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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 APRIL 4, 1998

COMMISSION FILE NO. 1-9196



                          THE LESLIE FAY COMPANY, INC.

            Delaware                                              13-3197085
(State of other jurisdiction of                               (I.R.S. Employer 
 incorporation or organization)                              Identification No.)

             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 May 15, 1998.


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<PAGE>




                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                                      INDEX
                                                                        Page No.
PART I  - FINANCIAL INFORMATION

Item 1.    Financial Statements:
              Consolidated Balance Sheets as of April 4, 1998
                  and January 3, 1998......................................... 3

              Consolidated Statements of Operations for the
                 Thirteen Weeks Ended April 4, 1998 and the
                  Fourteen Weeks Ended April 5, 1997.......................... 4

              Consolidated Statements of Cash Flows for the
                 Thirteen Weeks Ended April 4, 1998 and the
                  Fourteen Weeks Ended April 5, 1997.......................... 5

              Notes to Consolidated Financial Statements...................... 6

Item 2.    Management's Discussion and Analysis of Financial Condition and
               Results of Operations......................................... 18

PART II  -  OTHER INFORMATION

Item 1.    Legal Proceedings................................................. 22
Item 2.    Changes in Securities............................................. 22
Item 3.    Defaults Upon Senior Securities................................... 22
Item 4.    Submission of Matters to a Vote of Security Holders............... 22
Item 5.    Other Information................................................. 22
Item 6.    Exhibits and Reports on Form 8-K.................................. 22

SIGNATURES................................................................... 23

INDEX TO EXHIBITS........................................................... E-1



                                        2

<PAGE>

                 THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 April 4,  January 3,
                                                                   1998       1998
                                                                 -------    -------
<S>                                                              <C>        <C>    
ASSETS
Current Assets:
  Cash and cash equivalents .................................    $ 6,602    $18,455
  Restricted cash and cash equivalents ......................      1,169      1,358
  Restricted short term investments .........................      2,989      2,989
  Accounts receivable- net of allowances for possible losses
      of $3,324 and $3,236, respectively ....................     25,808      9,747
  Inventories ...............................................     24,965     26,701
  Prepaid expenses and other current assets .................        650        807
                                                                 -------    -------
     Total Current Assets ...................................     62,183     60,057

  Property, plant and equipment, at cost, net of
     accumulated depreciation of $34 and $14, respectively ..      1,301        845
  Deferred charges and other assets .........................        110        149
                                                                 -------    -------
  Total Assets ..............................................    $63,594    $61,051
                                                                 =======    =======


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable ..........................................    $10,162    $11,530
  Accrued expenses and other current liabilities ............      3,721      4,542
  Accrued expenses and other current confirmation liabilities      4,158      4,347
  Income taxes payable ......................................         85         25
  Current portion of capitalized leases .....................         95        160
     Total Current Liabilities ..............................     18,221     20,604

  Excess of revalued net assets acquired over equity under
       fresh-start reporting, net of accumulated amortization
       of $3,810 and $2,667, respectively ...................      9,898     11,041

  Long term debt-capitalized leases .........................         53         49
  Deferred liabilities ......................................        202        143
                                                                 -------    -------
     Total Liabilities ......................................     28,374     31,837
                                                                 -------    -------


Stockholders' Equity:
  Preferred stock, $.01  par value; 500 shares authorized;
      no shares issued and outstanding ......................       --         --
  Common stock, $.01 par value; 9,500 shares authorized;
      3,400 shares issued and outstanding ...................         34         34
  Capital in excess of par value ............................     28,108     25,871

  Accumulated retained earnings .............................      7,078      3,309
                                                                 -------    -------
      Total Stockholders' Equity ............................     35,220     29,214
                                                                 -------    -------
  Total Liabilities and Stockholders' Equity ................    $63,594    $61,051
                                                                 =======    =======
</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 STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                      REORGANIZED      PREDECESSOR
                                                        COMPANY          COMPANY
                                                        -------          -------
                                                        THIRTEEN         FOURTEEN
                                                       WEEKS ENDED      WEEKS ENDED
                                                        APRIL 4,         APRIL 5,
                                                          1998             1997
                                                      ------------     ------------
<S>                                                   <C>              <C>         
Net Sales ........................................    $     45,258     $    142,755
Cost of Sales ....................................          33,260          105,987
                                                      ------------     ------------

   Gross profit ..................................          11,998           36,768
                                                      ------------     ------------

Operating Expenses:
   Selling, warehouse, general and administrative
     expenses.....................................           7,536           23,102
   Depreciation and amortization expense .........              17            1,246
                                                      ------------     ------------
      Total operating expenses ...................           7,553           24,348

   Other income ..................................            (272)            (956)
   Amortization of excess revalued net assets.....          (1,143)            --
                                                      ------------     ------------

   Total operating expenses, net .................           6,138           23,392
                                                      ------------     ------------

   Operating income ..............................           5,860           13,376

Interest and Financing Costs (excludes contractual
   interest of $-0-, and $4,508, respectively) ...             190              868
                                                      ------------     ------------

  Income before reorganization costs and taxes ...           5,670           12,508

Reorganization Costs .............................            --                468

  Income before taxes ............................           5,670           12,040

Taxes ............................................           1,901              316
                                                      ------------     ------------

   Net Income ....................................    $      3,769     $     11,724
                                                      ============     ============

  Net Income per Share - Basic ...................    $       1.11     $       0.62
                                                      ============     ============
                       - Diluted .................    $       0.92     $       0.62
                                                      ============     ============

  Weighted Average Shares Outstanding - Basic.....       3,400,000       18,771,836
                                                      ============     ============
                                      - Diluted...       4,091,500       18,771,836
                                                      ============     ============
</TABLE>


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



                                        4

<PAGE>

                  THE LESLIE FAY COMPANY, INC. AND SUBSIDAIRY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

                                 (In thousands)


<TABLE>
<CAPTION>
                                                          Reorganized   Predecessor
                                                            Company       Company
                                                            -------       -------
                                                           Thirteen      Fourteen
                                                          Weeks Ended   Weeks Ended
                                                            April 4,      April 5,
                                                              1998          1997
                                                            --------      --------
<S>                                                         <C>           <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ...........................................   $  3,769      $ 11,724
   Adjustments to reconcile net income to net cash                    
      provided by (used in) operating activities:                     
      Depreciation and amortization .....................         20         1,327
      Amortization of excess net assets acquired                      
         over equity ....................................     (1,143)         --
      Provision for compensation under stock option
         grants..........................................        396          --
      Provision for possible loss on account
         receivable......................................        524          --
      (Gain) loss on sale of fixed assets ...............       --            (347)
      Decrease (increase) in:                                         
        Accounts receivable .............................    (16,061)      (29,737)
        Inventories .....................................      1,736        28,286
        Prepaid expenses and other current assets........        157           (15)
        Deferred charges and other assets ...............         39          (858)
      (Decrease) increase in:                                         
        Accounts payable, accrued expenses and other                  
           current liabilities ..........................     (1,569)       (4,711)
        Income taxes payable ............................       (540)            9
        Deferred credits and other noncurrent
           liabilities...................................         59           136

Changes due to reorganization activities:                          
        Reorganization costs ............................       --             468
        Payment of reorganization costs .................       --            (998)
        Use of pre-consummation deferred taxes...........      1,840          --
                                                            --------      --------
           Total adjustments ............................    (15,066)       (5,916)
                                                            --------      --------
           Net cash (used in) provided by operating
               activities................................    (11,297)        5,808
                                                            --------      --------
                                                                      
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures .................................       (476)       (2,024)
                                                                      
   Proceeds from sale of assets .........................       --             467
                                                            --------      --------
           Net cash (used in) by investing activities....       (476)       (1,557)
                                                            --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayment - capitalized leases .......................        (61)         --
   Payment of obligations under Plan of Reorganization...       (208)         --
                                                            --------      --------
           Net cash (used in) financing activities.......        (269)        --
                                                            --------      --------
                                                                      
   Net (decrease) increase in cash and cash equivalents .    (12,042)        4,251
                                                                      
   Cash and cash equivalents, at beginning of period ....     19,813        21,977
                                                            --------      --------
                                                                      
   Cash and cash equivalents, at end of period ..........   $  7,771      $ 26,228
                                                            ========      ======== 
</TABLE>

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


                                        5

<PAGE>



              NOTES TO CONDENSED 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  January 3, 1998 (the "1997 Form
10-K").  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
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.

           Certain  reclassifications have been made to the financial statements
for the fourteen  weeks ended April 5, 1997 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").  The  Debtors  operated  their  businesses  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").
Pursuant to an order of the Bankruptcy  Court,  the individual  chapter 11 cases
were consolidated for procedural purposes only and were jointly  administered by
the Bankruptcy Court.

           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


                                        6

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

referred to as the "Retail Debtors") filed voluntary  petitions under chapter 11
of the Bankruptcy  Code. The Retail Debtors operated their businesses as debtors
in  possession  following  the November  15, 1995 filing date while  pursuing an
orderly  liquidation  of their assets,  also under chapter 11 of the  Bankruptcy
Code.

           In the  chapter 11 cases,  substantially  all  liabilities  as of the
Filing Date were subject to compromise under the Plan. As part of the cases, the
Debtors  and Retail  Debtors  notified  all known  claimants  for the purpose of
identifying  all  pre-petition  claims  against them.  Pursuant to orders of the
Bankruptcy  Court, all proofs of claim were required to be filed by December 10,
1993  against the  Debtors and  December  12, 1995  against the Retail  Debtors.
Excluded from the  requirement to file by the December 10, 1993 bar date,  among
others, were certain claims by the Internal Revenue Service ("IRS"),  which were
required to be filed by March 31, 1995. On April 8, 1996, the Debtors and Retail
Debtors filed amended  schedules of liabilities  with the Bankruptcy Court which
established May 8, 1996 as the supplemental bar date for certain creditors.

           On October  31,  1995,  the Debtors and the  Committee  of  Unsecured
Creditors (the "Creditors  Committee")  filed 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 Plan provided for, among other things,  the separation of
the Debtors' estates and assets into two separate  reorganized  entities.  Under
the Plan,  stockholders of the Company would not retain or receive any value for
their interest. 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.

           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 changed its name to Kasper A.S.L., Ltd.
on November 5, 1997,  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  product line to Sassco and the
assets  and  liabilities  of its Dress  and  Sportswear  product  lines to three
wholly-owned  subsidiaries  of the Company.  In addition,  the Company  retained
approximately $41,080,000 in cash of which $23,580,000 was to pay administrative
claims as defined in the Plan. As provided for in the Plan,  the Company  issued
seventy-nine  (79%) percent of its 3,400,000 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.  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
contained in the Company's Form 10-K for the fiscal year ended. January 3, 1998,
and Item 1 - Recent Developments contained in the Company's Form 10-K for the


                                        7

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

fiscal year ended December 28, 1996 for a copy of the Plan and a summary of Plan
provisions, respectively.

           In accordance  with the Plan,  the remaining  Liabilities  subject to
compromise  were  discharged and the Company  recognized a gain of  $73,541,000,
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.

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

           Pursuant to the guidelines provided by SOP 90-7, "Financial Reporting
by Entities in  Reorganization  Under the Bankruptcy  Code", the Company adopted
fresh-start  reporting and reflected the  consummation  distributions  under the
Plan in the consolidated 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  acquired  to zero  was  recorded  as a  deferred  credit,
               "Excess  of  revalued  net  assets  acquired  over  equity  under
               fresh-start  reporting"  and is being  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 "loss
on revaluation of assets  pursuant to adoption of fresh-start  reporting" in the
consolidated  statement of  operations  for the  twenty-two  weeks 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 product lines (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


                                        8

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

Company's business activity.

           Since  fresh-start  reporting has been reflected in the  accompanying
consolidated balance sheet as of January 3, 1998, the consolidated balance sheet
as of that date is not comparable in material respects to any such balance sheet
for any period prior to June 4, 1997.

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 product line on June 4, 1997 for an estimated  exchange value of
$230,000,000.  This value was the estimated  reorganization  value of the Sassco
Fashions  Product line which was calculated in a manner similar to the Company's
reorganization  value (see Note 2). The resulting  gain of  $89,810,000,  net of
taxes of $3,728,000,  recorded from these transactions is reflected as a Gain on
the  disposition  of the  Sassco  Fashions  product  line  in  the  consolidated
statement of operations for the twenty-two weeks ended June 4, 1997.

           In  addition,  on May 26,  1997,  the  Company  sold the  assets  and
liabilities of its Castleberry product line 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 unaudited pro forma consolidated  statement of operations for the
fourteen weeks ended April 5, 1997 is presented  below and includes  adjustments
to give effect to the sales and the Plan (see Note 2) as if they  occurred as of
the beginning of the period presented.

           The  unaudited  pro forma  financial  statement  has been prepared in
accordance   with   guidelines   established  by  the  Securities  and  Exchange
Commission. The historical balances were derived from the consolidated statement
of  operations  for the  fourteen  weeks  ended April 5, 1997.  All  significant
intercompany transactions have been eliminated.

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



                                        9

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES





Column Heading                         Explanation
--------------                         -----------

Historical          Operations  The  Consolidated  Statement of Operations as it
                    existed prior to the adjustments.

Disposition         of Sassco  The  operating  results  of the  Sassco  Fashions
                    product  line have  been  eliminated  to give  effect to the
                    disposition  as of the  beginning  of the period  presented,
                    including  depreciation  expense on its property,  plant and
                    equipment,  an allocated  corporate charge based on workload
                    by department related to the Sassco Fashions line and direct
                    charges  associated  with  financing  fees on its  factoring
                    agreement  and fees  incurred on letters of credit issued on
                    its behalf.  For the April 5, 1997 period, the gain recorded
                    on the  disposition  of the  Sassco  Fashions  line has been
                    reversed.

Sale                of  Castleberry  The  operating  results of the  Castleberry
                    product  line have  been  eliminated  to give  effect to the
                    disposition  as of the  beginning  of the period  presented,
                    including  depreciation  expense on its property,  plant and
                    equipment  and  an  allocated   corporate  charge  based  on
                    workload by department related to the Castleberry line.

Fresh-Start 
Reporting           To record the estimated effect of the Plan as if it had been
                    effective  as of the  beginning  of period  presented.  This
                    includes adjustments for the following items:

                    a)  The  elimination  of  the  historical  depreciation  and
                    amortization for the remaining product lines,  including the
                    amounts in cost of sales,  on the  beginning of period asset
                    balances and the  recording of the  amortization  credit for
                    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.





                                       10

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                     FOURTEEN WEEKS ENDED APRIL 5, 1997

                                                           HISTORICAL    DISPOSITION      SALE OF      FRESH-START    PRO FORMA
                                                           OPERATIONS     OF SASSCO     CASTLEBERRY     REPORTING   ADJUSTED BALANCE
                                                          -----------    -----------    -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>            <C>            <C>        
Net Sales                                                 $   142,755    ($   99,230)   ($    2,129)   $      --      $    41,396
Cost of  Sales                                                105,987        (74,223)        (1,581)           (18)        30,165
                                                          -----------    -----------    -----------    -----------    -----------
    Gross profit                                               36,768        (25,007)          (548)            18         11,231
                                                          -----------    -----------    -----------    -----------    -----------

Operating Expenses:
    Selling, warehouse, general and administrative
    expenses                                                   23,102        (15,251)          (551)           150          7,450

    Depreciation and amortization expense                       1,246           (642)           (30)          (574)          --
                                                          -----------    -----------    -----------    -----------    -----------

      Total operating expenses                                 24,348        (15,893)          (581)          (424)         7,450

    Other (income) expense                                       (956)           251           --             --             (705)

    Amortization of excess  revalued net
      Assets acquired over equity                                --             --             --           (1,143)        (1,143)
                                                          -----------    -----------    -----------    -----------    -----------
Total operating expenses, net                                  23,392        (15,642)          (581)        (1,567)         5,602
                                                          -----------    -----------    -----------    -----------    -----------
Operating income (loss)                                        13,376         (9,365)            33          1,585          5,629

Interesting and Financing Costs (excludes
    Contractual  interest)                                        868           (412)          --             --              456
                                                          -----------    -----------    -----------    -----------    -----------
Income (loss) before reorganization costs, taxes, gain on      12,508         (8,953)            33          1,585          5,173
  sale, fresh-start  revaluation

Reorganization Costs                                              468           --              (50)          (418)          --
                                                          -----------    -----------    -----------    -----------    -----------
Income (loss) before taxes, gain on sale,  fresh-start
    Revaluation                                                12,040         (8,953)            83          2,003          5,173
Taxes                                                             316           (200)          --            1,577          1,693
                                                          -----------    -----------    -----------    -----------    -----------
Net income (loss) before gain on sale,  fresh-start
    revaluation                                                11,724         (8,753)            83            426          3,480
                                                          -----------    -----------    -----------    -----------    -----------
    Net Income (loss) per Share   - Basic                        *                                                    $      1.02
                                  - Diluted                      *                                                    $      0.90
                                                   
    Weighted Average                               
     Shares Outstanding           - Basic                        *                                                      3,400,000
                                  - Diluted                      *                                                      3,862,121
                                                          ===========                                                 ===========
</TABLE>


*Earnings per share for the fourteen  weeks ended April 5, 1997 is not presented
because  such  presentation  would not be  meaningful  as it is based on the old
stock  outstanding.  The old stock was canceled 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.


                                       11

<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 remits 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) as well as an interest
charge of prime plus 1% on two days cash collections.

5. INVENTORIES:

           Inventories consist of the following:

                                                April 4,          January 3,
                                                 1998               1998
                                                -------            -------
                                                      (In Thousands)

Raw materials                                   $11,340            $ 9,638
Work in process                                   5,265              4,540
Finished goods                                    8,360             12,523
                                                -------            -------

   Total inventories                            $24,965            $26,701
                                                =======            =======

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 April
4,  1998) 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
$9,447,000 was committed under unexpired letters of credit as of April 4, 1998.

           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  maintenance  of a current
assets to current  liabilities  ratio and an interest to earnings  ratio and the
attainment of 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.  The Company is currently in compliance with
all requirements contained in the CIT Credit Agreement.


                                       12

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

           The  Company  previously  had a  facility  for a  $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 $19,351,000 was committed under unexpired letters of
credit  as of  April  5,  1997.  There  were  no  unexpired  letters  of  credit
outstanding under the FNBB Credit Agreement at April 4, 1998.

           Interest on direct  borrowings was charged at prime plus 1.5% (10.00%
at April 5,  1997),  and the  FNBB  Credit  Agreement  required  a fee,  payable
monthly, on average outstanding letters of credit at a rate of 2% annually

7. INCOME TAXES:

           The  provision for state and foreign  income taxes is $1,901,000  and
$316,000 for the  thirteen  and fourteen  weeks ended April 4, 1998 and April 5,
1997,  respectively.  Federal income taxes for the post-consummation  period are
primarily  offset by the  utilization  of  pre-consummation  net operating  loss
carryovers,   which  are  limited  to  approximately  $1,500,000  in  1998,  and
post-consummation  net  operating  loss  carryforwards  without  limitation  and
deductions available for tax purposes.  Although there is no 1997 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
product  line.  These taxes are reflected net of the gain shown in the statement
of operations for the twenty-two weeks ended June 4, 1997.

8.  COMMITMENTS AND CONTINGENCIES:

           As discussed in Note 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


                                       13

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


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.  Certain  alleged  creditors  who asserted age and
other discrimination  claims against the Company, and whose claims were expunged
(the  "Claimants")  pursuant  to an Order of the  Bankruptcy  Court (see  below)
appealed the  Confirmation  Order to the United  States  District  Court for the
Southern  District of New York. The Company moved to dismiss the appeal from the
Confirmation  Order and the motion was granted and the appeal was dismissed.  An
appeal to the United  States  Court of Appeals for the Second  Circuit  from the
Order  dismissing the appeal taken by the Claimants  subsequently was withdrawn,
without prejudice,  and may be refiled in the future. In addition, the Claimants
and two other persons commenced an adversary  proceeding in the Bankruptcy Court
to revoke the Confirmation Order. The Company has moved to dismiss the adversary
proceeding  to revoke  the  Confirmation  Order and that  motion  has been fully
briefed, but has not yet been argued to the Bankruptcy Court.

           Both prior to and  subsequent  to the  Filing  Dates,  various  class
action suits were  commenced on behalf of persons who were  stockholders  of the
Company prior to April 5, 1993.  Any claims  against the Company  arising out of
these suits were discharged as part of, and in accordance with the terms of, the
Plan.

           The  Claimants,  who are former  employees  of the  Company  who were
discharged  prior to the filing of the chapter 11 cases,  asserted age and other
discrimination  claims,  including punitive damage claims against the Company in
the approximate  aggregate sum of $80 million.  Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety.  The
Claimants  have appealed that decision to the United States  District  Court for
the Southern  District of New York, the appeal has been fully briefed and argued
and the parties are awaiting a decision.

           Several former employees, who are included among the Claimants in the
above-described  pending appeal,  have commenced an action  alleging  employment
discrimination  against  certain former officers and directors of the Company in
the United  States  District  Court for the Southern  District of New York.  The
Court has dismissed all of the causes of action  arising under federal and state
statutes,  and the only  remaining  claims are those  arising under the New York
City Human  Rights Law.  Discovery  is complete  and a pre-trial  order has been
filed.

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

           In  November  1992,  a class  action  entitled  "Stephen  Warshaw and
Phillis Warshaw v. The Leslie Fay Companies,  Inc. et al." was instituted in the
United States  District Court for the Southern  District of New York. In January
1993 and February 1993, the plaintiffs served amended  complaints and thereafter
twelve other similar actions were commenced against the Company,  certain of its
officers and directors and its then  auditors,  BDO Seidman.  The  complaints in
these cases,  which  purported  to be on behalf of all persons who  purchased or
acquired stock of the Company during the


                                       14

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES


period from February 4, 1992 to and including February 1, 1993, alleged that the
defendants  knew or should have known  material  facts relating to the sales and
earnings  which  they  failed  to  disclose  and  that if these  facts  had been
disclosed,  they would have  affected  the price at which the  Company's  common
stock was  traded.  A  pre-trial  order  was  entered  which  had the  effect of
consolidating all of these actions and, in accordance therewith,  the plaintiffs
have served the defendants  with a consolidated  class action  complaint  which,
because of the chapter 11 filing by the Company,  does not name the Company as a
defendant.  In March 1994,  plaintiffs  filed a  consolidated  and amended class
action complaint. This complaint added certain additional parties as defendants,
including Odyssey Partners,  L.P. ("Odyssey"),  and expanded the purported class
period from March 28, 1991 to and including  April 5, 1993.  In March 1995,  BDO
Seidman  filed an answer and  cross-claims  against  certain of the officers and
directors of the Company  previously named in this action and filed  third-party
complaints  against Odyssey,  certain then current and former  executives of the
Company and certain  then current and former  directors  of the  Company.  These
cross-claims  and  third-party  complaints  allege  that  the  Company's  senior
management  and  certain of its  directors  engaged in  fraudulent  conduct  and
negligent misrepresentation. BDO Seidman sought contribution from certain of the
defendants and each of the third-party defendants if it were found liable in the
class action, as well as damages.  On March 7, 1997, a stipulation and agreement
was signed  pursuant to which all parties  agreed to settle the above  described
litigation  for an aggregate sum of  $34,700,000.  The officers' and  directors'
share of the  settlement  is covered by the Company's  officers' and  directors'
liability insurance.  The settlement specifically provides that the officers and
directors  deny  any  liability  to the  plaintiffs  and have  entered  into the
settlement solely to avoid substantial  expense and inconvenience of litigation.
The  Company  has no  obligations  under this  settlement.  The  District  Court
approved this settlement and signed the final order of dismissal on May 8, 1997.
The settlement has been fully consummated.

           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 pled 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.  The  trial of the case  against  Paul F.  Polishan  has not yet
occurred.

           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


                                       15

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

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
Modification  of the Third  Amended and  Restated  Joint Plan of  Reorganization
filed on April 4, 1997, a Derivative Action Board, comprised of three persons or
entities  appointed by the Bankruptcy  Court,  upon nomination by the Creditors'
Committee,  shall determine by a majority vote whether to prosecute,  compromise
and settle or discontinue the Derivative Action.

           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
trade name. 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.  On  December  23,  1997,  the court ruled in favor of the
Company  finding  the  plaintiffs  in  violation  of the  Federal  and New  York
Trademark  Statutes and of unfair  competition  under common law. The plaintiffs
have  appealed  and the  Company  has cross  appealed  to recover  its costs and
expenses in the litigation.

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. The authorized common stock of the reorganized Company was
increased to 9,500,000 shares of common stock with a par value of $.01 per share
in November 1997. 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,  2,686,127
(approximately 79%) of the shares were distributed.  The remaining approximately
twenty-one  (21%)  percent is being held back pending the  resolution of certain
disputed claims before the Bankruptcy  Court.  The old common stock was canceled
at June 4,  1997 and the old  stockholders  of the  Company  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.

10. STOCK OPTION PLAN:

           The Plan provides stock options to certain senior management equal to
seventeen and one-half (17.5%) percent of the reorganized Company's common stock
outstanding (assuming the exercise


                                       16

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

of all  options).  Of this amount,  the first ten (10%) or 412,121  options were
granted  as of June 4, 1997,  one-third  of which will vest on each of the first
three  anniversaries  of  the  Consummation  Date.  In  addition,  each  initial
non-employee  director of the Company has been  granted  10,000  stock  options,
vesting  one-third each year for a total of 50,000 options,  and each subsequent
non-employee  director,  upon becoming a director,  has received or will receive
stock  options to  purchase  5,000  shares,  vesting  one-third  each year . The
options  may be  exercised  for  between  $6.18 and $11.50  per share.  The Plan
provided  that  additional  options (the "Home Run  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) will be granted upon a sale of the Company where the imputed
enterprise value exceeds $37,500,000.

           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 $396,000 and $351,000 of non-cash compensation
expense included in Selling, warehouse,  general and administrative expenses for
the  thirteen  and  fifty-three  weeks  ended April 4, 1998 and January 3, 1998,
respectively.  These amounts were offset as  adjustments to Capital in excess of
par value in the  consolidated  balance  sheets at April 4, 1998 and  January 3,
1998, respectively.

           The  consummation  of the Plan  terminated  all options under a Stock
Option Plan which had  provided for the grant of up to an aggregate of 1,000,000
shares of its common stock to its key employees.  In December 1992, the Board of
Directors  approved an increase in the aggregate number of shares which could be
granted to 1,500,000.  This increase was subject to  stockholder  approval which
was never  solicited.  Under the plan,  incentive  stock options were granted to
purchase  shares of common  stock at not less than the fair market value of such
shares  at the  date of the  grant.  Additionally,  non-qualified  options  were
granted to purchase shares of common stock at an amount not less than 98% of the
fair market value of such shares at the date of grant.  In general,  the options
vested  over a four year  period and were  exercisable  no later than five years
from the date of grant.

           At the April 1998 meeting of the Company's  Board of  Directors,  the
Compensation  Committee  recommended and the Board of Directors approved certain
modifications  to  the  terms  of  the  "Home  Run"  options.  In  addition  the
Compensation  Committee  approved in principle new employment  contracts for the
Company's four executive officers, John Pomerantz, John Ward, Dominick Felicetti
and  Warren  Wishart.  As  a  result,  the  Company  has  recorded  $218,000  in
additional,  non-cash  compensation  expense  for  these  modifications  and has
recorded a total of  $396,000  of  non-cash  compensation  expense for the first
quarter.

11.  COMPREHENSIVE INCOME:

      Effective January 4, 1998, the Company adopted the provisions of Statement
of  Financial  Accounting  Standards  (SFAS)  No.130,  "Reporting  Comprehensive
Income" which modifies the financial  statement  presentation  of  comprehensive
income  and its  components.  Adoption  of this  standard  had no  effect on the
Company's financial position or operating results during the periods presented.


                                       17

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

12.        NET INCOME (LOSS) PER SHARE:

      As of April 4, 1998, the basic weighted average common shares  outstanding
is 3,400,000,  and the weighted average shares outstanding  assuming dilution is
4,091,500.  The  difference  of 691,500  represents  to the  incremental  shares
issuable upon exercise of dilutive stock options.

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

(A)  RESULTS OF  OPERATIONS

THIRTEEN WEEKS ENDED APRIL 4, 1998 AS COMPARED TO
           FOURTEEN WEEKS ENDED APRIL 5, 1997

           The Company  recorded net sales of $45,258,000 for the thirteen weeks
ended April 4, 1998,  compared with  $142,755,000  for the fourteen  weeks ended
April 5, 1997,  a net  decrease of  $97,497,000  or 68.3%.  The primary  factors
contributing  to  this  decrease  were  the  sale  of the  Sassco  Fashions  and
Castleberry  product  lines,  the closing of the Outlander  product line and the
extra week of shipping volume in the first quarter 1997,  offset by sales of new
product lines in the first quarter 1998. The Sassco,  Castleberry  and Outlander
lines generated  $99,230,000,  $2,129,000 and $1,997,000,  respectively,  in net
sales for the  fourteen  weeks ended April 5, 1997.  The extra  week's  shipping
volume in the  continuing  product lines  accounted for  $1,225,000 in net sales
during the  fourteen  week  period  ended  April 5, 1997.  The  Company's  newly
released  product line,  Haberdashery  by Leslie Fay  Sportswear,  generated net
sales of  $1,292,000  for the thirteen  week period  ending April 4, 1998.  On a
comparable basis, after excluding the effect of the above mentioned  businesses,
the extra week and $21,000 of returns relating to the closed  Outlander  product
line,  the continuing  product lines had a net sales increase of $5,813,000,  or
15.2%,  for the thirteen weeks ended April 4, 1998 as compared to the comparably
adjusted  period  ended April 5, 1997.  The Dress  product  lines  generated  an
increase for the period of $5,531,000 or 22.1% directly as a result of increased
production  of the Spring  season  lines to  service  anticipated  increases  in
customer  demand.  Net sales for the comparable  continuing  Sportswear  product
lines, excluding the Haberdashery line, increased by $282,000 or 2.1%.

           Gross  profit  for  the  thirteen  weeks  ended  April  4,  1998  was
$11,998,000  and 26.5% of net sales compared with  $36,768,000 and 25.8% for the
fourteen  weeks  ended  April 5, 1997.  The  Sassco  Fashions,  Castleberry  and
Outlander  product  lines  generated   $25,007,000,   $548,000  and  ($234,000),
respectively,  in gross profit for the fourteen  weeks ended April 5, 1997.  The
extra week of shipping during the quarter ended April 5, 1997 generated $443,000
of gross profit.  The newly offered  Haberdashery line generated gross profit of
$403,000 for the thirteen weeks ended April 4, 1998.  The comparable  continuing
businesses increased gross profit by $612,000 for the thirteen weeks ended April
4, 1998  versus  the prior year while the gross  margin as a  percentage  of net
sales decreased to 26.4% from 28.8%.  Increased  production of the Spring season
as discussed above

                                       18

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

generated the  additional  gross margin volume in both the Dress and  Sportswear
product  lines.  The lower gross profit  percentage  is due mostly to additional
discounts  taken in the Dress  product  line due to higher  levels of  off-price
sales and to  discounts  offered on late  shipments.  The gross  profit from the
Dress line,  excluding the effect of the additional  week, rose $863,000 but the
percentage to net sales fell to 27.9% from 30.6%.  The gross profit  produced by
the Sportswear  line for the thirteen  weeks ended April 4, 1998,  excluding the
effect of the extra week and the new product line, decreased by $251,000 and the
percentage of net sales decreased to 23.0% from 25.4% for the comparable  period
ended April 5, 1997.  This  decrease  resulted  primarily  from the  competitive
repricing   strategy  of  the  Leslie  Fay  Sportswear  product  line  that  was
implemented during the second half of 1997.

           Selling,   warehouse,   general  and  administrative   expenses  were
$7,536,000 or 16.7% of net sales and  $23,102,000  or 16.2% of net sales for the
thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively.
After excluding the costs  associated with the product lines sold, the pro forma
remaining  business  had  expenses of  $7,450,000  or 17.6% of net sales for the
fourteen weeks ended April 5, 1997. The expense  increase of $86,000 includes an
additional  accrual for stock based  compensation (see Note 10) of $246,000 over
the comparable period in 1997. Adjusting for this, all other selling, warehouse,
general and administrative  expenses were down $160,000 or 2.2% below 1997. This
reduced expense  relates to costs that were eliminated  after the Company exited
from bankruptcy.

           Other  income was $272,000 and $956,000 for the thirteen and fourteen
weeks ended April 4, 1998 and April 5, 1997,  respectively.  The decrease is due
to the  licensing  revenues  related to trade names which were spun-off with the
Sassco  Fashions  product line,  renegotiated  minimum payment terms for the HUE
legware  license and excess 1996 licensing  revenues  received and recognized as
income during the first quarter of 1997.

           Depreciation  and  amortization  expense for the thirteen weeks ended
April 4, 1998 was $20,000 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 excess revalued net assets acquired over equity
(see Note 2). Depreciation and amortization expense for the fourteen weeks ended
April 5, 1997 consisted of depreciation  on fixed assets of $962,000,  including
$518,000  related to product lines sold and  amortization of the excess purchase
price over net assets acquired of $284,000,  including  $154,000 of amortization
related to the lines sold.  This  amortization  expense related to the leveraged
buyout of The Leslie Fay Company on June 28, 1984.

           Interest  and  financing  costs were  $190,000  and  $868,000 for the
thirteen and fourteen weeks ended April 4, 1998 and April 5, 1997, respectively.
The  financing  fees under the new CIT Credit  Agreement  were  offset by income
earned on the cash  invested  for the  thirteen  weeks ended April 4, 1998.  The
financing  fees  incurred were  significantly  below those  incurred  during the
fourteen  weeks ended April 5, 1997 due to the higher line needed to finance the
operations of the Sassco Fashions and Castleberry product lines.


                                       19

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

           The provision for state and foreign  income taxes was  $1,901,000 and
$316,000 for the  thirteen  and fourteen  weeks ended April 4, 1998 and April 5,
1997,  respectively.  The expense was lower for the fourteen  weeks period ended
April  5,  1997  due to the  expected  availability  of the net  operating  loss
carryforwards  available in full for the period up to and  including the June 4,
1997 Consummation Date (see Note 7).

(B)  LIQUIDITY AND CAPITAL RESOURCES

           On June 2, 1997, the Company obtained  $30,000,000 of  post-emergence
financing (see Note 6), 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 April 4, 1998 the Company was utilizing  approximately  $9,447,000
of the CIT Credit Agreement for the letters of credit.

           At April 4, 1998, there were no cash borrowings outstanding under the
CIT Credit  Agreement,  and the Company's cash and cash equivalents  amounted to
$7,771,000.  Of this amount,  $1,169,000  will be  restricted  to pay  remaining
administrative  claims  as  defined  in  the  Plan.  Working  capital  increased
$4,509,000,  to  $43,962,000  for the  thirteen  weeks ended April 4, 1998.  The
primary changes in the components of working capital were a decrease in cash and
cash equivalents of $12,042,000 offset by: an increase in accounts receivable of
$16,061,000,  a decrease in inventories of $1,736,000,  a decrease of $1,569,000
in accounts  payable,  accrued  expenses  and other  current  liabilities  and a
decrease of $540,000 in income taxes payable.  Accounts receivable increased due
to  historically  large first quarter  shipments while  inventories  sold in the
thirteen weeks were mostly offset by new inventory  purchases to accommodate the
upcoming Summer and Fall seasons.

           Although,  the Company's results of operations indicated an Operating
income of $5,860,000 for the thirteen  weeks ended April 4, 1998,  these results
are not necessarily indicative of results for an entire year.

           Capital expenditures were $476,000 for the thirteen weeks ended April
4, 1998. Capital  expenditures are expected to be $3,000,000 for the fiscal year
1998. The  anticipated  capital  expenditures of $2,524,000 for the remainder of
the year are primarily related to improvements in management information systems
and  fixturing  the  Company's  in-store  shops that are planned to be opened in
1998. The Company believes that its financing arrangements and anticipated level
of internally generated funds will be sufficient to finance its capital spending
during 1998.

           At its April 14,  1998  meeting,  the  Company's  Board of  Directors
authorized the repurchase of up to $5,000,000 of the Company's common stock. The
repurchase  will be  based  upon the  trading  price  of the  stock  and will be
supervised  by a  subcommittee  of the  Board of  Directors.  While  there is no
assurance  that  any  stock  will be  repurchased,  any  repurchase  made  would
adversely affect the overall liquidity of the Company.



                                       20

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

           Other  than  the  capital  expenditures  described  above,  no  other
long-term  investment or financing  activities  are  anticipated  throughout the
remainder of 1998. The Company is not  restricted  from paying cash dividends or
repurchasing  its  stock  under  the CIT  Credit  Agreement  as  long  as  those
disbursements  do not cause the Company to be in  violation  of the  restrictive
covenants,  as amended, and they do not exceed $5,000,000 in either fiscal years
1998 or  1999.  (Reference  is made  to the  1997  Form  10-K  Note  6(a) to the
Consolidated  Financial  Statements.)  The  Company  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.

           The  Company  is  dependent  on a  number  of  automated  systems  to
communicate   with  its  customers  and  suppliers,   to   efficiently   design,
manufacture,  import, and distribute its product,  as well as to plan and manage
the  overall  business.  The  Company  recognizes  the  critical  importance  of
maintaining the proper functioning of its systems.

           In the fourth  quarter  of 1997,  the  Company  began a review of its
systems and technology to address all business requirements, including Year 2000
compliance. This review is substantially completed and a plan has been developed
to meet these needs.  Overall,  the plan identifies numerous changes required to
make  the  Company's  systems  Year  2000  compliant.   These  changes  will  be
implemented  through 1999 at an estimated cost of approximately  $1,500,000 plus
the  utilization  of internal  staff and other  resources.  On May 4, 1998,  the
Company  implemented  the first phase of its plan by placing in  operation a new
purchase order management and invoicing system.

           The  Company  is also  dependent  on the  efforts  of its  customers,
suppliers and software  vendors.  The Company's  upgrade of its electronic  data
intercharge  software  will need to be tested with the  Company's  customers  to
confirm  proper  functioning.  The  Company's  customers  and suppliers are also
required to implement  projects to make their  systems and  communications  Year
2000 compliant.  Failure to complete their efforts in a timely way could disrupt
the Company's  operations  including the ability to receive and ship its product
as well as to invoice its customers.  Finally,  the Company's plan is based upon
the  representation of the vendors that market the software packages selected by
the  Company.  There is no  guarantee  that these new systems  will be compliant
under all the circumstances and volume stresses that may actually be required by
the Company's operations through Year 2000.




                                       21

<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 1997 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 first  quarter of 1998,  reference  is made to Note 8 of the Notes to
Consolidated Financial Statements contained herein.

           No other legal  proceedings were terminated  during the first quarter
of 1998 or thereafter,  other than ordinary routine litigation incidental to the
business of the Company.

ITEM 2.    CHANGES IN SECURITIES.

                     None.

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 E-1 hereof.







                                       22

<PAGE>



                                   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:  May 18, 1998                        THE LESLIE FAY COMPANY, INC.
                                           ----------------------------
                                                     (Company)




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






                                       23

<PAGE>



                                INDEX TO EXHIBITS



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


    27                      Financial Data Schedule.












                                       E-1