License Agreement, the Company intends to
dedicate a full operational merchandising and retail development group to its
licensed Nautica product line.

Pursuant to the terms of the Nautica License Agreement, the Company has
granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).

The Company is preparing a Registration Statement for filing with the
Securities and Exchange Commission in October 1995 with respect to an equity
offering of 5,000,000 shares of Common Stock. Proceeds of the offering will
be used to satisfy the Nautica License Agreement's requirements and to
support the growth of the Company's existing Chaus product lines. If the
proposed public offering is not consummated by December 31, 1995 and no
alternative source of equity is raised to satisfy the requirements under the
Nautica license, Nautica would have the right to terminate the Nautica
License Agreement.

F-17






SCHEDULE II

BERNARD CHAUS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS



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

Year ended June 30, 1995
Allowance for doubtful accounts .. $ 355 $ 225 $ (39)(1) $ 619
============ ============ ============ =========
Reserve for sales discounts and
customer allowances and deductions $5,985 $33,695 $36,073 (2) $3,607
------------ ------------ ------------ ---------
Accrued restructuring expenses .... $4,079 $ 1,200 $ 2,475 (3) $2,084
------------ ------------ ------------ ---------
Year ended June 30, 1994
Allowance for doubtful accounts .. $ 412 $ 117 $ 174 (1) $ 355
------------ ------------ ------------ ---------
Reserve for sales discounts and
customer allowances and deductions $3,929 $33,955 $31,899 (2) $5,985
------------ ------------ ------------ ---------
Accrued restructuring expenses .... $ 0 $ 5,300 $ 1,221 (4) $4,079
------------ ------------ ------------ ---------
Year ended June 30, 1993
Allowance for doubtful accounts .. $ 305 $ (25) $ (132)(1) $ 412
------------ ------------ ------------ ---------
Reserve for sales discounts and
customer allowances and deductions $3,711 $22,958 $22,740 (2) $3,929
============ ============ ============ =========

- ---------------
(1) Uncollectible accounts written off.
(2) Allowances charged to reserve and granted to customers.
(3) Reversal of provision no longer required and expenses charged to
reserve.
(4) Expenses charged to reserve.

S-1