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                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 1997        COMMISSION FILE NO. 1-9196



                          THE LESLIE FAY COMPANY, INC.

          DELAWARE                                       13-3197085
 (STATE OF OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

          1412 BROADWAY
        NEW YORK,  NEW YORK                                  10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000


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


There were 3,400,000 shares of Common Stock outstanding at November 1, 1997.


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<PAGE>



                                      INDEX
                                                                        Page No.
PART I  -  FINANCIAL INFORMATION

Item 1.  Financial Statements:

           Consolidated Balance Sheet at October 4, 1997...................... 3

           Consolidated Statements of Operations for the Eighteen and
            Thirteen Weeks Ended October 4, 1997.............................. 4

           Consolidated Statements of Cash Flows for the Eighteen and
            Thirteen Weeks Ended October 4, 1997.............................. 5

           Consolidated Balance Sheets at June 4, 1997 and
            December 28, 1996................................................. 6

           Consolidated Statements of Operations for the Twenty-Two
            Weeks Ended June 4, 1997 and the Twenty-One Weeks
            Ended May 25, 1996................................................ 7

           Consolidated Statements of Cash Flows for the Twenty-Two
            Weeks Ended June 4, 1997 and the Twenty-One Weeks
            Ended May 25, 1996................................................ 8

           Notes to Consolidated Financial Statements ........................ 9

Item 2  Management's Discussion and Analysis of Financial Condition and
             Results of Operations............................................28

PART II  -  OTHER INFORMATION

Item 1  Legal Proceedings.....................................................35
Item 2  Changes in Securities.................................................35
Item 3  Defaults Upon Senior Securities.......................................36
Item 4  Submission of Matters to a Vote of Security Holders...................36
Item 5  Other Information.....................................................36
Item 6  Exhibits and Reports on Form 8-K......................................36

SIGNATURES....................................................................37

INDEX TO EXHIBITS.............................................................38


<PAGE>


                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                 (In thousands)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                October 4,
                                                                                  1997
                                                                                --------
<S>                                                                             <C>     
                         ASSETS

Current Assets:
        Cash and cash equivalents ..............................................$ 10,907
        Accounts receivable- net of allowances for possible losses
            of $6,444 ..........................................................  29,676
        Inventories ............................................................  17,358
        Prepaid expenses and other current assets ..............................   4,267
                                                                                --------
           Total Current Assets.................................................  62,208

        Property, Plant and Equipment, at cost, net of                          
           accumulated depreciation of $3.......................................     375
        Deferred Charges and Other Assets.......................................     216
                                                                                --------
        Total Assets............................................................$ 62,799
                                                                                ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
        Accounts payable........................................................$  7,564
        Accrued expenses and other current liabilities..........................  11,630
        Income taxes payable....................................................   1,448
                                                                                --------
           Total Current Liabilities............................................  20,642

        Excess of Revalued Net Assets Acquired over Equity under
             Fresh-Start Reporting, net of accumulated amortization of $1,524...  12,184

        Long Term Debt-Capitalized Lease........................................     268
                                                                                --------
          Total Liabilities.....................................................  33,094
                                                                                --------

Stockholders' Equity:
        Common stock, $.01 par value; 3,500 shares authorized;
              3,400 shares issued and outstanding...............................      34
        Preferred stock, $.01 par value; 500 shares authorized;
              no shares issued and outstanding..................................    --    
        Capital in excess of par value..........................................  25,086
        Accumulated retained earnings ..........................................   4,585
                                                                                --------
            Total Stockholders' Equity..........................................  29,705
                                                                                --------
        Total Liabilities and Stockholders' Equity..............................$ 62,799
                                                                                ========
</TABLE>


       The accompanying Notes to Consolidated Financial Statements are an
           integral part of these consolidated financial statements.

                                     - 3 -

<PAGE>



                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)

                                                      Eighteen        Thirteen
                                                     Weeks Ended     Weeks Ended
                                                      October 4       October 4
                                                        1997            1997
                                                     -----------    -----------
Net Sales ........................................   $    47,097    $    41,562
Cost of Sales ....................................        36,242         31,832
                                                     -----------    -----------
   Gross profit ..................................        10,855          9,730

Operating Expenses:
   Selling, warehouse, general and administrative
    expenses .....................................         7,976          6,344
   Depreciation and amortization expense .........             3              3
                                                     -----------    -----------
      Total operating expenses ...................         7,979          6,347

   Other income ..................................          (462)          (344)
   Amortization of excess revalued net assets
    acquired over equity .........................        (1,524)        (1,143)
                                                     -----------    -----------

   Total operating expenses, net .................         5,993          4,860
                                                     -----------    -----------

   Operating income ..............................         4,862          4,870

Interest Expense, net and Financing
 Costs ...........................................           212            314
                                                     -----------    -----------

   Net Income before taxes .......................         4,650          4,556

Taxes ............................................            65             45
                                                     -----------    -----------

   Net Income ....................................   $     4,585    $     4,511
                                                     ===========    ===========

  Net Income per Common Share - Basic ............   $      1.35    $      1.33
                                                     ===========    ===========
                            - Assuming Dilution ..   $      1.18    $      1.17
                                                     ===========    ===========

  Weighted Average Common Shares Outstanding
                           - Basic ...............     3,400,000      3,400,000
                                                     ===========    ===========
                           - Assuming Dilution ...     3,869,421      3,871,246
                                                     ===========    ===========




       The accompanying Notes to Consolidated Financial Statements are an
                  integral part of these financial statements.




                                     - 4 -



<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                           Eighteen     Thirteen
                                                                          Weeks Ended  Weeks Ended
                                                                           October 4,  October 4,
                                                                              1997        1997
                                                                            --------    --------
<S>                                                                         <C>         <C>     
Cash Flows from Operating Activities:
        Net income ......................................................   $  4,585    $  4,511
        Adjustments to reconcile net income  to net cash
            used in operating activities:
           Depreciation and amortization ................................          3           3
           Amortization of excess purchase price over
              net assets acquired .......................................     (1,524)     (1,143)
           Provision for possible losses on accounts receivable .........        (27)         72
           Provision for compensation under stock option grants .........        120          90
          (Increase) decrease in:
             Accounts receivable ........................................    (13,239)    (18,318)
             Inventories ................................................      1,757       5,602
             Prepaid expenses and other current assets ..................     (3,083)      1,169
             Deferred charges and other assets ..........................       (216)         33
           (Decrease) increase in:
             Accounts payable, accrued expenses and other
                current liabilities .....................................       (285)      1,377
             Income taxes payable .......................................       (751)       (740)
                                                                            --------    --------
                Total adjustments .......................................    (17,245)    (11,855)
                                                                            --------    --------
                Net cash (used in) operating activities .................    (12,660)     (7,344)
                                                                            --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures ............................................       (378)       (238)
                                                                            --------    --------
                Net cash (used in) investing activities .................       (378)       (238)
                                                                            --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Repayment of long-term debt .....................................        (76)        (57)
        Payment of obligations under Plan of Reorganization .............    (17,059)    (16,519)
                                                                            --------    --------
                Net cash (used in) financing activities .................    (17,135)    (16,576)
                                                                            --------    --------

Net decrease in cash and cash equivalents ...............................    (30,173)    (24,158)

Cash and cash equivalents, at beginning of period .......................     41,080      35,065
                                                                            --------    --------

Cash and cash equivalents, at end of period.............................$     10,907    $ 10,907
                                                                            ========    ========
</TABLE>


        The accompanying Notes to Consolidated Financial Statements are
          an integral part of these consolidated financial statements.


                                       -5-


<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                     (Unaudited)
                                                                                       June 4,   December 28,
                                                                                         1997        1996
                                                                                      ---------   ---------
<S>                                                                                   <C>         <C>      
ASSETS

Current Assets:
        Cash and cash equivalents .................................................   $  41,080   $  21,977
        Accounts receivable- net of allowances for possible losses
            of $5,447 and $24,353, respectively ...................................      16,410      63,456
        Inventories ...............................................................      19,115     104,383
        Prepaid expenses and other current assets .................................       1,184       2,290
        Assets of divisions held for sale or disposition ..........................        --         3,003
                                                                                      ---------   ---------
           Total Current Assets ...................................................      77,789     195,109

Property, Plant and Equipment, at cost less accumulated depreciation
            and amortization of $0 and $19,549, respectively ......................        --        17,575
Excess of Purchase Price over Net Assets Acquired-net of
            accumulated amortization of $0 and $10,848, respectively ..............        --        23,795
Deferred Charges and Other Assets .................................................        --         1,182
                                                                                      ---------   ---------
        Total Assets ..............................................................   $  77,789   $ 237,661
                                                                                      =========   =========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
        Accounts payable ..........................................................   $   9,407   $  20,341
        Accrued expenses and other current liabilities ............................      27,131      23,154
        Income taxes payable ......................................................       2,199         634
        Direct liabilities of divisions held for sale or disposition ..............        --         1,577
                                                                                      ---------   ---------
           Total Current Liabilities ..............................................      38,737      45,706

Excess of Revalued Net Assets Acquired over
     Equity under Fresh-Start Reporting ...........................................      13,708        --

Long Term Debt - Capitalized Lease ................................................         344        --
Liabilities Subject to Compromise .................................................        --       337,433
                                                                                      ---------   ---------
           Total Liabilities ......................................................      52,789     383,139
                                                                                      ---------   ---------

Commitments and Contingencies

Stockholders' Deficit:
        Common stock, $.01 and $1.00 par value; 3,500 and 50,000 shares authorized;
           3,400 and 18,772 shares issued and outstanding, respectively ...........          34      20,000
        Preferred Stock, $.01 par value; 500 shares authorized; none issued .......        --          --   
        Capital in excess of par value ............................................      24,966      49,012
        Accumulated retained earnings (deficit) ...................................        --      (202,105)
        Foreign currency translation adjustment ...................................        --           581
                                                                                      ---------   ---------
              Subtotal ............................................................      25,000    (132,512)
        Treasury stock, at cost - 0 and 1,228 shares, respectively ................        --       (12,966
                                                                                      ---------   ---------
            Total Stockholders' Deficit ...........................................      25,000    (145,478)
                                                                                      ---------   ---------
        Total Liabilities and Stockholders' Deficit ...............................   $  77,789   $ 237,661
                                                                                      =========   =========
</TABLE>
         The accompanying Notes to Consolidated Financial Statements are
          an integral part of these consolidated financial statements.

                                      - 6 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                       (Unaudited)
                                                                                Twenty-Two      Twenty-One
                                                                                Weeks Ended     Weeks Ended
                                                                                  June 4,         May 25,
                                                                                   1997            1996
                                                                               ------------    ------------
<S>                                                                            <C>             <C>         
Net Sales ..................................................................   $    197,984    $    173,452
Cost of Sales ..............................................................        147,276         131,981
                                                                               ------------    ------------
   Gross profit ............................................................         50,708          41,471
                                                                               ------------    ------------

Operating Expenses:
   Selling, warehouse, general and administrative expenses .................         35,459          33,934
   Depreciation and amortization of intangibles ............................          2,090           1,770
                                                                               ------------    ------------
      Total operating expenses .............................................         37,549          35,704

   Other income ............................................................         (1,196)         (1,590)
                                                                               ------------    ------------

   Total operating expenses, net ...........................................         36,353          34,114
                                                                               ------------    ------------

   Operating income ........................................................         14,355           7,357

Interest and Financing Costs (excludes contractual
     interest of $7,513 and $7,513, respectively) ..........................          1,372             837
                                                                               ------------    ------------

   Income before reorganization costs, taxes, gain
      on sale, fresh-start revaluation and extraordinary item ..............         12,983           6,520

Reorganization Costs .......................................................          3,379           1,560
                                                                               ------------    ------------

    Income before taxes, gain on sale,
       fresh-start revaluation and extraordinary item ......................          9,604           4,960


Taxes ......................................................................            451             435
                                                                               ------------    ------------


   Net Income before gain on sale, fresh-start
      revaluation and extraordinary item ...................................          9,153           4,525

Gain on disposition of Sassco Fashions Division (net of $3,728 of income
   taxes), loss on revaluation of assets pursuant to adoption of fresh-start
   reporting and extraordinary gain on debt discharge ......................        136,341            --
                                                                               ------------    ------------

   Net Income ..............................................................   $    145,494    $      4,525
                                                                               ============    ============

   Net Income per Share of Common Stock ....................................        *          $       0.24
                                                                               ============    ============

   Weighted Average Common Shares Outstanding ..............................        *            18,771,836
                                                                               ============    ============
</TABLE>

  * Earnings per share is not presented for the twenty-two weeks ended June 4,
    1997 because such presentation would not be meaningful. The old stock was
   cancelled under the plan of reorganization and the new stock was not issued
                          until the consummation date.

        The accompanying Notes to Consolidated Financial Statements are
          an integral part of these consolidated financial statements.

                                     - 7 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    (Unaudited)
                                                              Twenty-Two   Twenty-One
                                                              Weeks Ended  Weeks Ended 
                                                               June 4,       May 25,
                                                                 1997         1996
                                                              ---------    ---------
<S>                                                           <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income .............................................   $ 145,494    $   4,524
   Adjustments to reconcile net income  to net cash
       used in operating activities:
      Depreciation and amortization .......................       1,749        1,420
      Amortization of excess purchase price over
         net assets acquired ..............................         473          483
      Provision for possible losses on accounts
         receivables ......................................         199          492
      (Gain) Loss on sale of fixed assets .................        (347)        --
   Decrease (increase) in:
        Accounts receivable ...............................      (1,248)     (17,158)
        Inventories .......................................      25,538       13,251
        Prepaid expenses and other current asset ..........         (66)       1,810
        Income taxes refundable ...........................        --         10,345
        Deferred charges and other assets .................         125           99
   (Decrease) increase in:
        Accounts payable, accrued expenses and other
           current liabilities ............................      (4,167)     (14,131)
        Income taxes payable ..............................      (1,515)          60
        Deferred credits and other noncurrent liabilities .         374          384
   Changes due to reorganization activities:
        Gain on disposition of Sassco Fashions, fresh-start
             revaluation charge and extraordinary gain on
             debt discharge ...............................    (136,341)        --
        Reorganization costs ..............................       3,379        1,560
        Payment of reorganization costs ...................        (917)      (3,196)
                                                              ---------    ---------
           Total adjustments ..............................    (112,764)      (4,581)
                                                              ---------    ---------
           Net cash provided by (used in) operating
              activities ..................................      32,730          (57)
                                                              ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ...................................      (3,731)      (2,155)
   Proceeds from sale of assets ...........................         467         --
   Proceeds from sale of Castleberry ......................         600         --
   Cash paid to sell/transfer the Sassco Fashion
     division .............................................     (10,963)        --
                                                              ---------    ---------
           Net cash (used in) investing activities ........     (13,627)      (2,155)
                                                              ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from borrowings ...............................        --            993
   Repayment of borrowings ................................        --           (993)
                                                              ---------    ---------
           Net cash provided by financing activities ......        --           --
                                                              ---------    ---------

Net increase (decrease) in cash and cash equivalents ......      19,103       (2,212)

Cash and cash equivalents, at beginning of period .........      21,977       32,324
                                                              ---------    ---------
Cash and cash equivalents, at end of period ...............   $  41,080    $  30,112
                                                              =========    =========
</TABLE>

        The accompanying Notes to Consolidated Financial Statements are
          an integral part of these consolidated financial statements.

                                     - 8 -


<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

1.  BASIS OF PRESENTATION:

         The condensed  consolidated  financial  statements included herein have
been  prepared  by The  Leslie  Fay  Company,  Inc.  (formerly  The  Leslie  Fay
Companies,  Inc.) and subsidiaries (The Leslie Fay Company, Inc. being sometimes
individually  referred  to,  and  together  with its  subsidiaries  collectively
referred to, as the "Company" as the context may require), pursuant to the rules
and regulations of the Securities and Exchange  Commission (the "SEC").  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  from this  report,  as is  permitted  by such  rules and
regulations;  however, the Company believes that the disclosures are adequate to
make the  information  presented not misleading.  These  condensed  consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements  and the notes thereto  included in the  Company's  Annual
Report on Form 10-K for the Fiscal Year ended  December 28, 1996 (the "1996 Form
10-K").

         As a result of the  consummation  of the Joint  Plan of  Reorganization
("the Plan" - see Note 2) and the adoption of  fresh-start  reporting  under the
American Institute of Certified Public Accountants'  Statement of Position 90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7"),  the Company was required to report its financial  results for the
forty weeks and thirteen weeks ended October 4, 1997 in two separate  periods in
this Form  10-Q.  One period  contains  financial  statements  and notes for the
twenty-two  weeks ended June 4, 1997,  including  the effects of the adoption of
fresh-start reporting and consummation of the Plan. The significant  fresh-start
reporting  adjustments  are  summarized  in Note 2. The  other  periods  contain
financial statements and notes for the eighteen and thirteen weeks ended October
4, 1997 for the reorganized Company.

         In addition to the above adjustments, interim taxes were provided based
on the Company's estimated effective tax rate for the year.

         In the opinion of management,  the information  furnished  reflects all
additional adjustments, all of which are of a normal recurring nature, necessary
for a fair presentation of the results for the reported interim periods. Results
of operations for interim periods are not necessarily  indicative of results for
the full year, and the seasonality of the business may make  projections of full
year results based on interim periods unreasonable.

                                     - 9 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



         Certain  reclassifications  have been made to the financial  statements
for the  twenty-two  week period ended June 4, 1997 and  twenty-one  week period
ended May 25, 1996 to conform to the current quarterly presentation.

2.  REORGANIZATION CASE AND FRESH-START REPORTING:

         On April 5, 1993 (the "Filing  Date"),  The Leslie Fay Companies,  Inc.
("Leslie Fay") and each of Leslie Fay Licensing Corp., Spitalnick Corp. and Hue,
Inc.,  wholly owned  subsidiaries  of Leslie Fay  (collectively  the "Debtors"),
filed  a  voluntary  petition  under  chapter  11 of the  Bankruptcy  Code  (the
"Bankruptcy  Code").  In  addition,  on  November  15,  1995,  Leslie Fay Retail
Outlets,  Inc.;  Leslie Fay Factory Outlet  (Alabama),  Inc.; Leslie Fay Factory
Outlet  (California),  Inc.; Leslie Fay Factory Outlet (Iowa),  Inc.; and Leslie
Fay Factory Outlet  (Tennessee),  Inc., all wholly-owned  subsidiaries of Leslie
Fay  (collectively  referred  to  as  the  "Retail  Debtors"),  filed  voluntary
petitions under chapter 11 of the Bankruptcy Code. From their respective  filing
dates until June 4, 1997, the Debtors and Retail Debtors  operated or liquidated
their  businesses,  as applicable,  and as debtors in possession  subject to the
jurisdiction  and  supervision  of the United  States  Bankruptcy  Court for the
Southern District of New York (the "Bankruptcy Court").

         On October  31,  1995,  the  Debtors  and the  Committee  of  Unsecured
Creditors (the "Creditors Committee") filed a Joint Plan of Reorganization ("the
Plan") pursuant to chapter 11 of the Bankruptcy  Code. The Plan was subsequently
amended on March 13, 1996,  December 5, 1996,  February 3, 1997 and February 28,
1997.  On December 5, 1996,  the Debtors  filed a Disclosure  Statement  for the
Amended Joint Plan of  Reorganization  pursuant to chapter 11 of the  Bankruptcy
Code (the  "Disclosure  Statement"),  which  was also  subsequently  amended  on
February 3, 1997 and February 28, 1997. The Debtors  obtained  Bankruptcy  Court
approval of the Disclosure Statement on February 28, 1997. The Plan was approved
by the creditors and on April 21, 1997, the Bankruptcy Court confirmed the Plan.


                                     - 10 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



         On June 4, 1997 (the "Consummation  Date"), the Plan was consummated by
the Company 1)  transferring  the equity interest in both the Company and Sassco
Fashions,  Ltd.  ("Sassco"),  which has changed its name to Kasper ASL, Ltd., to
its  creditors  in exchange for relief from the  aggregate  amount of the claims
estimated  at  $338,000,000;  2) assigning to certain  creditors  the  ownership
rights to notes aggregating  $110,000,000 payable by Sassco; and 3) transferring
the assets  (including  $10,963,000  of cash) and  liabilities  of the Company's
Sassco  Fashions  division to Sassco and the assets and liabilities of its Dress
and Sportswear  divisions to three wholly owned subsidiaries of the Company.  In
addition,  the Company  retained  approximately  $41,080,000  in cash,  of which
$23,580,000 will be used to pay administrative claims as defined in the Plan. As
provided for in the Plan, the Company has issued  seventy-nine  (79%) percent of
its  3,400,000  of new  shares to its  creditors  in July  1997.  The  remaining
twenty-one  (21%)  percent is being held back pending the  resolution of certain
litigation  before the Bankruptcy  Court. A hearing on this  litigation has been
scheduled  for the first  quarter  of 1998.  The  existing  stockholders  of the
Company  at June 4, 1997 did not retain or  receive  any value for their  equity
interest in the Company. Reference is made to the Exhibits attached to, and Item
1 - Recent Developments  contained in the Company's 1996 Form 10-K for a copy of
the Plan and a summary of Plan provisions, respectively.

         On June 4, 1997, as provided for in the Plan, the Company  spun-off the
assets and liabilities of its Sassco Fashions  division to Sassco.  These assets
and liabilities included cash, accounts receivable,  inventory,  property, plant
and equipment,  other assets  (including the trade name Albert Nipon),  accounts
payable,  accrued expenses and other liabilities  related to the Sassco Fashions
division.  In  addition,  the  Company  transferred  to Sassco  its 100%  equity
interest in several  subsidiaries  associated with the Sassco Fashions division.
As provided in the Plan, the creditors of the Company became the shareholders of
Sassco and of the reorganized Company.

         The gain on the disposition of the assets and liabilities of the Sassco
Fashions  division  is a taxable  event  and a  substantial  portion  of the net
operating  loss  carryforward  available to the Company was utilized to offset a
significant portion of the taxes recognized on this transaction.

         The Company recognized  reorganization costs during the twenty-two week
period  ended June 4, 1997 and the  twenty-one  week period  ended May 25, 1996,
aggregating  $3,379,000  and  $1,560,000,  respectively,  which is  comprised of
professional fees and other costs of $2,151,000 and $1,806,000; costs accrued to
re-engineer   the  business   processes,   review  and  revise  the   technology
requirements  and other related costs to the  downsizing  and  separation of the
businesses of $800,000 and $0; and plan  administration  costs of $1,000,000 and
$0;  offset by  interest  income of  $572,000  and  $246,000,  respectively.  No
reorganization  costs were  recognized in the eighteen and thirteen  weeks ended
October 4, 1997.


                                     - 11 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES





Fresh-Start Reporting
---------------------

         Pursuant to the guidelines  provided by SOP 90-7,  the Company  adopted
fresh-start  reporting and reflected the  consummation  distributions  under the
Plan in the  balance  sheet  as of  June  4,  1997  (the  effective  date of the
consummation of the Plan for accounting purposes).  Under fresh-start reporting,
the  Company's  reorganization  value of  $25,000,000  was  allocated to its net
assets on the basis of the purchase method of accounting.

         The  significant  fresh-start  reporting  adjustments are summarized as
follows:

         1.       Cancellation  of the old  common  stock  pursuant  to the Plan
                  against the accumulated deficit.

         2.       Allocation  of the fair market value of the  identifiable  net
                  assets  in  excess  of  the  reorganization   value  (negative
                  goodwill)  in   accordance   with  the   purchase   method  of
                  accounting.  The  negative  goodwill  amount  remaining  after
                  reducing non-current assets to zero was recorded as a deferred
                  credit,  "Excess of  revalued  net assets  over  equity  under
                  fresh-start  reporting"  and will be amortized  over three (3)
                  years.

         The  resulting   charge  of  $27,010,000   from  all  the   fresh-start
adjustments,  including  the  write-off of all revalued  noncurrent  assets (but
excluding  the  write-off  of the old stock for  $56,611,000),  is  presented as
"Revaluation of assets and  liabilities  pursuant to the adoption of fresh-start
reporting" in the consolidated  statement of operations for the twenty-two ended
June 4, 1997.

         The  fresh-start  reporting  reorganization  value of  $25,000,000  was
established as the midpoint of a range  ($20,000,000 - $30,000,000)  established
by the Company's financial advisors. The calculation of the range was based on a
five-year  analysis of the  Company's  projected  operations  for the  remaining
operating  divisions  (fiscal  years ended 1996 - 2001),  which was  prepared by
management, and a discounted cash flow methodology was applied to those numbers.

         The  five-year  cash  flow  projections  were  based on  estimates  and
assumptions  about  circumstances and events that have not yet taken place. Such
estimates and  assumptions  are inherently  subject to significant  economic and
competitive  uncertainties and contingencies  beyond the control of the Company,
including,  but not limited to, those with  respect to the future  course of the
Company's business activity.

         Under fresh-start reporting, the final consolidated balance sheet as of
June 4, 1997, becomes the opening  consolidated balance sheet of the reorganized
Company.  Since  fresh-start  reporting has been  reflected in the  accompanying
consolidated balance sheet as of June 4, 1997, the consolidated balance sheet as
of that date is not  comparable  in material  respects to any such  consolidated
balance  sheet  as of  any  prior  date  or  for  any  prior  period  since  the
consolidated balance sheet as of June 4, 1997 is that of a reorganized entity.


                                     - 12 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The  effect of the  disposition  of  Sassco  Fashions  division  and the
consummation of the Plan on the Company's  consolidated balance sheet as of June
4, 1997 was as follows:

                           CONSOLIDATED BALANCE SHEET
                                 (In thousands)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                              Adjustments to Record Plan
                                                                                              --------------------------
                                                                     Historical                                          Reorganized
                                                                        as of     Disposition     Debt         Fresh        as of
                                                                    June 4, 1997   of Sassco    Discharge      Start    June 4, 1997
                                                                      ---------    ---------    ---------    ---------    ---------
<S>                                                                   <C>          <C>          <C>          <C>          <C>      
        ASSETS
Current Assets:
        Cash and cash equivalents ................................... $  52,043    ($ 10,963)   $    --      $    --      $  41,080
        Accounts receivable- net of allowances for possible losses ..    64,705      (48,295)        --           --         16,410
        Inventories .................................................    79,382      (60,267)        --           --         19,115
        Prepaid expenses and other current assets ...................     2,401       (1,217)        --           --          1,184
                                                                      ---------    ---------    ---------    ---------    ---------
           Total Current Assets......................................   198,531     (120,742)        --           --         77,789

Property, Plant and Equipment, at cost less
            accumulated depreciation and amortization ...............    19,394      (14,002)        --         (5,392)        --
Excess of Purchase Price over Net Assets Acquired ...................    23,326      (16,066)        --         (7,260)        --
Deferred Charges and Other Assets ...................................     2,646       (1,753)        (243)        (650)        --
                                                                      ---------    ---------    ---------    ---------    ---------
        Total Assets ................................................ $ 243,897    ($152,563)   ($    243)   ($ 13,302)   $  77,789
                                                                      =========    =========    =========    =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
        Accounts payable ............................................ $  19,354    ($  9,947)   $    --      $    --      $   9,407
        Accrued expenses and other current liabilities ..............    22,399       (3,917)       8,649         --         27,131
        Income taxes payable ........................................       708        1,491         --           --          2,199
                                                                      ---------    ---------    ---------    ---------    ---------
           Total Current Liabilities ................................    42,461      (12,373)       8,649         --         38,737

Excess of Revalued Net Assets Acquired over
     Equity under Fresh-Start Reporting .............................      --           --           --         13,708       13,708

Long Term Debt - Capitalized Lease ..................................       344         --           --           --            344
Liabilities Subject to Compromise ...................................   337,433     (240,000)     (97,433)        --           --
                                                                      ---------    ---------    ---------    ---------    ---------
           Total Liabilities ........................................   380,238     (252,373)     (88,784)      13,708       52,789
                                                                      ---------    ---------    ---------    ---------    ---------

Commitments and Contingencies

Stockholders' Equity
        Common Stock ................................................    20,000         --             34      (20,000)          34
        Preferred Stock .............................................      --           --           --           --           --
        Capital in excess of par value ..............................    49,012         --         24,966      (49,012)      24,966
        Accumulated retained earnings (deficit) .....................  (192,952)      99,810       63,541       29,601         --
        Foreign currency translation adjustment .....................       565         --           --           (565)        --
                                                                      ---------    ---------    ---------    ---------    ---------
              Subtotal ..............................................  (123,375)      99,810       88,541      (39,976)      25,000
                                                                      ---------    ---------    ---------    ---------    ---------
        Treasury stock ..............................................   (12,966)        --           --         12,966         --
                                                                      ---------    ---------    ---------    ---------    ---------
            Total Stockholders' Equity (Deficit) ....................  (136,341)      99,810       88,541      (27,010)      25,000
                                                                      ---------    ---------    ---------    ---------    ---------

        Total Liabilities and Stockholders' Equity .................. $ 243,897    ($152,563)   ($    243)   ($ 13,302)   $  77,789
                                                                      =========    =========    =========    =========    =========
</TABLE>


           The  Company  stated its  liabilities  at June 4, 1997 at the present
value of the amounts to be paid  pursuant  to the Plan.  The  resulting  gain of
$63,541 from the debt discharge has been presented as an "Extraordinary Item" in
the accompanying consolidated statement of operations. See Note 9 for additional
discussion regarding the reorganized Company's capitalization.


                                     - 13 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


3. DISPOSITIONS:

         As  discussed in Note 2, in  connection  with the  consummation  of the
Plan,  the Company sold or  transferred  all the assets and  liabilities  of its
Sassco  Fashions  division on June 4, 1997 for an  estimated  exchange  value of
$240,000,000.  This value was the estimated  reorganization  value of the Sassco
Fashions  Division  which was  calculated  in a manner  similar to the Company's
reorganization  value (see Note 2). The resulting  gain of  $99,810,000,  net of
taxes of $3,728,000,  recorded from these transactions is reflected as a Gain on
the disposition of the Sassco Fashions division in the consolidated statement of
operations  for the  twenty-two  weeks ended June 4, 1997. A complete  valuation
study is currently  being performed to establish a book and tax basis of the new
Sassco entity. Any adjustments from the $240,000,000  valuation will be recorded
in the appropriate  subsequent period as a purchase price adjustment to the gain
and will have a corresponding offset to gain on the debt discharge.

         In  addition,  on May  26,  1997,  the  Company  sold  the  assets  and
liabilities  of its  Castleberry  Division for $600,000.  The resulting  loss of
$1,398,000  on the sale was  previously  recorded as  reorganization  expense in
fiscal  1996 and  therefore,  was applied  against  Accrued  expenses  and other
current liabilities at the time of the sale.

         The following unaudited pro forma consolidated statements of operations
include  adjustments to give effect to the sales and the Plan (see Note 2) as if
they  occurred  as  of  the  beginning  of  the  periods  presented.  Pro  forma
consolidated  balance  sheets  as of  October  4,  1997 or June 4,  1997 are not
presented because the transactions  recording the Plan and the sale transactions
are already reflected in those consolidated balance sheets.

         The unaudited pro forma consolidated financial statements of operations
have been prepared in accordance  with  guidelines  established  by the SEC. The
historical  balances  were derived  from the  statement  of  operations  for the
applicable  periods.  All  significant   intercompany   transactions  have  been
eliminated.  The  unaudited  pro forma  financial  statements  should be read in
conjunction  with the  consolidated  statements of operations  and notes thereto
included in the 1996 Form 10-K.


                                     - 14 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



         The unaudited pro forma  adjustments  presented in the statement are as
follows:

            1.  The operating  results of the Sassco Fashions division have been
                eliminated to give effect to the disposition as of the beginning
                of the period presented,  including  depreciation expense on its
                fixed assets, an allocated corporate charge based on workload by
                department  related to the Sassco  Fashions  division and direct
                interest charges associated with financing fees on its factoring
                agreement  and fees  incurred on letters of credit issued on its
                behalf,  and reverse the gain  recorded on the sale and transfer
                of the division.

            2.  The  operating  results of the  Castleberry  division  have been
                eliminated to give effect to the disposition as of the beginning
                of the period presented,  including  depreciation expense on its
                fixed assets and an allocated corporate charge based on workload
                by department related to the Castleberry division.

            3.  To  record  the  estimated  effect of the Plan as if it had been
                effective  as of the  beginning  of the period  presented.  This
                included adjustments for the following items:

                    a)  The  elimination  of  the  historical  depreciation  and
                amortization,  including  the  amounts in cost of sales,  on the
                beginning-of-the-period   asset   balances  for  the   remaining
                divisions and the recording of the amortization  credit from the
                "Excess  of  revalued  net assets  acquired  over  equity  under
                fresh-start  reporting"  (assuming  a  three-year   amortization
                period).

                    b) The elimination of historical reorganization expense that
                will not be incurred subsequent to the Consummation Date.

                    c) The elimination of the fresh-start revaluation charge and
                the reversal of the gain on debt discharge pursuant to the Plan.

                    d) The additional  compensation expense related to the stock
                options granted upon the consummation of the Plan.



                                     - 15 -

<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                              Eighteen Weeks Ended September 28, 1996
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales ......................................   $ 165,598    ($120,574)   ($  2,863)   $    --      $  42,161
Cost of Sales ..................................     124,339      (89,328)      (2,219)         (29)      32,763
                                                   ---------    ---------    ---------    ---------    ---------
  Gross profit .................................      41,259      (31,246)        (644)          29        9,398
                                                   ---------    ---------    ---------    ---------    ---------
Operating Expenses:
  Selling, warehouse, general and
      administrative expenses ..................      28,186      (19,147)        (793)         120        8,366
  Depreciation and amortization expense ........       1,496         (769)          (9)        (718)        --
                                                   ---------    ---------    ---------    ---------    ---------
       Total operating expenses ................      29,682      (19,916)        (802)        (598)       8,366


  Other income .................................      (1,169)         371         --           --           (798)
  Amortization of excess revalued net assets
     acquired over equity ......................        --           --           --         (1,524)      (1,524)
                                                   ---------    ---------    ---------    ---------    ---------

    Total operating expenses ...................      28,513      (19,545)        (802)      (2,122)       6,044
                                                   ---------    ---------    ---------    ---------    ---------

    Operating income ...........................      12,746      (11,701)         158        2,151        3,354

Interest and Financing Costs (excludes
  contractual interest) ........................       2,000         (483)        --           --          1,517
                                                   ---------    ---------    ---------    ---------    ---------

   Income (Loss) before fresh-start revaluation,
         reorganization costs, taxes and
         extraordinary items ...................      10,746      (11,218)         158        2,151        1,837

Reorganization Costs ...........................         601         --           --           (601)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................      10,145      (11,218)         158        2,752        1,837

Taxes ..........................................         601         (547)        --           --             54
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..       9,544      (10,671)         158        2,752        1,783

Gain on disposition of Sassco Fashions Division,
  loss on revaluation of assets pursuant to
  adoption of fresh-start reporting and
  extraordinary gain on debt discharge .........        --           --           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------
  Net Income (Loss) ............................   $   9,544    ($ 10,671)   $     158    $   2,752    $   1,783
                                                   =========    =========    =========    =========    =========

  Net Income (Loss) per Share of                                                        
     Common Stock - Basic......................    $    0.51                                           $    0.52
                                                   =========                                           =========
  Net Income (Loss) per Share of
     Common Stock-Fully Diluted................    $    0.51                                           $    0.46
                                                   =========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................   18,771,836                                           3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............   18,771,836                                           3,862,121
                                                  ==========                                           =========
</TABLE>

       Earnings per share on a historical basis is based on the old stock
    outstanding. The old stock was cancelled under the plan of reorganization
      and new stock was issued. Earnings per share on a pro forma basis is
           calculated on the new stock outstanding as of June 4, 1997.

                                     - 16 -
<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)

                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                              Thirteen Weeks Ended September 28, 1996
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales......................................    $ 134,908     ($95,565)     ($2,260)        --      $  37,083 
Cost of Sales .................................      101,397      (71,258)      (1,649)         (22)      28,468
                                                   ---------    ---------    ---------    ---------    ---------
  Gross profit.................................       33,511      (24,307)        (611)          22        8,615
                                                   ---------    ---------    ---------    ---------    ---------

Operating Expenses:
  Selling, warehouse, general and 
      administrative expenses..................       21,182      (13,953)        (613)          90        6,706
  Depreciation and amortization expense........        1,158         (618)          (7)       (533)         --
                                                   ---------    ---------    ---------    ---------    ---------
  Total operating expenses.....................       22,340      (14,571)        (620)       (443)        6,706

  Other income.................................         (948)         331         --          --            (617)
  Amortization of excess revalued net assets
     acquired over equity .....................         --           --           --        (1,143)       (1,143)
                                                   ---------    ---------    ---------    ---------    ---------

  Total operating expenses.....................       21,392      (14,240)        (620)     (1,586)        4,946
                                                   ---------    ---------    ---------    ---------    ---------

  Operating income.............................       12,119      (10,067)           9       1,608         3,669

Interest and Financing Costs (excludes
  contractual interest)........................        1,796         (375)         --         --           1,421
                                                   ---------    ---------    ---------    ---------    ---------

   Income (Loss) before fresh-start revaluation,
         reorganization costs, taxes and
         extraordinary items ...................      10,323       (9,692)           9        1,608        2,248

Reorganization Costs............................       1,881         --            --        (1,881)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................       8,442       (9,692)           9        3,489        2,248

Taxes...........................................         397         (363)         --          --             34
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..       8,045       (9,329)           9        3,489        2,214

Gain on disposition of Sassco Fashions Division,
  loss on revaluation of assets pursuant to
  adoption of fresh-start reporting and
  extraordinary gain on debt discharge .........        --           --           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------

   Net Income (Loss) ...........................   $   8,045      ($9,329)   $       9    $   3,489    $   2,214
                                                   =========    =========    =========    =========    =========

  Net Income (Loss) per Share of                   
     Common Stock - Basic......................    $    0.43                                            $   0.65
                                                   =========                                           =========
                                                   
  Net Income (Loss) per Share of                   
     Common Stock-Fully Diluted................    $    0.43                                            $   0.67
                                                   =========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................   18,771,836                                           3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............   18,771,836                                           3,862,121
                                                  ==========                                           =========
</TABLE>

       Earnings per share on a historical basis is based on the old stock
    outstanding. The old stock was cancelled under the plan of reorganization
      and new stock was issued. Earnings per share on a pro forma basis is
           calculated on the new stock outstanding as of June 4, 1997.

                                     - 17 -
<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 Twenty-Two Weeks Ended June 4, 1997
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales .....................................    $ 197,984    ($136,107)     ($2,808)   $    --      $  59,069
Cost of Sales .................................      147,276     (101,573)      (2,262)         (32)      43,409
                                                   ---------    ---------    ---------    ---------    ---------
   Gross profit................................       50,708      (34,534)        (546)          32       15,660
                                                   ---------    ---------    ---------    ---------    ---------

Operating Expenses:
  Selling, warehouse, general and 
      administrative expenses..................       35,457      (23,665)      (1,003)         150       10,939
  Depreciation and amortization expense........        2,092       (1,079)         (40)        (973)        --
                                                   ---------    ---------    ---------    ---------    ---------
  Total operating expenses.....................       37,549      (24,744)      (1,043)        (823)      10,939

  Other income.................................       (1,196)         260         --           --           (936)
  Amortization of excess revalued net assets
     acquired over equity .....................         --           --           --         (1,905)      (1,905)
                                                   ---------    ---------    ---------    ---------    ---------

  Total operating expenses.....................       36,353      (24,484)      (1,043)      (2,728)       8,098

  Operating income.............................       14,355      (10,050)         497        2,760        7,562

Interest and Financing Costs (excludes
  contractual interest)........................        1,372         (595)        --           --            777
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before fresh-start revaluation,
        reorganization costs, taxes and
        extraordinary items ...................       12,983       (9,455)         497        2,760        6,785

Reorganization Costs...........................        3,379         --             14       (3,393)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................       9,604       (9,455)         483        6,153        6,785

Taxes...........................................         451         (343)        --           --            108
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..       9,153       (9,112)         483        6,153        6,677

Gain on disposition of Sassco Fashions Division
  (net of $3,728 of income taxes), loss on 
  revaluation of assets pursuant to adoption of
  fresh-start reporting and extraordinary gain on
  debt discharge................................     136,341      (99,810)        --        (36,531)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) ............................   $ 145,494    ($108,922)   $     483     ($30,378)   $   6,677
                                                   =========    =========    =========    =========    =========

  Net Income (Loss) per Share of                   
     Common Stock - Basic.......................       *                                               $    1.96
                                                   =========                                           =========
                                                           
  Net Income (Loss) per Share of                           
     Common Stock-Fully Diluted.................       *                                               $    1.73
                                                   =========                                           =========
                                                         
  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................       *                                                3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............       *                                                3,862,121
                                                  ==========                                           =========
</TABLE>

      * Earnings per share is not presented for the twenty-two weeks ended
       June 4, 1997 on a historical basis because such presentation would
        not be meaningful. The old stock was cancelled under the plan of
      reorganization and new stock was issued. Earnings per share on a pro
      forma basis is calculated on the new stock outstanding as of June 4,
                                      1997.

                                     - 18 -
<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                Twenty-One Weeks Ended May 25, 1996
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales ......................................   $ 173,452    ($127,056)     ($3,850)   $    --      $  42,546
Cost of Sales ..................................     131,981      (96,425)      (2,755)         (35)      32,766
                                                   ---------    ---------    ---------    ---------    ---------

  Gross profit..................................      41,471      (30,631)      (1,095)          35        9,780
                                                   ---------    ---------    ---------    ---------    ---------
Operating Expenses:
  Selling, warehouse, general and 
      administrative expenses...................      33,934      (19,902)      (1,158)         150       13,024
  Depreciation and amortization expense ........       1,770         (674)         (15)      (1,081)        --
                                                   ---------    ---------    ---------    ---------    ---------
    Total operating expenses....................      35,704      (20,576)      (1,173)        (931)      13,024
                                                   ---------    ---------    ---------    ---------    ---------

  Other income..................................      (1,590)         372         --           --         (1,218)
  Amortization of excess revalued net assets
     acquired over equity ......................        --           --           --         (1,905)      (1,905)
                                                   ---------    ---------    ---------    ---------    ---------

  Total operating expenses......................      34,114      (20,204)      (1,173)      (2,836)       9,901
                                                   ---------    ---------    ---------    ---------    ---------

  Operating income..............................       7,357      (10,427)          78        2,871         (121)

Interest and Financing Costs (excludes
  contractual interest).........................         837         (541)        --           --            296
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before fresh-start revaluation,
        reorganization costs, taxes and
        extraordinary items ....................       6,520       (9,886)          78        2,871         (417)

Reorganization Costs............................       1,560         --           --         (1,560)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................       4,960       (9,886)          78        4,431         (417)

Taxes...........................................         435         (370)        --           --             65
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..       4,525       (9,516)          78        4,431         (482)

Gain on disposition of Sassco Fashions Division,
  loss on revaluation of assets pursuant to 
  adoption of fresh-start reporting and
  extraordinary gain on debt discharge..........        --           --           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss).............................   $   4,525      ($9,516)   $      78    $   4,431        ($482)
                                                   =========    =========    =========    =========    =========

  Net Income (Loss) per Share of                
     Common Stock - Basic.......................   $    0.24                                           ($   0.14)
                                                   =========                                           =========
  Net Income (Loss) per Share of
     Common Stock-Fully Diluted................    $    0.24                                           ($   0.12)
                                                   =========                                           ========= 
  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................   18,771,836                                           3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............   18,771,836                                           3,862,121
                                                  ==========                                           =========
</TABLE>

       Earnings per share on a historical basis is based on the old stock
    outstanding. The old stock was cancelled under the plan of reorganization
      and new stock was issued. Earnings per share on a pro forma basis is
           calculated on the new stock outstanding as of June 4, 1997.

                                     - 19 -
<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 Forty Weeks Ended October 4, 1997
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales ......................................   $ 245,081    ($136,107)     ($2,808)   $    --      $ 106,166
Cost of Sales ..................................     183,518     (101,573)      (2,262)         (32)      79,651
                                                   ---------    ---------    ---------    ---------    ---------
   Gross profit.................................      61,563      (34,534)        (546)          32       26,515
                                                   ---------    ---------    ---------    ---------    ---------

Operating Expenses:
  Selling, warehouse, general and 
      administrative expenses...................      43,433      (23,665)      (1,003)         150       18,915
  Depreciation and amortization expense ........       2,095       (1,079)         (40)        (973)           3
                                                   ---------    ---------    ---------    ---------    ---------
       Total operating expenses.................      45,528      (24,744)      (1,043)        (823)      18,918

  Other income..................................      (1,658)         260         --           --         (1,398)
  Amortization of excess revalued net assets
     acquired over equity ......................      (1,524)        --           --         (1,905)      (3,429)
                                                   ---------    ---------    ---------    ---------    ---------

  Total operating expenses......................      42,346      (24,484)      (1,043)      (2,728)      14,091
                                                   ---------    ---------    ---------    ---------    ---------

  Operating income..............................      19,217      (10,050)         497        2,760       12,424

Interest and Financing Costs (excludes
  contractual interest).........................       1,584         (595)        --           --            989
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before fresh-start revaluation,
        reorganization costs, taxes and
        extraordinary items ....................      17,633       (9,455)         497        2,760       11,435

Reorganization Costs............................       3,379         --             14       (3,393)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................      14,254       (9,455)         483        6,153       11,435

Taxes...........................................         516         (343)        --           --            173
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..      13,738       (9,112)         483        6,153       11,262

Gain on disposition of Sassco Fashions Division
  (net of $3,728 of income taxes), loss on 
  revaluation of assets pursuant to adoption of
  fresh-start reporting and extraordinary gain on
  debt discharge................................     136,341      (99,810)        --        (36,531)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) ............................   $ 150,079    ($108,922)   $     483     ($30,378)   $  11,262
                                                   =========    =========    =========    =========    =========

  Net Income (Loss) per Share of                   
     Common Stock - Basic.......................       *                                               $    3.31
                                                   =========                                           =========
                                                           
  Net Income (Loss) per Share of                           
     Common Stock-Fully Diluted.................       *                                               $    2.91
                                                   =========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................       *                                                3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............       *                                                3,866,771
                                                  ==========                                           =========
</TABLE>

 * Earnings per share is not presented for the forty weeks ended October, 1997
      on a historical basis because presentation would not be meaningful.
      The old stock was cancelled under the plan of reorganization and new
  stock was issued at June 4, 1997. Earnings per share on a pro forma basis is
                    calculated on the new stock outstanding.

                                     - 20 -
<PAGE>
                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                            Thirty-Nine Weeks Ended September 28, 1996
                                                   -------------------------------------------------------------
                                                                  Pro Forma Adjustments per Note 3     Pro Forma
                                                  Historical    -----------------------------------     Adjusted
                                                  Operations       (1)          (2)          (3)        Balance
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
Net Sales ......................................  $  339,050    ($247,630)     ($6,713)   $    --      $  84,707
Cost of Sales ..................................     256,320     (185,753)      (4,974)         (64)      65,529
                                                   ---------    ---------    ---------    ---------    ---------

  Gross profit .................................      82,730      (61,877)      (1,739)          64       19,178
                                                   ---------    ---------    ---------    ---------    ---------

Operating Expenses:
  Selling, warehouse, general and 
      administrative expenses...................      62,120      (39,049)      (1,951)         270       21,390
  Depreciation and amortization expense ........       3,266       (1,443)         (24)      (1,799)        --
                                                   ---------    ---------    ---------    ---------    ---------
    Total operating expenses....................      65,386      (40,492)      (1,975)      (1,529)      21,390

  Other income..................................      (2,759)         743         --           --         (2,016)
  Amortization of excess revalued net assets
     acquired over equity ......................        --           --           --         (3,429)      (3,429)
                                                   ---------    ---------    ---------    ---------    ---------

  Total operating expenses......................      62,627      (39,749)      (1,975)      (4,958)      15,945
                                                   ---------    ---------    ---------    ---------    ---------

  Operating income..............................      20,103      (22,128)         236        5,022        3,233

Interest and Financing Costs (excludes
  contractual interest).........................       2,837      (1,024)         --           --          1,813
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before fresh-start revaluation,
        reorganization costs, taxes and
        extraordinary items ....................      17,266     (21,104)          236        5,022        1,420

Reorganization Costs............................       2,161        --            --         (2,161)        --
                                                   ---------    ---------    ---------    ---------    ---------

  Income (Loss) before taxes and
     extraordinary items .......................      15,105     (21,104)          236        7,183       1,420

Taxes...........................................       1,036        (917)         --           --           119
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) before extraordinary item ..      14,069     (20,187)          236        7,183        1,301

Gain on disposition of Sassco Fashions Division,
  loss on revaluation of assets pursuant to 
  adoption of fresh-start reporting and
  extraordinary gain on debt discharge..........        --           --           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------

  Net Income (Loss) ............................   $  14,069     ($20,187)   $     236    $   7,183    $   1,301
                                                   =========    =========    =========    =========    =========


  Net Income (Loss) per Share of                
     Common Stock - Basic.......................   $    0.75                                           $    0.38
                                                   =========                                           =========
  Net Income (Loss) per Share of
     Common Stock-Fully Diluted................    $    0.75                                           $    0.34
                                                   =========                                           ========= 

  Weighted Average Common Shares                                                        
     Outstanding - Basic.......................   18,771,836                                           3,400,000
                                                  ==========                                           =========
  Weighted Average Common Shares                                                        
     Outstanding - Fully Diluted...............   18,771,836                                           3,862,121
                                                  ==========                                           =========
</TABLE>

       Earnings per share on a historical basis is based on the old stock
   outstanding. The old stock was cancelled under the plan of reorganization
      and new stock was issued. Earnings per share on a pro forma basis is
          calculated on the new stock outstanding as of June 4, 1997.

                                     - 21 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



4. ACCOUNTS RECEIVABLE:

         On June 2, 1997, a wholly-owed subsidiary of the Company entered into a
Factoring Agreement with The CIT Group/Commercial  Services, Inc. ("CIT"). Under
this agreement,  CIT began purchasing the accounts receivable of the Company and
will remit the proceeds  received to the Company as  collected.  In exchange for
collecting  the  receivables,  CIT earns a factoring fee of 0.4% of  receivables
purchased  (with a minimum  charge per  invoice)  and assumes the credit risk in
excess of $50,000 for CIT credit approved receivables.

5. INVENTORIES:

         Inventories consist of the following:
                                  October 4,       June 4,     December 28,
                                     1997           1997           1996
                                   --------       --------       --------
                                               (In thousands)

Raw materials                      $  6,332       $  8,341       $ 33,151
Work in process                       3,131          3,429          2,711
Finished goods                        7,895          7,345         68,521
                                   --------       --------       --------

   Total inventories               $ 17,358       $ 19,115       $104,383
                                   ========       ========       ========

         The balances at December 28, 1996 included the  inventories  related to
the Sassco Fashions and Castleberry divisions which were subsequently sold.

6.  DEBT:

         On June 2, 1997, in  preparation  for the  consummation  of the Plan, a
wholly-  owned  subsidiary  of the  Company  entered  into a two-year  financing
agreement (the "CIT Credit Agreement") with CIT to provide direct borrowings and
the issuance of letters of credit on the Company's behalf in an aggregate amount
not to exceed $30,000,000,  with a sublimit on letters of credit of $20,000,000.
The CIT Credit  Agreement became effective on June 4, 1997 with the consummation
of the Plan. Direct borrowings bear interest at prime plus 1.0% (9.5% at October
4, 1997 and June 4, 1997) and the CIT Credit  Agreement  requires a fee, payable
monthly,  on average  outstanding  letters  of credit at a rate of 2%  annually.
There were no direct  borrowings  outstanding under the CIT Credit Agreement and
approximately  $7,454,000 was committed under unexpired  letters of credit as of
October 4, 1997.




                                     - 22 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



         The CIT  Credit  Agreement,  as  amended,  contains  certain  reporting
requirements,  as well as financial and operating  covenants  related to capital
expenditures,  a minimum  tangible  net worth  and the  attainment  of a current
assets to current  liabilities  ratio, an interest to earnings ratio and minimum
earnings.  As collateral  for  borrowings  under the CIT Credit  Agreement,  the
Company  has  granted to CIT a security  interest  in  substantially  all of its
assets.  In addition,  the CIT Credit  Agreement  contains  certain  restrictive
covenants,  including  limitations  on the  incurrence of  additional  liens and
indebtedness and a prohibition on paying dividends.  The Company is currently in
compliance with all requirements contained in the CIT Credit Agreement.

         The  Company  previously  had a  facility  for  an  $60,000,000  credit
agreement  with The First  National  Bank of  Boston  ("FNBB")  and  BankAmerica
Business Credit,  Inc.  ("BABC"),  as Facility Agents and FNBB as Administrative
Agent (the "FNBB Credit Agreement").  In connection with the consummation of the
Plan, the Company entered into an agreement (the "Paydown  Agreement")  with its
lenders  under the FNBB Credit  Agreement to paydown any  remaining  obligations
under the FNBB Credit  Agreement and terminate the FNBB Credit Agreement on June
4, 1997. The FNBB Credit Agreement had expired on May 31, 1997, but continued in
effect until the  consummation  of the Plan with the consent of both the lenders
and the Company.

         The FNBB Credit Agreement provided for post-petition  direct borrowings
and the  issuance of letters of credit on the  Debtors'  behalf in an  aggregate
amount not to exceed $60,000,000. Beginning January 1, 1997, the sublimit on the
revolving line of credit was  $20,000,000 and the sublimit for letters of credit
was $50,000,000.

         There  were no direct  borrowings  outstanding  under  the FNBB  Credit
Agreement and  approximately  $22,195,000  and  $32,169,000  was committed under
unexpired  letters  of  credit  as of  June  4,  1997  and  December  28,  1996,
respectively  (see Note 6 of Notes to Consolidated  Financial  Statements in the
1996 Form 10-K). There were no unexpired letters of credit outstanding under the
FNBB Credit Agreement at October 4, 1997.

                                     - 23 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



         Interest on direct borrowings was charged at prime plus 1.5% (10.00% at
June 4, 1997 and 9.75% at  December  28,  1996)  and the FNBB  Credit  Agreement
required a fee, payable monthly,  on average  outstanding letters of credit at a
rate of 2% annually.  The FNBB Credit Agreement,  as amended,  contained certain
reporting  requirements,  as well as financial and operating  covenants  through
December  28,  1996  related to minimum and maximum  inventory  levels,  capital
expenditures and attainment of minimum earnings before reorganization, interest,
taxes and depreciation and amortization.  As collateral for borrowings under the
FNBB  Credit  Agreement,  the  Company  had  granted to FNBB and BABC a security
interest in  substantially  all assets of the  Company.  In  addition,  the FNBB
Credit Agreement contained certain restrictive covenants,  including limitations
on the  incurrence of additional  liens and  indebtedness  and a prohibition  on
paying dividends.

         In  accordance  with the Plan,  the  remaining  Liabilities  subject to
compromise  were  discharged and the Company  recognized a gain of  $63,541,000,
which  is  reflected  as  an  Extraordinary   gain  on  debt  discharge  in  the
consolidated  statement of  operations  for the  twenty-two  weeks ended June 4,
1997.

7. INCOME TAXES:

         The provision for state and foreign income taxes is $65,000 and $45,000
for the eighteen and thirteen weeks ended October 4, 1997, respectively. Federal
income  taxes for the eighteen  and  thirteen  weeks ended  October 4, 1997 (the
post-consummation  period)  are  primarily  offset  by  the  utilization  of net
operating loss  carryforwards,  which are limited to  approximately  $750,000 in
1997,  and deductions  available for tax purposes.  Although there is no Federal
income tax provision currently recognizable on the pre-consummation earnings due
to existing net operating loss  carryforwards  and no Federal income tax benefit
currently  recognizable,  the Company provided  $3,728,000 for federal and state
income taxes based on the alternative minimum tax regulations for the twenty-two
weeks ended June 4, 1997 related to the gain on the sale of the Sassco  Fashions
division.  These taxes are  reflected  net of the gain shown in the statement of
operations for the twenty-two weeks ended June 4, 1997. For the twenty-two weeks
ended June 4, 1997, the Company recognized $451,000 for state and foreign income
taxes.

8.  COMMITMENTS AND CONTINGENCIES:

         As  discussed  in Notes 1 and 2, on the Filing  Dates the  Company  and
several of its  subsidiaries  filed voluntary  petitions in the Bankruptcy Court
under chapter 11 of the Bankruptcy Code. All civil litigation  commenced against
the Company and those referenced subsidiaries prior to that date had been stayed
under the Bankruptcy  Code. By an order dated April 21, 1997 (the  "Confirmation
Order"),  the Bankruptcy  Court  confirmed the Plan. The Plan was consummated on
June 4, 1997.

                                     - 24 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         The  Confirmation  Order,  inter alia,  dismissed  with  prejudice  all
pending  litigation,  and  released  all claims that could have been  brought in
litigation.  Both prior to and  subsequent  to the Filing  Dates,  various class
action  suits were  commenced  on behalf of certain  prior  stockholders  of the
Company.  Any  claims  against  the  Company  arising  out of these  suits  were
discharged  as  part  of,  and in  accordance  with  the  terms  of,  the  Plan.
Accordingly,  whatever  the  eventual  outcome of these  cases,  there can be no
material financial impact on the Company based on the terms of the Plan.

         In addition to, and concurrent  with, the proceedings in the Bankruptcy
Court,  the Company is involved in or settled  during third  quarter of 1997 the
following legal proceedings of significance:

         In February 1993, the  Securities and Exchange  Commission  obtained an
order directing a private investigation of the Company in connection with, among
other  things,  the filing by the Company of annual and other  reports  that may
have  contained  misstatements,  and the  purported  failure  of the  Company to
maintain books and records that accurately reflected its financial condition and
operating results. The Company is cooperating in this investigation.

         In February 1993, the United States Attorney for the Middle District of
Pennsylvania issued a Grand Jury Subpoena seeking the production of documents as
a result of the Company's  announcement of accounting  irregularities.  In 1994,
Donald F. Kenia,  former  Controller  of the Company,  was indicted by a Federal
Grand Jury in the Middle  District of  Pennsylvania  and  pleaded  guilty to the
crime of securities fraud in connection with the accounting  irregularities.  On
or about October 29, 1996,  Paul F.  Polishan,  former Senior Vice President and
Chief Financial  Officer of the Company,  was indicted by the federal grand jury
in the Middle  District of Pennsylvania  for actions  relating to the accounting
irregularities.

         In March  1993,  a  stockholder  derivative  action  entitled  "Isidore
Langer,  derivatively  on behalf of The Leslie Fay  Companies,  Inc.  v. John J.
Pomerantz et al." (the "Derivative  Action") was instituted in the Supreme Court
of the State of New  York,  County of New York,  against  certain  officers  and
directors of the Company and its then auditors.  This complaint alleges that the
defendants  knew or should have known  material  facts relating to the sales and
earnings of the Company which they failed to disclose.  The time to answer, move
or otherwise  respond to the complaint has not yet expired.  The plaintiff seeks
an unspecified amount of monetary damages,  together with interest thereon,  and
costs and expenses incurred in the action,  including reasonable  attorneys' and
experts' fees. The Company cannot  presently  determine the ultimate  outcome of
this litigation,  but believes that it should not have any unfavorable impact on
the  financial  statements.  Pursuant to the Plan,  a Derivative  Action  Board,
comprised of three Persons or Entities nominated by the Creditors' Committee and
appointed  by the  Bankruptcy  Court,  shall  determine  whether  to  prosecute,
compromise and settle or discontinue the Derivative Action.

                                     - 25 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         On February 23, 1996,  Albert Nipon and American Pop  Marketing  Group,
Inc.  commenced an action  against the Company in the United  States  Bankruptcy
Court, Southern District of New York seeking, inter alia, a declaratory judgment
with respect to the use of the Company's "Albert Nipon" trademark and tradename.
The Company has asserted  counter claims.  Upon a record of stipulated facts and
submissions  of  memorandum of law, an oral argument on this matter was heard on
May 9, 1997. This matter is still pending before the Court.

9. STOCKHOLDERS' EQUITY:

         As  provided  under  the  Plan,  the  authorized  common  stock  of the
reorganized  Company  consisted of  3,500,000  shares of common stock with a par
value $.01 per share.  In November 1997,  pursuant to the authority  granted the
Company by the Confirmation  Order of the Bankruptcy  Court, the Company amended
its  Certificate of  Incorporation  to increase its  authorized  common stock to
9,500,000 shares.. At June 4, 1997, 3,400,000 shares were issued and outstanding
and were being held by the plan administrator in trust. In July 1997,  2,686,000
(79%) of the shares were distributed.  The remaining twenty-one (21%) percent is
being held back pending the  resolution  of certain  disputed  claims before the
Bankruptcy  Court. A hearing on this litigation has been scheduled for the first
quarter of 1998. The then  outstanding  common stock was extinguished at June 4,
1997 and the  holders  thereof  did not  retain or  receive  any value for their
equity interest.

         In  addition,  500,000  shares of  Preferred  Stock of the  reorganized
Company were  authorized at June 4, 1997 with a par value of $.01.  None of such
shares have been issued.

                                     - 26 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


10. STOCK OPTION PLAN:

         The  Company has adopted the  provisions  of the  Financial  Accounting
Standards Board's Statement of Financial  Accounting Standards ("SFAS") No. 128,
"Earnings per Share" effective as of the Consummation  Date. Under SFAS No. 128,
the  presentation  of both Basic and Dilutive  Earnings per Share is required on
the Income  Statement.  Pursuant to the Plan, the Company is authorized to grant
up to 2,000,000  stock options and on June 4,1997 granted  412,121 stock options
to certain  senior  management  equal to ten (10%)  percent  of the  reorganized
Company's  common stock  outstanding  (assuming  the  exercise of all  options),
one-third  of which will vest on each of the first  three  anniversaries  of the
Consummation Date. In addition,  each outside director of the Company at June 4,
1997 was  granted  10,000  stock  options for a total of 50,000  options.  These
options may be exercised for $6.18 per share.  Additional options of another two
and  one-half  (2.5%) to seven and  one-half  (7.5%)  percent of common stock (a
maximum of 309,091  options) shall be granted to certain senior  management upon
the occurrence of certain specified  transactions whereby the imputed enterprise
value of the Company exceeds a minimum of $37,500,000  (this amount increases at
each one year  anniversary date (June 4th) of the consummation of the Plan until
the year 2000).  The  exercise of these  options  would  create the  issuance of
additional stock.

         In addition,  on September 22, 1997, the Board also  authorized  36,500
stock options be granted to employees of the Company,  which are  exercisable at
$11.50 per share.

         The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based  Compensation" effective as of the Consummation Date. Under SFAS No.
123,  the Company has  recorded  $120,000  and $90,000 of non-cash  compensation
expense included in Selling, warehouse,  general and administrative expenses for
the eighteen and thirteen weeks ended October 4, 1997, respectively. This amount
is offset as an adjustment to Capital in excess of par value in the consolidated
balance sheet at October 4, 1997.

11. OTHER EVENTS:

         On June 2, 1997, a wholly-owned subsidiary of the Company and the Union
of Needle Trade and Industrial and Textile  ("U.N.I.T.E.")  reached an agreement
on a four-year collective bargaining  agreement,  which will run through May 31,
2001  covering  non-supervisory  production,  maintenance,  packing and shipping
employees.



                                     - 27 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


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

(a)  RESULTS OF  OPERATIONS

EIGHTEEN WEEKS ENDED OCTOBER 4, 1997 AS COMPARED TO
         EIGHTEEN WEEKS ENDED SEPTEMBER 28, 1996

         The Company  recorded net sales of  $47,097,000  for the eighteen weeks
ended October 4, 1997,  compared with  $165,598,000 for the eighteen weeks ended
September 28, 1996, a net decrease of $118,501,000, or 71.6%. The primary factor
contributing  to  this  decrease  was  the  sale  of  the  Sassco  Fashions  and
Castleberry   divisions,    which   generated   $120,574,000   and   $2,863,000,
respectively, in net sales for the eighteen weeks ended September 28, 1996. On a
comparable basis, after excluding the effect of the above mentioned  businesses,
the remaining  businesses had a net sales increase of $4,936,000,  or 11.7%, for
the eighteen weeks ended October 4, 1997 as compared to the eighteen weeks ended
September 28, 1996, primarily due to the increased volume of its Dress division.
Other than a decrease  of  $2,163,000  related to  discontinuing  its  Outlander
labels, sales of the Sportswear division remained stable.

         Gross profit for the eighteen  weeks ended October 4, 1997 was 23.0% of
net sales compared with 24.9% for the eighteen weeks ended September 28, 1996 (a
decrease  of  $30,404,000).   The  Sassco  Fashions  and  Castleberry  divisions
generated  $31,246,000  and  $644,000,  respectively,  in gross  profit  for the
eighteen weeks ended  September 28, 1996.  These product lines have higher gross
profit  margins  in  the  third  quarter  than  the  remaining  businesses.  The
comparable  remaining  businesses  increased  gross profit by $1,486,000 for the
eighteen  weeks ended October 4, 1997 versus the prior year and the gross margin
increased to 23.0% from 22.2%.  Increased  volume and better initial  pricing in
the Dress division offset the reduced gross margins of the Sportswear  divisions
as the Company reduced its initial markup to maintain market share.

         Selling, warehouse,  general and administrative expenses were 16.9% and
17.0% for the  eighteen  weeks ended  October 4, 1997 and  September  28,  1996,
respectively.  After excluding the costs associated with the divisions sold, the
comparable  remaining  businesses  had expenses of 19.6% for the eighteen  weeks
ended September 28, 1996. The decrease in the comparable  percentage is a result
of the  additional  sales volume during the eighteen weeks ended October 4, 1997
while continuing to reduce overhead expenses related to downsizing.

         Other income was  ($462,000)  and  ($1,169,000)  for the eighteen weeks
ended  October 4, 1997 and  September  28, 1996,  respectively.  The decrease is
primarily  due to the  licensing  revenues  related  to  tradenames  which  were
spun-off  with the  Sassco  Fashions  division  and the  expiration  of  certain
licensing agreements which were not renewed.



                                     - 28 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         Depreciation  and  amortization  expense for the  eighteen  weeks ended
October 4, 1997 was $3,000 due to the  write-off of fixed assets at June 4, 1997
under  fresh-start  reporting.  In  addition,  the  Company  realized  income of
$1,524,000  from  amortization  of the excess  revalued net assets acquired over
equity (see Note 2).  Depreciation  and  amortization  expense for the  eighteen
weeks ended  September  28, 1996  consisted of  depreciation  on fixed assets of
$1,108,000, including $562,000 related to divisions sold and amortization of the
excess purchase price over net assets acquired of $388,000,  including  $216,000
of amortization related to the divisions sold. This amortization expense related
to the leveraged buyout of The Leslie Fay Company on June 28, 1984.

         Interest expense,  net and financing costs were $212,000 and $2,000,000
for  the  eighteen   weeks  ended  October  4,  1997  and  September  28,  1996,
respectively.  The financing fees under the new CIT Credit Agreement were offset
by income  earned on the cash  invested for the eighteen  weeks ended October 4,
1997. The financing fees incurred were significantly below those incurred during
the  eighteen  weeks ended  September  28, 1996 due to the higher line needed to
finance the  operations of Sassco  Fashions and  Castleberry.  In addition,  the
Company  maintained a higher  average cash balance  during the period and earned
additional  interest  income  compared to interest  expense on borrowings in the
prior year, up to a maximum of  $28,672,000,  to fund the inventory  build-up of
the sold divisions in the third quarter .

         The  provision  for state and  foreign  income  taxes was  $65,000  and
$601,000 for the eighteen  weeks ended  October 4, 1997 and  September 28, 1996,
respectively.  The  charge  in 1996  relates  primarily  to  foreign  taxes on a
subsidiary of the Sassco Fashions division.

THIRTEEN WEEKS ENDED OCTOBER 4, 1997 AS COMPARED TO
         THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996

         The Company  recorded net sales of  $41,562,000  for the thirteen weeks
ended October 4, 1997,  compared with  $134,908,000 for the thirteen weeks ended
September 28, 1996, a net decrease of $93,344,000,  or 69.2%. The primary factor
contributing  to  this  decrease  was  the  sale  of  the  Sassco  Fashions  and
Castleberry divisions, which generated $95,565,000 and $2,260,000, respectively,
in net sales for the thirteen  weeks ended  September  28, 1996. On a comparable
basis,  after  excluding  the  effect of the  above  mentioned  businesses,  the
remaining  businesses had a net sales increase of $4,479,000,  or 12.1%, for the
thirteen  weeks ended  October 4, 1997 as compared to the  thirteen  weeks ended
September 28, 1996, primarily due to the increased volume of its Dress division.
Other than a decrease  of  $1,675,000  related to  discontinuing  its  Outlander
labels, sales of the Sportswear division remained stable.


                                     - 29 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         Gross profit for the thirteen  weeks ended October 4, 1997 was 23.4% of
net sales compared with 24.8% for the thirteen weeks ended September 28, 1996 (a
decrease  of  $23,781,000).   The  Sassco  Fashions  and  Castleberry  divisions
generated  $24,307,000  and  $611,000,  respectively,  in gross  profit  for the
thirteen weeks ended  September 28, 1996.  These product lines have higher gross
profit  margins  in  the  third  quarter  than  the  remaining  businesses.  The
comparable  remaining  businesses  increased  gross profit by $1,137,000 for the
thirteen  weeks ended October 4, 1997 versus the prior year and the gross margin
increased to 23.4% from 23.2%.  Increased  volume and better initial  pricing in
the Dress division offset the reduced gross margins of the Sportswear  divisions
as the Company reduced its initial markup to maintain market share.

         Selling, warehouse,  general and administrative expenses were 15.3% and
15.7% for the  thirteen  weeks ended  October 4, 1997 and  September  28,  1996,
respectively.  After excluding the costs associated with the divisions sold, the
comparable remaining business had expenses of 17.8% for the thirteen weeks ended
September 28, 1996. The decrease in the comparable percentage is a result of the
additional  sales volume  during the thirteen  weeks ended October 4, 1997 while
continuing to reduce overhead expenses related to downsizing.

         Other income was ($344,000) and ($948,000) for the thirteen weeks ended
October 4, 1997 and September 28, 1996, respectively.  The decrease is primarily
due to the licensing revenues related to tradenames which were spun-off with the
Sassco  Fashions  division and the  expiration of certain  licensing  agreements
which were not renewed.

         Depreciation  and  amortization  expense for the  thirteen  weeks ended
October 4, 1997 was $3,000 due to the  write-off of fixed assets at June 4, 1997
under  fresh-start  reporting.  In  addition,  the  Company  realized  income of
$1,143,000  from  amortization  of the excess  revalued net assets acquired over
equity (see Note 2).  Depreciation  and  amortization  expense for the  thirteen
weeks ended  September  28, 1996  consisted of  depreciation  on fixed assets of
$867,000,  including  $462,000 related to divisions sold and amortization of the
excess purchase price over net assets acquired of $291,000,  including  $163,000
of amortization related to the divisions sold. This amortization expense related
to the leveraged buyout of The Leslie Fay Company on June 28, 1984.


                                     - 30 -

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         Interest expense,  net and financing costs were $314,000 and $1,796,000
for  the  thirteen   weeks  ended  October  4,  1997  and  September  28,  1996,
respectively.  The financing fees under the new CIT Credit Agreement were offset
by income  earned on the cash  invested for the thirteen  weeks ended October 4,
1997. The financing fees incurred were significantly below those incurred during
the  thirteen  weeks ended  September  28, 1996 due to the higher line needed to
finance the  operations of Sassco  Fashions and  Castleberry.  In addition,  the
Company  maintained a higher  average cash balance  during the period and earned
additional  interest  income  compared to interest  expense on borrowings in the
prior year, up to a maximum of  $28,672,000,  to fund the inventory  build-up of
the sold divisions in the third quarter.

         The  provision  for state and  foreign  income  taxes was  $45,000  and
$397,000 for the thirteen  weeks ended  October 4, 1997 and  September 28, 1996,
respectively.  The  charge  in 1996  relates  primarily  to  foreign  taxes on a
subsidiary of the Sassco Fashions division.

TWENTY-TWO WEEKS ENDED JUNE 4, 1997 AS COMPARED TO
         TWENTY-ONE WEEKS ENDED MAY 25, 1996

         The Company recorded net sales of $197,984,000 for the twenty-two weeks
ended June 4, 1997,  compared with  $173,452,000  for the twenty-one weeks ended
May 25, 1996, a net  increase of  $24,532,000,  or 14.1%.  The  additional  week
accounted for $10,084,000 of the net sales increase.  Additionally, in 1996, the
Sassco  Fashions  division  began  shipping  a new  product  line under the Nina
Charles label and opened  additional retail stores over the preceding 17 months,
for a total of 45 stores in  operation  at June 4,  1997.  These new  businesses
achieved a net sales volume of $17,843,000  for the twenty-two  weeks ended June
4, 1997, or $11,379,000  more than the twenty-one weeks ended May 25, 1996. On a
comparable basis,  after excluding the effect of the above mentioned  additional
week and new businesses,  the Sassco Fashions  division had a net sales decrease
of  $8,430,000,  or 7.0% for the twenty-two  weeks ended June 4, 1997,  compared
with the  twenty-one  weeks ended May 25, 1996.  This was  primarily a result of
reducing its production in 1997 to limit  additional  clearance  markdowns.  The
remaining  Leslie Fay businesses  accounted for an increase of  $12,720,000,  or
29.3%,  primarily due to increased volume for its Dress division.  The net sales
of the Castleberry division declined by $1,220,000.



                                     - 31 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         Gross profit for the  twenty-two  weeks ended June 4, 1997 was 25.6% of
net sales  compared  with 23.9% in the  twenty-one  weeks ended May 25, 1996 (an
increase of  $9,237,000).  The  additional  week accounted for $1,998,000 of the
increase in gross profit.  The additional retail stores and new product lines of
the Sassco Fashions  division  accounted for $3,364,000 of the increase in gross
profit.  The  remaining  gross  profit of  Sassco  Fashions  declined  $461,000.
Although the gross margin for the division increased 1.3%, it did not offset the
impact of the net sales volume  decrease on gross profit.  Increased  volume and
better  initial  pricing  (gross  margin  increased  from  22.9%  to  26.5% on a
comparable  basis)  of the  Leslie  Fay  Dress  and  Sportswear  divisions  also
accounted for $4,957,000 of additional  gross profit.  The Castleberry  division
had a decrease in gross profit of $621,000.

         Selling, warehouse,  general and administrative expenses for twenty-two
weeks ended June 4, 1997 decreased to 17.9% of net sales compared with 19.6% for
the twenty-one  weeks ended May 25, 1996.  The percentage  decrease is primarily
due to the additional  sales volume generated in the twenty-two weeks ended June
4, 1997 versus the twenty-one weeks ended May 25, 1996,  without a corresponding
increase in expense.  For the period,  expenses  increased  $1,523,000  over the
prior year. Sassco Fashions expenses increased  $3,763,000,  of which $1,100,000
is related to the extra week and the remainder is due to the additional  product
lines and retail  stores  opened.  The Leslie Fay business  reduced  expenses by
$2,085,000  or  16.0%  below  the  prior  year.  This  decrease  was  offset  by
approximately  $483,000 of expenses  incurred in the extra week. The Castleberry
division  decreased  expenses  by  approximately  $155,000  or 13.4%  below  the
comparable period in 1996 due to its reduced volume.

         Depreciation  and  amortization  expense for the twenty-two weeks ended
June 4, 1997 was  $2,092,000,  including $ 1,619,000  of  depreciation  on fixed
assets prior to their write-off at June 4, 1997 under fresh-start  reporting and
$473,000 of amortization of the excess purchase price over net assets  acquired.
Depreciation  and  amortization  expense for the twenty-one  weeks ended May 25,
1996 was  $1,770,000,  including  $1,287,000 of depreciation on fixed assets and
$483,000 of amortization of the excess purchase price over net assets  acquired.
The  amortization  expense  relates  principally to the leveraged  buyout of The
Leslie Fay Company on June 28, 1984.

         Other income was  $1,196,000  and  $1,590,000  for the  twenty-two  and
twenty-one weeks ended June 4, 1997 and May 25, 1996, respectively. The decrease
is primarily due to the expiration of certain  licensing  agreements  which were
not renewed

         Interest and financing costs increased to $1,372,000 for the twenty-two
weeks ended June 4, 1997 compared to $837,000 for the twenty-one weeks ended May
25,  1996.  The  increase is due  primarily  to the fee to finance the  accounts
receivable of the Sassco Fashions  Division under an agreement begun in February
1996.


                                     - 32 -

<PAGE>


                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         While  operating  as a debtor in  possession,  the  Company  recognized
reorganization  costs of  approximately  $3,379,000  and  $1,560,000  during the
twenty-two  weeks ended June 4, 1997 and  twenty-one  weeks ended May 25,  1996,
respectively,  which  is  comprised  of  professional  fees and  other  costs of
$2,151,000 and $1,806,000;  costs accrued to re-engineer the business processes,
review and revise the  technology  requirements  and other  related costs to the
downsizing  and  separation  of the  businesses  of  $800,000  and $0;  and plan
administration costs of $1,000,000 and $0; offset by interest income of $572,000
and $246,000.

         The provision for Federal,  state and foreign income taxes was $451,000
and $435,000 for the twenty-two  weeks ended June 4, 1997 and  twenty-one  weeks
ended May 25,  1996,  respectively.  There is no Federal  income  tax  provision
currently  recognizable,  other than that based on the  alternative  minimum tax
regulations, due to existing net operating loss carryforwards.

(b)  LIQUIDITY AND CAPITAL RESOURCES

         On June 2, 1997, the Company  obtained  $30,000,000  of  post-emergence
financing (see Note 5), which became effective with the consummation of the Plan
on June 4, 1997. The CIT Credit  Agreement  provides a working capital  facility
commitment  of  $30,000,000,  including  a  $20,000,000  sublimit  on letters of
credit.  As of November 1, 1997,  there were no  borrowings  under the revolving
line of credit and the Company was utilizing approximately $7,298,000 of the CIT
Credit Agreement for the letters of credit.

         At October 4, 1997, there were no cash borrowings outstanding under the
CIT Credit Agreement, and cash and cash equivalents amounted to $10,907,000.  Of
this amount,  $3,465,000 will be used to pay remaining  administrative claims as
defined in the Plan.  Working capital increased  $2,514,000,  to $41,566,000 for
the eighteen weeks ended October 4, 1997. The primary  changes in the components
of working  capital were a increase in accounts  receivable  of  $13,239,000,  a
decrease in  inventories  of  $1,757,000,  an increase of  $3,083,000 in prepaid
expenses  and  other  current  assets  and  the  payment  of   obligations   and
administrative  claims  as  directed  by  the  Plan  of  $17,059,000.   Accounts
receivable   increased  due  to  historically  large  third  quarter  shipments.
Inventories  sold in the  eighteen  weeks were  mostly  offset by new  inventory
purchases  in the same period.  Other  current  assets  increased as the Company
invested  $3,056,000 in a 1 Year US Treasury Note maturing on June 30, 1998, the
proceeds from which will be used to pay administrative claims.

         For the thirteen weeks ended October 4, 1997, working capital increased
$3,229,000,  to  $41,566,000.  The primary  changes in the components of working
capital were a increase in accounts  receivable  of  $18,318,000,  a decrease in
inventories  of $5,602,000  and the payment of  obligations  and  administrative
claims as directed by the Plan of $16,519,000. Accounts receivable increased due
to  historically  large third quarter  shipments.  Inventories  decreased as the
third quarter shipments were only partially offset by new inventory purchases.


                                     - 33 -


<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         At June 4, 1997,  there were no cash borrowings  outstanding  under the
CIT Credit Agreement, and cash and cash equivalents amounted to $41,080,000.  Of
this amount, $23,580,000 will be used to pay administrative claims as defined in
the Plan. The Company's working capital decreased  $111,940,000,  to $37,463,000
for the twenty two weeks ended June 4, 1997. The sale of the Sassco Fashions and
Castleberry divisions generated a decrease in working capital of $99,810,000 and
the reclass to current  liabilities of the priority  claims  required to be paid
subsequent to Consummation Date decreased working capital further by $8,649,000.
Cash flow  generated  from the Sassco  Fashions and  Castleberry  divisions  was
$34,295,000  and $690,000,  respectively.  The primary  changes in the remaining
components of working  capital were an increase in cash and cash  equivalents of
$19,103,000,  an increase in accounts  receivable of  $1,248,000,  a decrease in
inventories  of  $25,538,000,  a decrease of  $4,167,000  in  accounts  payable,
accrued  expenses  and other  current  liabilities  and an  increase  in accrued
reorganization  expenses of $3,379,000.  Spring 1997 and excess Fall 1996 Sassco
Fashions'  inventories  on hand at  year-end  were sold during the first part of
1997.

         Although,  the Company's  results of operations  indicated an Operating
income of $14,355,000  for the twenty-two  weeks and $4,862,000 for the eighteen
weeks ended  October 4, 1997,  these results are not  necessarily  indicative of
results for an entire year. Due to the  seasonality of the business and the sale
of the Sassco Fashions  division,  the Company  anticipates a loss in the fourth
quarter.

         Capital expenditures were $378,000 for the eighteen weeks ended October
4, 1997 and  $3,730,000  for the  twenty-two  weeks ended June 4, 1997.  Capital
expenditures  are expected to be $4,866,000 for the fiscal year 1997,  including
$3,152,000  of  expenditures  related  to  the  Sassco  Fashions  Division.  The
anticipated  capital  expenditures of $758,000 for the remainder of the year are
primarily related to improvements in management information systems. The Company
believes that its financing  arrangements  and  anticipated  level of internally
generated funds will be sufficient to finance its capital spending during 1997.

         Other than the capital expenditures described above, no other long-term
investment or financing  activities are anticipated  throughout the remainder of
1997. The Company is currently  prohibited  from paying cash dividends under its
CIT Credit  Agreement and has no plans to pay cash dividends in the  foreseeable
future.

         A number of statements contained herein are forward-looking  statements
within the meaning of the Private Securities  Litigation Reform Act of 1995 that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those expressed or implied in the applicable  statements.  These
risks and  uncertainties  include,  but are not limited to, the  uncertainty  of
potential  manufacturing  difficulties,  the  dependence on key  personnel,  the
possible  impact of competitive  products and pricing,  the Company's  continued
ability  to  finance  its  operations,   general  economic  conditions  and  the
achievement and maintenance of profitable operations and positive cash flow.


                                     - 34 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


PART II  -  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.
-------    ------------------

         The Company has previously reported the proceedings under chapter 11 of
the  Bankruptcy  Code and other  pending legal  proceedings  in Item 3. - "Legal
Proceedings"  in the 1996 Form l0-K.  The Company's Plan of  Reorganization  was
approved by the creditors and on April 21, 1997, the Bankruptcy  Court confirmed
the Plan. On June 4, 1997,  the Plan was  consummated  and the Company no longer
operates under chapter 11. For information  concerning legal  proceedings at the
end of the third  quarter of 1997,  reference  is made to Note 8 of the Notes to
Consolidated Financial Statements contained herein.

         No other legal  proceedings were terminated during the third quarter of
1997 or thereafter,  other than ordinary  routine  litigation  incidental to the
business of the Company.

ITEM 2.    CHANGES IN SECURITIES.
-------    ----------------------

         Pursuant to the Plan of  Reorganization,  all  theretofore  outstanding
shares of Common Stock,  $1.00 par value,  were  canceled.  The Company filed an
Amended and Restated  Certificate of Incorporation  (the "Amended  Certificate")
authorizing the issuance of 3,500,000 shares of common stock, par value $.01 per
share,  and 500,000 shares of preferred  stock,  par value of $.01 per share. In
November 1997, pursuant to the authority granted the Company by the Confirmation
Order  of  the  Bankruptcy   Court,  the  Company  amended  its  Certificate  of
Incorporation to increase its authorized common stock to 9,500,000 shares.  Each
share of common stock has one vote in  connection  with any matter  presented to
shareholders.  The common stock has no  cumulative  voting  rights,  pre-emptive
rights or sinking  fund  provisions.  The Amended  Certificate  provides  that a
Business  Combination with an Interested  Stockholder (as said terms are defined
therein) must be approved by the affirmative vote of the holders of at least 80%
of the outstanding voting stock including the affirmative vote of the holders of
at least 80% of the voting stock not owned by the Interested  Stockholder or any
Affiliate  thereof.  Such  provisions  do not apply in the  event  the  Business
Combination  has been approved by a majority of the  Continuing  Directors or if
the  consideration  paid in the  combination  meets  certain  provisions as more
particularly  set forth in the  Amended  Certificate.  The CIT Credit  Agreement
contains a prohibition on the payment of cash dividends (see Note 6).


                                     - 35 -
<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


         On June 4, 1997, in  connection  with the  consummation  of the Plan of
Reorganization,  the Company  issued to its  creditors  3,400,000  shares of its
common  stock  in  cancellation  of all  obligations  to such  creditors  by the
Company. The certificates evidencing such shares were actually delivered in July
1997. An aggregate of $88,784,000 of indebtedness was canceled by the Registrant
in consideration for such stock. The shares were exempt from registration  under
the Securities Act of 1933, as amended (the "Securities  Act"), by virtue of the
provisions of Section 3(a)(10) thereof.

         In addition,  the Company  granted  options to purchase an aggregate of
412,121  shares to five  executives  and  options to purchase  50,000  shares to
non-employee  directors  at June 4, 1997,  all  exercisable  at $6.18 per share.
Additional stock options to purchase 36,500 common shares, exercisable at $11.50
per share, were granted to employees on September 22, 1997. The granting of such
options was exempt from  registration  under the Securities Act by virtue of the
provisions of Section 4(2) thereof.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.
-------    --------------------------------

                  None.

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

                  None.

ITEM 5.    OTHER INFORMATION.
-------    ------------------

                  None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.
-------    ---------------------------------

            a)  Exhibits

                Exhibits  are set forth on the  "Index to  Exhibits"  on page 38
                hereof.

            b)  Reports on Form 8-K
    
                Since the end of the second  quarter of fiscal 1997, the Company
                filed  current  reports on Form 8-K dated  August  27,  1997 and
                September  24,  1997,  each  reporting  on item 5, as well as an
                Amendment on Form 8-K/A filed on September 8, 1997, reporting on
                Items 5 and 7, to the  current  report on Form 8-K dated June 4,
                1997. The Form 8-K/A contained a pro forma consolidated  balance
                sheet as of June 4, 1997 and pro forma  consolidated  statements
                of operations  for the  twenty-two  weeks ended June 4, 1997 and
                the  fifty-two  weeks ended  December  28, 1996 and December 29,
                1995.   The  August  27,  1997  Form  8-K  contained   condensed
                consolidated   pro  forma   statements  of  operations  for  the
                twenty-seven   and  thirteen   weeks  ended  July  5,  1997  and
                twenty-six  and  thirteen  weeks  ended June 29, 1996 as well as
                certain balance sheet data as of July 5, 1997.

                                     - 36 -


<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


                                   SIGNATURES

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

Date:  November 13, 1997                         The Leslie Fay Company, Inc.
                                                 ----------------------------
                                                          (Company)




                                                 By: /s/ Warren T. Wishart
                                                   -------------------------
                                                     Warren T. Wishart
                                                     Secretary and Chief
                                                     Financial Officer



                                     - 37 -
                                                         

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES



                                INDEX TO EXHIBITS
                                -----------------




Exhibit No.                Description
-----------                -----------

     1           Amendment to Restated  Certificate of  Incorporation  of
                 The Leslie Fay Company, Inc.

  10.2(c)        Employment  Agreement  dated as of June 4, 1997  between
                 The Leslie Fay Company, Inc. and Warren T. Wishart.

  10.2(d)        Employment  Agreement  dated as of June 4, 1997  between
                 The Leslie Fay Company, Inc. and Dominick Felicetti.

  10.2(e)        Employment  Agreement  dated as of June 4, 1997  between
                 The   Leslie   Fay   Company,    Inc.   and    Catharine
                 Bandel-Wirtshafter.

    27           Financial Data Schedule




                                     - 38 -