SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934.

For the quarterly period ended July 4, 1998

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

For the transition period from  _____________________   to  ____________________

                         Commission file number: 0-24179

                               KASPER A.S.L., Ltd.
             (Exact name of registrant as specified in its charter)


State of incorporation:  Delaware    IRS Employer Identification No: 22-3497645


                    77 Metro Way, Secaucus, New Jersey 07094
     -----------------------------------------------------------------------
              (Address and zip code of principal executive office)


                                 (201) 864-0328
     -----------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required  to be filed by Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         The number of shares of the registrant's  Common Stock, $.01 par value,
outstanding as of August 14, 1998 was 6,800,000.
<PAGE>

                      KASPER A.S.L., LTD. AND SUBSIDIARIES

                                      INDEX

                                                                             
                                                                             
                                                                             
PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                             Page No. 
                                                                                                             -------  
Item 1.  Financial Statements:                                                                                               
                                                                                                               
<S>                                                                                                          <C>
              Condensed Consolidated Balance Sheets at July 4, 1998 and January 3, 1998 ..........................3

              Condensed Consolidated/Combined Statements of Operations for the Thirteen weeks
                 ended July 4, 1998, Four weeks ended July 5, 1997 and Nine weeks ended June 4, 1997..............4

              Condensed  Consolidated/Combined  Statements of Operations for the
                 Twenty-six  weeks ended July 4, 1998,  Four weeks ended July 5,
                 1997 and Twenty-three weeks ended June 4, 1997...................................................5

              Condensed  Consolidated/Combined  Statements of Cash Flows for the
                 Twenty-six  weeks ended July 4, 1998,  Four weeks ended July 5,
                 1997 and Twenty-three weeks ended June 4, 1997...................................................6

              Notes to Condensed Consolidated/Combined Financial Statements ......................................8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations ..................12

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ......................................................................................21

Item 6.  Exhibits and Reports on Form 8-K........................................................................21

SIGNATURES.......................................................................................................22

EXHIBIT INDEX....................................................................................................23

</TABLE>


                                       -2-

<PAGE>

                      KASPER A.S.L., LTD. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)
<TABLE>
<CAPTION>


                              ASSETS                                     July 4,            January 3,
                                                                          1998                 1998
                                                                    ----------------     --------------
                                                                      (Unaudited)

<S>                                                                         <C>          <C>
Current Assets:
  Cash and cash equivalents........................................         $  2,924            $ 16,677
   Accounts receivable-net of allowances for possible losses of
     $18,564 and $18,725 respectively..............................           35,231              30,000
   Inventories.....................................................           91,128              78,796
   Prepaid expenses and other current assets.......................            6,006               4,462
                                                                    ----------------      --------------
       Total Current Assets........................................          135,289             129,935
                                                                    ----------------      --------------
Property, Plant and Equipment, at cost less accumulated
   depreciation and amortization of $4,404 and $2,985,
   respectively....................................................           16,263              14,337
Reorganization value in excess of identifiable assets, net of
   accumulated amortization of $3,531 and $1,902, respectively.....           61,650              63,279
Trademarks, net of accumulated amortization of $1,579 and $850,
   respectively....................................................           49,421              50,150
Other Assets, at cost less accumulated amortization of $1,023 and
   $596, respectively..............................................            2,528               2,955
                                                                    ----------------      --------------
       Total Assets                                                         $265,151            $260,656
                                                                    ================      ==============

               LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Accounts payable................................................         $ 15,513            $ 17,637
   Accrued expenses and other current liabilities..................            7,411               6,703
   Interest Payable ...............................................            3,574               3,555
   Income taxes payable............................................              482               1,164
                                                                    ----------------      --------------
       Total Current Liabilities...................................           26,980              29,059
Long-Term Liabilities:
   Deferred Taxes .................................................              639                 639
   Long-Term Debt..................................................          110,000             110,000
   Bank Revolver...................................................            4,381                  --
   Minority Interest...............................................              469                  --
                                                                    ----------------      --------------
       Total Liabilities...........................................          142,469             139,698
Commitments and Contingencies
Shareholders' Equity:
   Common Stock, $0.01 par value; 20,000,000 shares
     authorized; 6,800,000 shares issued and outstanding...........               68                  68
   Preferred Stock, $0.01 par value; 1,000,000 shares
     authorized; none issued and outstanding.......................               --                  --
   Capital in excess of par value..................................          119,932             119,932
   Retained Earnings...............................................            2,755                 972
Accumulated Comprehensive Income:
   Cumulative Translation Adjustment...............................             (73)                (14)
                                                                    ----------------      --------------
       Total Shareholders' Equity..................................          122,682             120,958
                                                                    ----------------      --------------
   Total Liabilities and Shareholders' Equity......................         $265,151            $260,656
                                                                    ================      ==============

</TABLE>

       The accompanying Notes to Condensed Consolidated/Combined Financial
            Statements are an integral part of these balance sheets.


                                       -3-

<PAGE>

                      KASPER A.S.L., LTD. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                  |
                                                                                                  |
                                                            Reorganized Company                   |      Predecessor
                                                                                                  |       Company
                                                -------------------------------------------       |     ------------
                                                   Thirteen Weeks              Four Weeks         |       Nine Weeks
                                                        Ended                    Ended            |          Ended
                                                        -----                    -----            |          -----
                                                      July 4,                   July 5,           |         June 4,
                                                        1998                      1997            |          1997
                                                --------------------      --------------------    |  --------------------
                                                    (Unaudited)                (Unaudited)        |       (Unaudited)
<S>                                                       <C>                    <C>                        <C>      
Net Sales......................................           $   62,371                 $  16,864    |             $  36,876
Cost of Sales..................................               44,507                    12,155    |                27,314
                                                --------------------      --------------------    |  --------------------
     Gross profit..............................               17,864                     4,709    |                 9,562
Operating Expenses:                                                                               | 
Selling, warehouse, general and                                                                   | 
administrative expenses........................               15,628                     4,267    |                 8,386
Depreciation and Amortization..................                2,059                       650    |                   478
                                                --------------------      --------------------    |  --------------------
     Total operating expenses..................               17,687                     4,917    |                 8,864
                                                --------------------      --------------------    |  --------------------
Operating income (loss)........................                  177                     (208)    |                   698
Interest and Financing Costs...................                4,017                     1,137    |                   205
                                                --------------------      --------------------    |  --------------------
(Loss) Income before provision for income                                                         |                            
taxes..........................................              (3,840)                   (1,345)    |                   493
Provision for Income Taxes.....................              (1,615)                       111    |                   197
                                                --------------------      --------------------    |  --------------------
Net (Loss) Income..............................           $  (2,225)                $  (1,456)    |                $  296
                                                ====================      ====================    |  ====================
Basic loss per share...........................                (.33)                     (.21)    |                    --
                                                ====================      ====================    |
Diluted loss per share.........................                (.33)                     (.21)    |                    --
                                                ====================      ====================    |
Weighted average number of shares used in                                                         |
computing Basic loss per share.................            6,800,000                 6,800,000    |
Weighted average number of shares used in                                                         | 
computing Diluted loss per share..............             6,800,000                 6,809,000    | 
                                                                                                   
</TABLE>                                                          

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



                                       -4-

<PAGE>
                      KASPER A.S.L., LTD. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

                                                                             
<TABLE>                                                                        
<CAPTION>                                                                                       
                                                                                                 |
                                                            Reorganized Company                  |        Predecessor
                                                                                                 |          Company
                                                -------------------------------------------      |    --------------------
                                                                                                 |
                                                     Twenty-six                   Four           |        Twenty-three
                                                    Weeks Ended               Weeks Ended        |        Weeks Ended
                                                    -----------               -----------        |        -----------
                                                      July 4,                   July 5,          |           June 4,
                                                        1998                      1997           |            1997
                                                --------------------      --------------------   |    --------------------
                                                    (Unaudited)               (Unaudited)        |
                                                                                                 |
<S>                                                <C>                      <C>                       <C>       
Net Sales  . . . . . . . . . . . . . . . .                $  158,503                 $  16,864   |              $  136,107
Cost of Sales  . . . . . . . . . . . . . .                   112,467                    12,155   |                 101,479
                                                --------------------      --------------------   |    --------------------
     Gross profit  . . . . . . . . . . . .                    46,036                     4,709   |                  34,628
Operating Expenses:                                                                              |
Selling, warehouse, general and                                                                  |
administrative expenses. . . . . . . . . .                    30,717                     4,267   |                  23,374
Depreciation and Amortization. . . . . . .                     4,118                       650   |                   1,191
                                                --------------------      --------------------   |    --------------------
     Total operating expenses  . . . . . .                    34,835                     4,917   |                  24,565
                                                --------------------      --------------------   |    --------------------
Operating income (loss). . . . . . . . . .                    11,201                     (208)   |                  10,063
Interest and Financing Costs . . . . . . .                     8,128                     1,137   |                     667
                                                --------------------      --------------------   |    --------------------
Income (Loss) before provision for income                                                        |
taxes . . . . . . . . . . . . . . . . . .                      3,073                   (1,345)   |                   9,396         
Provision for Income Taxes. . . . . . . .                      1,290                       111   |                   3,758
                                                --------------------      --------------------   |    --------------------
Net Income (Loss) . . . . . . . . . . . .                 $    1,783                $  (1,456)   |                $  5,638
                                                ====================      ====================   |    ====================
Basic earnings (loss) per share . . . . .                       .26                     (.21)    |                      --
                                                ====================      ====================   |
Diluted earnings (loss) per share . . . .                       .26                     (.21)    |                      --
                                                ====================      ====================   |
Weighted average number of shares used in                                                        |
computing Basic earnings (loss) per share . . .            6,800,000                 6,800,000   |                      --
                                                                                                 |
Weighted average number of shares used in                                                        |
computing Diluted earnings (loss) per share .              6,800,000                 6,809,000   |                      --
                                                                                                
</TABLE>                                                                       
                                                                               
       The accompanying Notes to Condensed Consolidated/Combined Financial
         Statements are an integral part of these financial statements.



                                       -5-

<PAGE>
                      KASPER A.S.L., LTD. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                            |
                                                                          Reorganized Company               |       Predecessor
                                                                                                            |         Company
                                                               ------------------------------------------   |   --------------------
                                                                                                            |
                                                                      Twenty-six               Four         |        Twenty-three
                                                                      Weeks Ended           Weeks Ended     |        Weeks Ended
                                                                      -----------           -----------     |       -------------
                                                                        July 4,               July 5,       |           June 4,
                                                                          1998                 1997         |             1997
                                                                      (Unaudited)           (Unaudited)     |
                                                                                                            |
Cash Flows from Operating Activities:                                                                       |
                                                                                                            | 
<S>                                                                       <C>                <C>                         <C>     
   Net income (loss)..........................................            $   1,783              $  (1,456) |               $  5,638
   Adjustments to reconcile net income to net cash (used in)/                                               |
     provided by operating activities:                                                                      |
     Depreciation and amortization............................                2,564                     341 |                    916
     Amortization of reorganization value in excess of                                                      |                       
       identifiable assets....................................                1,629                     276 |                     --
     Amortization of excess purchase price over net                                                         |                   
       assets acquired........................................                   --                      -- |                    275
     Excess of cost over fair value of assets acquired........                   --                      -- |                   (26)
     Income applicable to minority interest...................                  469                      -- |                     --
     Change in provision for possible losses on accounts                                                    |                    
       receivable.............................................                (161)                   (377) |                (4,348)
     (Increase) decrease in:                                                                                |
       Accounts receivable....................................              (5,070)                   7,024 |                  9,071
       Inventories............................................             (12,332)                 (9,171) |                 24,158
       Prepaid expenses and other current assets..............              (1,544)                 (1,791) |                (1,080)
     Increase (decrease) in:                                                                                |
       Accounts payable, accrued expenses and other                                                         |
         current liabilities..................................              (1,416)                   4,005 |                (1,236)
       Interest Payable.......................................                   19                   1,024 |                     --
       Income taxes payable...................................                (682)                     108 |                    246
                                                               --------------------     ------------------- |   --------------------
         Total adjustments....................................             (16,524)                   1,439 |                 27,976
                                                               --------------------     ------------------- |   --------------------
     Net cash (used in) / provided by operating activities....             (14,741)                    (17) |                 33,614
                                                               --------------------     ------------------- |   --------------------
                                                                                                            |
Cash Flows from Investing Activities:                                                                       |
                                                                                                            | 
     Capital expenditures net of proceeds from the sale of                                                  |                       
       fixed assets...........................................              (3,334)                   (296) |                (2,960)
                                                               --------------------     ------------------- |   --------------------
     Net cash used in investing activities....................              (3,334)                   (296) |                (2,960)
                                                               --------------------     ------------------- |   --------------------
                                                                                                            |
Cash Flows from Financing Activities:                                                                       |
                                                                                                            |
   Bank Revolver..............................................                4,381                      39 |                     --
   Net (decrease) in cash invested with Leslie Fay............                   --                      -- |               (30,479)
                                                               --------------------     --------------------|   --------------------
     Net cash provided by / (used in)  financing activities...                4,381                      39 |               (30,479)
                                                               --------------------     --------------------|   --------------------
Effect of exchange rate changes on cash and cash                                                            |                    
   equivalents................................................                 (59)                      -- |                     --
                                                               --------------------     ------------------- |   --------------------
                                                                                                            |
Net (decrease) increase in cash and cash equivalents..........             (13,753)                   (274) |                    175
                                                                                                            |
Cash and cash equivalents, at beginning of period.............               16,677                   3,081 |                  1,886
                                                               --------------------     ------------------- |   --------------------
                                                                                                            |
Cash and cash equivalents, at end of period...................            $   2,924              $    2,807 |               $  2,061
                                                               ====================     =================== |   ====================
                                                                                                           
</TABLE>                                                                     
       The accompanying Notes to Condensed Consolidated/Combined Financial   
         Statements are an integral part of these financial statements.      
                                                                             
                                       -6-                                   
<PAGE>                                                                       
                                                                             
                                                                             
                                                                             
                      KASPER A.S.L., LTD. AND SUBSIDIARIES                   
            CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS         
                                 (In thousands)                              
                                                                           
<TABLE>                                                                    
<CAPTION>                                                                  
                                                                           
                                                                           
                                                                                                              | 
                                                                                Reorganized Company           |      Predecessor
                                                                                                              |        Company
                                                                        ------------------------------------  | --------------------
                                                                                                              | 
                                                                          Twenty-six               Four       |       Twenty-three
                                                                          Weeks Ended           Weeks Ended   |       Weeks Ended
                                                                          -----------           -----------   |       -----------
                                                                            July 4,                July 5,    |         June 4,
                                                                             1998                   1997      |           1997
                                                                           (Unaudited)           (Unaudited)  | 
<S>                                                                        <C>                  <C>                  <C>    
Supplemental schedule of noncash operating, investing and                                                     | 
financing activities                                                                                          | 
                                                                                                              | 
Noncash operating                                                                                             | 
                                                                                                              | 
Other current assets recorded upon emergence from Bankruptcy                $    --         $       (23)      |        $         --
                                                                                                              | 
Other current liabilities recorded upon emergence from Bankruptcy                --                4,923      |                  --
                                                                                                              | 
Deferred financing costs recorded upon emergence from Bankruptcy                 --              (2,422)      |                  --
                                                                                                              | 
Noncash investing                                                                                             | 
                                                                                                              | 
Elimination of divisional equity upon emergence from Bankruptcy                  --            (132,363)      |                  --
                                                                                                              | 
Elimination of excess of costs over fair value of assets upon emergence                                       |                  
from Bankruptcy                                                                  --               16,066      |                  -- 
                                                                                                              | 
Establishment of reorganization in excess of identifiable assets upon                                         |                 
emergence from Bankruptcy                                                        --             (65,181)      |                  --
                                                                                                              | 
Establishment of Trademark valuation upon emergence from                                                      |                 
Bankruptcy                                                                       --             (51,000)      |                  --
                                                                                                              | 
Noncash financing                                                                                             | 
                                                                                                              | 
Senior notes issued to creditors upon emergence from Bankruptcy                  --              110,000      |                  --
                                                                                                              | 
Issuance of Common Stock to creditors upon emergence from                                                     |
Bankruptcy                                                                       --              120,000      |                  -- 
                                                                                                    
                                                                             
</TABLE>                                                                     
                                                                             
                                                                             
      The accompanying Notes to Consolidated/Combined Financial Statements   
               are an integral part of these financial statements.           




                                       -7-

<PAGE>



                      KASPER A.S.L., LTD. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED/COMBINED FINANCIAL STATEMENTS


NOTE 1.  GENERAL

         The  Condensed   Consolidated/Combined  Financial  Statements  included
herein have been prepared by Kasper  A.S.L.,  Ltd.  (name  legally  changed from
Sassco Fashions, Ltd. on November 5, 1997) and subsidiaries (Kasper A.S.L., Ltd.
being  sometimes  referred to, and together with its  subsidiaries  collectively
referred to, as the  "Company"  or "Kasper" as the context may require)  without
audit,  pursuant to the rules and  regulations  of the  Securities  and Exchange
Commission (the  "Commission").  Certain  information  and footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted  accounting  principals 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/Combined  Financial  Statements  included  herein
should  be  read  in  conjunction  with  the   Consolidated/Combined   Financial
Statements  and  the  notes  thereto  included  in  the  Company's  Registration
Statement on Form S-1 which was declared  effective by the  Commission on May 1,
1998.

         In the  opinion  of  management,  the  accompanying  interim  Condensed
Consolidated/Combined  Financial  Statements  contain all  material  adjustments
necessary  to  present  fairly  the  Condensed  Consolidated/Combined  financial
condition,   results  of  operations,  and  changes  in  financial  position  of
shareholders'  equity of Kasper and its  subsidiaries  for the  interim  periods
presented.

         Due to the Company's  Reorganization  and implementation of Fresh Start
Reporting (see Note 2), the Condensed Consolidated/Combined Financial Statements
for the new  Reorganized  Company  (period  starting June 5, 1997, the effective
date of the Reorganized  Company's emergence from bankruptcy) are not comparable
to those of the Predecessor Company.

         A  black   line  has  been   drawn   on  the   accompanying   Condensed
Consolidated/Combined   Financial   Statements   to   distinguish   between  the
Reorganized Company and the Predecessor Company.

NOTE 2.  FRESH START REPORTING

         Kasper was a division of The Leslie Fay Companies, Inc. ("Leslie Fay"),
a Delaware  corporation  which  operated its business as a debtor in  possession
subject to the  jurisdiction  and  supervision  of the United States  Bankruptcy
Court for the Southern District of New York (the "Bankruptcy  Court") until June
4,  1997.  The  Condensed   Consolidated/Combined  Financial  Statements  herein
presented include the operations of three related Hong Kong  corporations,  Asia
Expert  Limited  ("AEL"),  Tomwell  Limited  ("Tomwell"),  and  Viewmon  Limited
("Viewmon"),  none of which were part of the Leslie Fay  bankruptcy  proceeding.
These  three  Hong Kong  corporations  were  subsidiaries  of  Leslie  Fay (upon
emergence from  bankruptcy  these entities  became  subsidiaries of Kasper) that
procure  and  arrange for the  manufacture  of apparel  products in the Far East
solely for the benefit of Kasper. The Condensed  Consolidated/Combined Financial
Statements also include the results of Kasper Europe,  Ltd., Kasper Canada,  ASL
Retail Outlets,  Inc. and ASL/K Licensing  Corp.,  all of which are wholly-owned
subsidiaries of the Company. Kasper Canada is a 70% owner of Kasper Partnership.
The portion of Kasper Partnership  pertaining to its minority owner is reflected
in the accompanying  financial  statements as minority  interest.  The Condensed
Consolidated/Combined  Financial  Statements of Kasper, AEL, Tomwell and Viewmon
have been prepared on a stand-alone basis in accordance with generally  accepted
accounting principles



                                       -8-

<PAGE>



applicable to a going concern.  The Predecessor  Company financial data reflects
the  combined  results of Kasper,  AEL,  Tomwell,  and  Viewmon.  The  financial
statements of the  Reorganized  Company are  consolidated as opposed to combined
because  as of the date of  reorganization,  the three  Hong  Kong  corporations
became subsidiaries of Kasper. Prior to the reorganization,  these entities were
subsidiaries  of Leslie Fay and,  accordingly,  the  financial  statements  were
combined  for those  periods.  The  Company's  fiscal year ends on the  Saturday
closest to  December  31st.  The  fiscal  year  ended  January 3, 1998  ("1997")
included 53 weeks.

         Prior to June 4,  1997,  Leslie Fay was  operating  its  business  as a
debtor in possession  subject to the  jurisdiction  of the Bankruptcy  Court. On
April 5, 1993, Leslie Fay and certain of its wholly-owned  subsidiaries  filed a
voluntary  petition under Chapter 11 of the United States  Bankruptcy  Code (the
"Bankruptcy   Code"),   as  a  result   of  the   announcement   of   accounting
irregularities,  numerous stockholder and other party lawsuits filed against the
Company and its directors, and the breach of certain provisions of its financing
agreement  at the time.  On October 31, 1995,  the Debtors and the  Committee of
Unsecured  Creditors  (the  "Creditors  Committee")  filed  Leslie Fay's 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 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.  Refer to the Condensed  Consolidated
Financial  Statements of Leslie Fay for the fiscal year ended December 28, 1996,
included  in Leslie  Fay's  Annual  Report on Form  10-K,  for more  information
regarding Leslie Fay's bankruptcy proceedings.

          The Plan called for the spin-off of Kasper as a newly organized entity
and which consists of Kasper and its subsidiaries: AEL, Tomwell, Viewmon, Sassco
Europe and ASL Retail.

         On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring
the equity interest in both Leslie Fay and Kasper,  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 Kasper;  and 3)  transferring  the  assets  (including
$10,963,000 of cash) and  liabilities of the then Sassco  division to Kasper and
the assets and  liabilities  of Leslie Fay's Dress and  Sportswear  divisions to
three wholly-owned  subsidiaries of Leslie Fay. In addition, Leslie Fay 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  approximately  eighty (80%)  percent of its 6,800,000 of new
shares to its  creditors in July 1997.  The  remaining  shares will be held back
pending the resolutions of certain  litigation  before the Bankruptcy  Court. On
June 4, 1997,  Leslie Fay emerged from  bankruptcy and Kasper emerged as a newly
organized separate entity.

         Pursuant to the guidelines  provided by SOP 90-7,  the Company  adopted
fresh-start  reporting with a reorganization value of $120,000,000 and allocated
the  reorganization  value to its net assets on the basis of the purchase method
of accounting.

         The fresh-start  reporting  reorganization  value of  $120,000,000  was
based on averaging  several valuation  methodologies  prepared by an independent
appraiser. A five-year analysis of the Company's actual and projected



                                       -9-

<PAGE>



operations  (fiscal  years ended  1997-2001)  was prepared by  management  and a
discounted cash flow  methodology  was applied to those numbers.  A equity value
was determined by calculating  the impact of various  assumption  changes to the
five year  projections  and adding the  projected  cash flows for the first four
years to a  "capitalization"  of the fifth year's projected cash flow under each
assumption.  The fifth year's projected cash flow was capitalized into value and
discounted to the present.

         The aggregate cash flow value was then discounted to its present value,
using a discount rate of 14%. The reorganization  values were then weighted with
a range between $118,000,000 and $123,000,000,  and $120,000,000 was established
as the Company's reorganization value.

         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.

NOTE 3.  INVENTORIES

         Inventories  are  valued  at  lower  of cost or  (first-in,  first-out,
"FIFO") market.

         Inventories, net of reserves, consist of the following:


                                                  July 4,            January 3,
                                                   1998                 1998
                                                   ----                 ----

                                                        (in thousands)

Raw materials                                  $  36,351            $  32,121
Work in process                                        6                    3
Finished goods                                    54,771               46,672
                                                  ------               ------
         Total inventories                     $  91,128            $  78,796
                                               =========            =========

NOTE 4.   INCOME PER SHARE

         The  computation  of income per common share is based upon the weighted
average  number of common shares  outstanding  during the period.  The pro forma
weighted  average number of common shares  outstanding  and pro forma net income
per  common  share for the  period  ended  June 4, 1997 have not been  presented
because,  due to the restructuring and  implementation of Fresh Start Reporting,
they are not comparable to subsequent periods.

NOTE 5.   DEBT

         At July 4, 1998, there were direct borrowings of $4,381,000 outstanding
under the BankBoston Credit Agreement and approximately  $20,411,000 outstanding
in  letters  of  credit  under  the  facility.  The  Company  has  approximately
$26,763,000 available for future borrowings as of July 4, 1998.

         The  Company  paid   $2,422,000  in  commitment  and  related  fees  in
connection  with the credit  facility in June 1997.  These fees are  included in
other assets and will be amortized over the term of the Credit  Agreement (three
years).




                                      -10-

<PAGE>



NOTE 6.   COMMITMENTS AND CONTINGENCIES

         On April 5, 1993,  Leslie Fay and  several  of its  subsidiaries  filed
voluntary  petitions in the Bankruptcy  Court under Chapter 11 of the Bankruptcy
Code. All civil  litigation  commenced  against Leslie Fay and those  referenced
subsidiaries  prior to that date was stayed  under the  Bankruptcy  Code.  By an
order dated April 30, 1997 (the  "Confirmation  Order"),  the  Bankruptcy  Court
confirmed the Plan. The Plan was consummated on June 4, 1997.

         The  Confirmation  Order,  inter alia,  dismissed  with  prejudice  all
pending  litigation's,  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.

         On November 17,  1997,  the  Company's  wholly-owned  subsidiary,  Asia
Expert,  Ltd.  received a letter from the United States Customs  Service stating
that a monetary claim in the amount of $694,860 was being  contemplated  against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor.  The trans-shipment in question involved a Hong Kong
contractor  who  allegedly  diverted  goods that were to be sewn in Hong Kong to
China.  Upon completion,  the goods were then returned to Hong Kong for shipment
to the  United  States  without  disclosing  the  diversion,  which  would  be a
violation of U.S. Customs laws.  However,  it is the Company's position that its
subsidiary  did not knowingly or  intentionally  participate in any violation of
U.S.  Custom laws and the Company  intends to vigorously  pursue all appropriate
legal  defenses.  The Company has  conducted its own  investigation  through its
customs  legal  counsel.  As a result  of the  investigation,  the  Company  has
obtained  an  admission  from the  contractor  that actual  trans-shipments  had
occurred,   but  that  the  contractor  acted  independently  and  intentionally
misrepresented its actions to the Company. The contractor further confirmed in a
sworn affidavit that these practices were done entirely without the knowledge of
the Company.  Based upon these facts, the Company responded to U.S. Customs in a
letter dated January 8, 1998  requesting  termination of the proceeding  without
the issuance of any  penalties.  On May 4, 1998,  the  Company's  customs  legal
counsel  received  a letter  from the U.S.  Customs  Service  responding  to the
Company's  request.  In the letter,  the U.S. Customs Service stated that it had
decided to close the case against Asia  Expert,  Ltd.,  based upon its review of
the January 8, 1998 letter and the documentation submitted therewith, as well as
the statements made by the contractor.

NOTE 7.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In 1998,  AcSEC issued SOP No. 98-5 "Reporting on the Costs of Start-Up
Activities." SOP No. 98-5  establishes  standards on accounting for start-up and
organization  costs  and in  general,  requires  such  costs to be  expensed  as
incurred.  This  standard  is  required  to be adopted  on January 1, 1999.  The
Company is currently evaluating the estimated impact of adoption, if any.



                                      -11-

<PAGE>



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

         The following  discussion  and analysis  should be read in  conjunction
with the foregoing  consolidated  financial  statements and notes thereto.  This
discussion  contains  forward-looking  statements based on current  expectations
that involve risks and  uncertainties.  Actual results and the timing of certain
events may differ  significantly  from those  projected in such  forward-looking
statements due to a number of factors,  including  those set forth at the end of
this Item.

Overview

         On June 4, 1997, Kasper A.S.L., Ltd. (the "Company") was separated from
the Leslie Fay Companies,  Inc.  ("Leslie  Fay"),  in accordance with the Fourth
Amended and Restated Joint Plan of Reorganization  (the  "Reorganization  Plan")
approved  by  the  U.S.   Bankruptcy   Court.  On  that  date,  all  assets  and
corresponding  liabilities  associated with the operation of the Sassco Fashions
Division  of  Leslie  Fay,  including  the  Nipon  Trademarks,  were sold to the
Company.  Prior to that  date,  the  Company  operated  as the  Sassco  Fashions
Division of Leslie Fay, from the time it was acquired by Leslie Fay in 1980. The
Company  received  the assets and  liabilities  of the  former  Sassco  Fashions
Division as part of the  Reorganization  Plan of Leslie  Fay. In the  aggregate,
$249.6 million of assets, subject to $19.6 million of liabilities,  were sold by
Leslie Fay to the creditors in  satisfaction  of creditor claims of like amount.
The Company in turn transferred to the creditors  6,800,000 shares of its common
stock  with a market  value of $120  million  and  12.75%  Senior  Notes with an
aggregate  principal amount of $110 million in exchange for the net assets.  The
Company is one of the largest  marketers  and  manufacturers  of career  women's
suits in the United States. The Company also markets career dresses,  sportswear
and knitwear.  The Company has grown  through the extension of existing  product
lines,  the  introduction  of new brands and the  expansion of its retail outlet
operations.

         The  accompanying  financial  statements have been prepared to show the
Company as a freestanding  entity apart from Leslie Fay. Until 1996, the Company
was totally dependent upon Leslie Fay for all administrative support,  including
accounting,  credit, collections,  legal, etc. As such, the financial statements
reflect an allocation of Leslie Fay administrative expenses to the Company.

         As a division  of Leslie  Fay,  the Company was not subject to Federal,
State and Local income taxes. Effective June 4, 1997, the Company became subject
to such taxes. The effective tax rate used for the predecessor company financial
statements  reflects  the rate that would have been  applicable  had the Company
been  independent.  Provisions  for  deferred  taxes were not  reflected  on the
Company's  books,  but were  reflected on Leslie Fay's books and records.  Going
forward, the Company will record deferred taxes in accordance with the provision
of Statement of  Financial  Accounting  Standards  Number 109,  "Accounting  for
Income Taxes."

         The  Company's  business  is  primarily  the design,  distribution  and
wholesale sale of women's career suits,  dresses and sportswear to, principally,
major  department  stores and  specialty  shops.  Over the last five years,  the
Company has increased its share of the  wholesale  market by expanding  into all
markets,  including  the  "lower  moderate"  (Le  Suit(TM)),   "upper  moderate"
(Kasper(R)) and  "bridge"(Nipon(R))  markets.  The Company has also introduced a
career  sportswear label,  Kasper and Company(R),  and career knitwear under the
name Nina Charles(TM).  After analyzing the performance of the knitwear division
and its  capital  and  operational  requirements,  the  Company  has  decided to
discontinue  the Nina  Charles(TM)  label at the  wholesale  level in the United
States for the Fall 1998 season.  The Company will  continue to market the label
in its retail stores and in Canada and Europe.  For Fall 1998,  the Company will
incorporate its knitwear business into its Dress and Sportswear lines.




                                      -12-

<PAGE>



         In July 1995, the Company,  then a division of Leslie Fay,  started its
retail outlet operations by acquiring 22 lease  properties,  which were assigned
to the  Company by Leslie  Fay on June 4, 1997  pursuant  to the  Reorganization
Plan. As of July 4, 1998, the Company had 53 retail outlet stores throughout the
United  States.  Sales at the retail outlet stores  totaled $38.6 million in the
year ended January 3, 1998. The stores operate under the name Kasper ASL(R), but
also sell the Company's other labels including Nipon(R),  Kasper and Company(R),
Nina Charles(TM), Le Suit(TM) and b. bennett(TM).

         In  connection   with  the  separation  from  Leslie  Fay,  Leslie  Fay
transferred all rights and title to the Nipon trademarks to the Company.  At the
time of the  transfer,  there  were  several  licensing  agreements  in  effect,
including men's sportswear,  dress slacks, ties, ladies coats, etc. In 1997, the
Company  received  approximately  $900,000 in  licensing  income from  licensing
agreements.

         On June 4, 1997,  the Company  acquired the trade name  Kasper(R)  from
Forecast Designs, Inc., a company owned by Herbert Kasper, for $6 million. Prior
to June 4, the Company paid royalties for the use of the Kasper name to Forecast
Designs,  Inc. In accordance  with the agreement,  Forecast  Designs,  Inc. will
retain the right to the  licensing  income  from  pre-existing  licenses,  which
licenses will be transferred to the Company upon Mr. Kasper's death. The Company
will be entitled to 50% of the income generated by any new licenses. Pursuant to
the  terms of the  acquisition  agreement,  the  Company  also  entered  into an
Employment,  Consulting and Non- Competition agreement with Herbert Kasper. Such
agreement, which has a term of ten years, provides for the payment to Mr. Kasper
of $300,000 in annual  salary and $7,500 for each 1% by which the gross  profits
from the Company's sales of Kasper(R) women's apparel, namely suits, dresses and
sportswear in each of the six years 1998 to 2003, exceeds the total gross profit
derived by the Company  from the sale of such  products in the year 1995.  Under
the terms of the agreement,  Mr. Kasper may and has been dedicating his business
time to the  licensing  activities  of ASL/K  Licensing  Corp.,  which  includes
meeting with current and  prospective  licensees of the Kasper(R) brand name. He
also   participates  in  marketing  trips  and  is  involved  in  the  Company's
advertising campaigns,  reviews competitor's products and meets with prospective
wholesale  buyers on behalf of the  Company.  Mr.  Kasper may also  perform such
other tasks as he and Mr.  Levine,  the Chairman of the Board of  Directors  and
Chief Executive Officer of the Company, may agree.

         The  Company  launched  its  advertising  campaign in the first half of
1998.  Anticipated costs relating to the advertising  campaign are $2.0 million.
Costs for advertising are expensed as incurred.

Results of Operations

Thirteen Weeks Ended July 4, 1998 as Compared to Thirteen Weeks ended 
July 5, 1997

         Net Sales

         Net Sales  for the  thirteen  weeks  ended  July 4,  1998 (the  "second
quarter  1998") were $62.4  million as compared to $53.7 for the thirteen  weeks
ended July 5, 1997 (the "second  quarter  1997").  Wholesale  sales increased to
$50.5  million for the second  quarter  1998,  from $44.7  million in the second
quarter 1997, an increase of approximately 13.0%.

         Retail sales increased to $11.9 million in the second quarter 1998 from
$9.0 million in the second quarter 1997, an increase of approximately  32.2% due
primarily  to the net  addition  of 13  retail  outlet  stores  over the last 12
months.  Comparable store sales for the second quarter 1998 were $8.8 million as
compared to $7.8 million for the second quarter 1997, an increase of 12.8%.



                                      -13-

<PAGE>



         Gross Profit

         Gross  Profit as a percentage  of net sales  increased to 28.6% for the
second  quarter  1998,  compared  to 26.6%  for the  second  quarter  1997.  The
improvement  over the second  quarter  1997 can be  attributed  to the growth in
retail  store  sales  as  well  as the  continued  improved  performance  at the
wholesale  level.  Wholesale  gross profit as a percentage of sales increased to
25.3% in the second quarter 1998 from 23.1% in the second quarter 1997.

         Retail gross profit as a percentage of sales  decreased to 42.8% in the
second quarter 1998 from 44.2% in the second quarter 1997.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased to $15.6 million
in the second  quarter 1998 as compared to $12.7  million in the second  quarter
1997, an increase of $2.9 million.  Approximately $900 thousand of this increase
is attributed to increased  selling,  administrative and occupancy costs related
to the net addition of 13 retail outlet stores.

         The  remaining  increase  is  associated  with  wholesale   operations.
Advertising  expenses  increased by approximately  $900 thousand  primarily as a
result of the new advertising campaign. Administrative expenses increased in the
second quarter 1998 by approximately  $1.1 million.  Approximately $650 thousand
of this  increase is due to the new  compensation  structure  put into place for
fiscal  1998  for  the  Chief  Executive  Officer.  The  remaining  increase  in
administrative  expense  relates to  additional  costs  incurred  as a result of
becoming an  independent,  public company.  Kasper  operations in Canada and the
U.K. contributed  approximately $200 thousand in additional selling, general and
administrative  expenses,  however these  increases were offset by a decrease in
royalty  expense of  approximately  the same amount as a result of the trademark
acquisition.

         Selling, general and administrative expenses include the following: (i)
design  expenses;  (ii) production  expenses,  which includes  purchasing of raw
materials, production planning and scheduling and product costing; (iii) selling
and  marketing   expenses,   including   showroom  sales   personnel  and  sales
representatives  outside  the  showroom;  (iv)  administrative  expenses,  which
include  all back office  functions  such as finance,  human  resources,  import
management,  accounts  receivable and payable,  etc.; (v) advertising  expenses;
(vi)  shipping  expenses;  and (vii)  occupancy  expenses,  which  include costs
related to all owned and or leased facilities,  including rent, utilities,  etc.
These  expenses  are  expected  to  remain  stable in the near  future  with the
exception of  advertising,  which is expected to increase in connection with the
new advertising campaign and continued retail expansion.

         Amortization of Reorganization Asset

         As a  result  of the  Reorganization,  the  portion  of  the  Company's
reorganization  value not attributable to specific  identifiable assets has been
reported as "reorganization  value in excess of identifiable assets". This asset
is being  amortized over a 20-year period  beginning June 4, 1997.  Accordingly,
the Company incurred  amortization  charges for the second quarter 1998 totaling
approximately  $825  thousand as opposed to  approximately  $275 thousand in the
second quarter 1997. The increase is primarily  attributable to the three months
of  amortization  charges for the second  quarter 1998 versus only one month for
the second quarter 1997.





                                      -14-

<PAGE>



         Depreciation and Amortization

         Depreciation and amortization  increased to approximately  $1.2 million
in the  second  quarter  1998 from  approximately  $850  thousand  in the second
quarter  1997 as a  result  of the  amortization  charges  associated  with  the
trademarks and bank fees associated with the financing agreement. The trademarks
are  being  amortized  over 35 years  beginning  June 4,  1997 and  resulted  in
amortization  charges in the second quarter 1998 of approximately  $365 thousand
compared with $110 thousand in the second  quarter 1997. The bank fees are being
amortized  over  the life of the  financing  agreement,  which  is three  years,
beginning  June  4,  1997,  and  resulted  in  approximately  $200  thousand  of
amortization  charges  for the second  quarter  1998  versus  approximately  $60
thousand in the second quarter 1997. These increases are primarily  attributable
to the three  months of  depreciation  and  amortization  charges for the second
quarter 1998 versus only one month for the second quarter 1997.

         Interest and Financing Costs

         Interest and  financing  costs  increased to $4.0 million in the second
quarter  1998 from $1.3  million in the second  quarter  1997,  an  increase  of
approximately $2.7 million. The increase is primarily  attributable to the three
months of interest expense in the second quarter 1998 on the $110 million Senior
Notes,  which were issued on June 4, 1997,  versus only one month for the second
quarter  1997.  The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable  semi-annually on March 31 and September 30.
Interest  relating the Senior Notes totaled $3.5 million for the second  quarter
1998 compared to  approximately  $1.1 million in the second quarter 1997.  There
are no  principal  payments due until  maturity.  To the extent that the Company
elects to  undertake a  secondary  stock  offering  or elects to prepay  certain
amounts, a premium will be required to be paid.

         Income Taxes

         Provision  for income taxes was $(1.6)  million for the second  quarter
1998.  This amount  differs  from the amount  computed  by applying  the federal
income tax  statutory  rate of 34% to income  before taxes  because of state and
foreign taxes, and timing  differences  relating  primarily to customer reserves
and  allowances,  inventory,  depreciation  and  amortization.  Income taxes for
periods  prior to June 4, 1997 were  computed  using the effective tax rate that
would have been applicable, had the Company been an independent entity.

Twenty-six Weeks Ended July 4, 1998 as Compared to Twenty-seven Weeks ended 
July 5, 1997

         Net Sales

         Net Sales for the twenty-six  weeks ended July 4, 1998 (the "first half
1998") were $158.5  million as  compared  to $153.0 for the  twenty-seven  weeks
ended July 5, 1997 (the "first half 1997").  Wholesale sales increased to $137.7
million for the first half 1998,  from $136.3 million in the first half 1997. In
addition,  the extra  week's  wholesale  sales for the first half 1997 were $5.4
million,  resulting  in an overall  increase  of $6.8  million  on a  comparable
twenty-six week basis.

         Retail  sales  increased  to $20.9  million in the first half 1998 from
$16.6  million in the first half 1997,  an increase of  approximately  25.9% due
primarily  to the net  addition  of 13  retail  outlet  stores  over the last 12
months.  The extra  week's  retail  sales in the first  half  1997  amounted  to
approximately $0.5 million, resulting in



                                      -15-

<PAGE>



an overall  increase  of $4.8  million on a  comparable  twenty-six  week basis.
Comparable store sales for the first half 1998 were $15.6 million as compared to
$14.2 million for the first half 1997, an increase of 9.9%.

         Gross Profit

         Gross  Profit as a percentage  of net sales  increased to 29.0% for the
first half 1998, compared to 25.7% for the first half 1997. The improvement over
the first half 1997 can be  attributed  to the growth in retail  store  sales as
well as the continued  improved  performance at the wholesale  level.  Wholesale
gross profit as a percentage of sales  increased to 27.2% in the first half 1998
from 24.1% in the first half 1997.

         Retail gross profit as a percentage of sales  increased to 41.5% in the
first half 1998 from 38.5% in the first half 1997.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased to $30.7 million
in the first half 1998 as compared to $27.6  million in the first half 1997,  an
increase of $2.9 million.  The extra week in the first half 1997  contributed an
extra $1.1 million in selling, general and administrative expenses, resulting in
an overall  increase of $4.0  million on a  comparable  twenty-six  week period.
Approximately  $1.8 million of this increase is attributed to increased selling,
administrative  and  occupancy  costs  related to the net  addition of 13 retail
outlet stores.

         The  remaining  increase  is  associated  with  wholesale   operations.
Advertising  expenses  increased by  approximately  $1.4 million  primarily as a
result of the new advertising  campaign.  Administrative  expenses  increased by
approximately  $1.1  million.   Approximately  $400  thousand  of  this  can  be
attributed  to the  change in  compensation  structure  for the Chief  Executive
Officer.  The remaining  administrative  increase relates to additional expenses
incurred  as a  result  of  becoming  an  independent,  public  company.  Kasper
operations  in Canada and the U.K.  contributed  approximately  $500 thousand in
additional selling,  general and administrative  expenses.  These increases were
offset by a decrease  in royalty  expense of  approximately  $600  thousand as a
result of the trademark acquisition, as well as a decrease in occupancy costs of
approximately $200 thousand as a result of the new warehouse.

         Amortization of Reorganization Asset

         As a  result  of the  Reorganization,  the  portion  of  the  Company's
reorganization  value not attributable to specific  identifiable assets has been
reported as "reorganization  value in excess of identifiable assets". This asset
is being  amortized over a 20-year period  beginning June 4, 1997.  Accordingly,
the  Company  incurred  amortization  charges  for the first half 1998  totaling
approximately  $1.6  million as opposed to  approximately  $275  thousand in the
first half 1997.  The  increase is primarily  attributable  to the six months of
amortization charges for the first half 1998 versus only one month for the first
half 1997.

         Depreciation and Amortization

         Depreciation and amortization  increased to approximately  $2.5 million
in the first half 1998 from  approximately  $1.2  million in the first half 1997
primarily as a result of the amortization charges associated with the trademarks
and bank fees associated with the financing agreement.  The trademarks are being
amortized  over 35 years  beginning  June 4, 1997 and  resulted in  amortization
charges in first half 1998 of  approximately  $730  thousand  compared with $110
thousand in the first half 1997. The bank fees are being amortized over the life



                                      -16-

<PAGE>



of the financing  agreement,  which is three years,  beginning  June 4, 1997 and
resulted in  approximately  $400 thousand of amortization  charges for the first
half 1998  versus  approximately  $60  thousand  in the first half  1997.  These
increases  are  primarily  attributable  to the six months of  depreciation  and
amortization charges for the first half 1998 versus only one month for the first
half 1997.

         Interest and Financing Costs

         Interest  and  financing  costs  increased to $8.1 million in the first
half 1998 from $1.7 million in the first half 1997, an increase of approximately
$6.4  million.  The  increase  is  primarily  attributable  to the six months of
interest expense in the first half 1998 on the $110 million Senior Notes,  which
were  issued on June 4, 1997,  versus  only one month in the first half of 1997.
The Senior Notes bear interest at 12.75% per annum and mature on March 31, 2004.
Interest  is  payable  semi-annually  on March  31 and  September  30.  Interest
relating  to the  Senior  Notes  totaled  $7.0  million  for the first half 1998
compared  to  approximately  $1.1  million in the first half 1997.  There are no
principal payments due until maturity.  To the extent that the Company elects to
undertake a secondary  stock  offering or elects to prepay  certain  amounts,  a
premium will be required to be paid.

         Income Taxes

         Provision  for income  taxes was $ 1.3 million for the first half 1998.
This amount differs from the amount  computed by applying the federal income tax
statutory rate of 34% to income before taxes because of state and foreign taxes,
and timing  differences  relating primarily to customer reserves and allowances,
inventory, depreciation and amortization. Income taxes for periods prior to June
4, 1997  were  computed  using  the  effective  tax rate  that  would  have been
applicable, had the Company been an independent entity.

Liquidity and Capital Resources

         Net cash used in  operating  activities  was $14.7  million  during the
first half 1998 as compared to cash  provided by operations of $33.6 million for
the first half 1997,  primarily  as a result of the  increase in  inventory  and
accounts  receivable.  The increase in  inventories  is primarily  due to higher
levels of  finished  goods  necessary  to stock  the  expanding  Quick  Response
replenishment program and the growing retail outlet store operations, as well as
to ensure timely shipments to our customers.  Accounts receivable increased as a
result of the higher sales for the period.

         The  Company's  main sources of liquidity  historically  have been cash
flows  from  operations  and  credit  facilities.  Prior to June 4,  1997,  as a
division of Leslie Fay, the Company either borrowed from, or invested its excess
cash with Leslie Fay. The Company's capital  requirements  primarily result from
working  capital  needs,  retail  expansion and  renovation of department  store
boutiques and other corporate activities.

         Effective June 5, 1997, the Company entered into a $100 million working
capital  facility  with  BankBoston,  N.A. as the agent bank for a consortium of
lending  institutions.  The  facility  provides  for a sub-limit  for letters of
credit of $50 million.  The working capital facility is secured by substantially
all the assets of the Company.  The working capital  facility  expires in fiscal
2000 and provides for various borrowing rate options, including rates based upon
a fixed spread over LIBOR. The facility  provides for the maintenance of certain
financial  ratios  and  covenants  and sets  limits  on the  amount  of  capital
expenditures and dividends to shareholders.  Availability  under the facility is
limited to a  borrowing  base  calculated  upon  eligible  accounts  receivable,
inventory  and  letters  of  credit.  As of  July 4,  1998,  there  were  direct
borrowings  of $4.4  million  outstanding,  $20.4  million  in letters of credit
outstanding and $26.8 million available for future borrowings.



                                      -17-

<PAGE>




         Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior  Notes.  The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable  semi-annually on March 31 and September 30.
Interest relating the Senior Notes for the first half 1998 totaled $7.0 million.
There are no  principal  payments  due until  maturity.  To the extent  that the
Company  elects to  undertake  a  secondary  stock  offering or elects to prepay
certain amounts, a premium will be required to be paid.

         The Company  assumed  from Leslie Fay a  factoring/financing  agreement
with Heller  Financial  ("Heller").  The  agreement  was for the sole purpose of
supporting  the Sassco  Fashions  Division of Leslie Fay.  The  agreement  had a
two-year  term  expiring in February  1998. It provided for Heller to act as the
credit and collection  arm of the Company.  The Company would receive funds from
Heller as the  receivables  were  collected.  Any amounts  unpaid after 120 days
would be guaranteed and paid to the Company by the factor.  The cost was .4% for
the first  $240  million  in sales and .35% for sales  above  that  amount.  The
agreement  was amended in January,  1998 to add an  additional  18 months to the
term of the arrangement and lower the rate to .35% for the first $250 million in
sales and .3% on the excess over that amount.

         Capital expenditures were $3.3 million for both the first half 1998 and
first  half 1997,  respectively.  Capital  expenditures  for the first half 1998
represent spending associated with the relocation to a new sales, production and
design office,  continued retail outlet store development,  overseas  facilities
development and computer system improvements.  Capital expenditures for 1998 are
anticipated to total approximately $5.5 million.

Year 2000 Compliance

         The  Company  has  conducted  a  comprehensive  review of its  computer
systems to  identify  the  systems  that could be  affected  by the "Year  2000"
problem.  The Year 2000 problem is the result of computer programs being written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's programs that have time-sensitive  software may recognize a date using
"00" as the year 1900  rather than the year 2000.  This could  result in a major
system  failure or  miscalculations.  The Company uses  software  developed  and
supported by third parties for all mission critical applications including order
entry, distribution,  shipping,  electronic data interchange ("EDI") and for its
retail  operations. Each of these  software  vendors  has assured the Company in
writing that the current  version of their  software has been tested and is Year
2000  compliant.  The Company has  initiated a testing  project that will verify
each of the  vendor's  claims.  This  testing is expected to be completed by the
early part of the second  quarter 1999. The Company does not believe the cost of
this testing to be material.

         The  Company is also  highly  dependent  on its  customers'  ability to
transmit and receive EDI documents such as purchase orders, invoices and advance
shipping  notices.  The  Company is in the  process of testing  the  exchange of
electronic  information  with a number of retailers in order to ensure Year 2000
compliance and expects this  evaluation to be completed by the early part of the
second quarter 1999. As an additional precaution,  the Company is in the process
of developing  contingency plans, which are also expected to be completed during
the second  quarter 1999.  Despite all efforts,  however,  there is no guarantee
that these systems will be Year 2000 compliant under all the  circumstances  and
volume  stresses  that may  actually  be  required.  The  failure of one or more
critical  systems to be Year 2000 compliant could have a material adverse effect
on the results of the Company's operations.




                                      -18-

<PAGE>



Recently Issued Accounting Pronouncements

         In 1998,  AcSEC issued SOP No. 98-5 "Reporting on the Costs of Start-Up
Activities." SOP No. 98-5  establishes  standards on accounting for start-up and
organization  costs and,  in  general,  requires  such costs to be  expensed  as
incurred.  This  standard  is  required  to be adopted  on January 1, 1999.  The
Company is currently evaluating the estimated impact of adoption, if any.

Change in Method of Accounting

         The effects of the Company's  reorganization under Chapter 11 have been
accounted  for  in the  Company's  financial  statements  using  the  principles
required by the American Institute of Certified Public Accountants' Statement of
Position  90-7,  Financial  Reporting  by Entities in  Reorganization  Under the
Bankruptcy Code ("Fresh Start  Accounting").  Pursuant to such  principles,  the
Company's assets,  upon emergence from Chapter 11, are stated at "reorganization
value",  which  is  defined  as the  value  of  the  entity  before  considering
liabilities on a going-concern basis following the reorganization and represents
the  estimated  amount a willing  buyer  would pay for the assets of the Company
immediately after the reorganization.  The reorganization  value for the Company
was  determined  by reference to the  remaining  liabilities  plus the estimated
value of shareholders' equity of the outstanding shares of the Common Stock. The
reorganization  value of the Company was  allocated to the assets of the Company
in  conformity  with the  procedures  specified by Accounting  Principles  Board
Opinion No. 16, Business Combinations, for transactions reported on the basis of
the purchase method of accounting. In this allocation,  identifiable assets were
valued at estimated fair values,  and any excess  reorganization  value has been
recorded as "reorganization value in excess of amounts allocated to identifiable
assets" (a long-term intangible asset similar to "goodwill").

Impact of Asian Financial and Currency Crisis

         To date,  the Company has not  experienced  any difficulty in obtaining
needed raw material from its primary sources of supply in the Far East which are
located  in  Japan,  nor  has  it  experienced  any  problems  with  its  sewing
contractors in Taiwan, the Philippines, Hong Kong and China. Over the past year,
the region has suffered  extreme  volatility in its local financial  markets and
currency exchanges. As a result, no assurance can be given that the Company will
continue  to have an  uninterrupted  source  of  supply  from  the  region.  The
inability of certain  suppliers to provide  needed items on a timely basis could
materially  adversely  affect the Company's  operations,  business and financial
condition.

Disclosure Regarding Forward-Looking Information

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities Act of 1933 and section 21E of the Securities Act
of 1934, as amended.  Forward-looking statements are typically identified by the
words "believe",  "expect", "intend", "estimate" and similar expressions.  Those
statements  appear in an number of places in this report and include  statements
regarding  the  intent,  belief or  current  expectation  of the  Company or its
directors or officers with respect to, among other things,  trends affecting the
Company's  financial  conditions  and results of  operations  and the  Company's
business  and  growth  strategies.   Such  forward-looking  statements  are  not
guarantees of future  performance  and involve risks and  uncertainties.  Actual
results may differ materially from those projected,  expressed or implied in the
forward-looking  statements  as a result of various  factors  (such  factors are
referred to herein as "Cautionary Statements"), including but not limited to the
following:   (i)  the  Company's  limited  operating  history,   (ii)  potential
fluctuations in the Company's quarterly  operating results,  (iii) the Company's
concentration of revenues, (iv) challenges facing the Company



                                      -19-

<PAGE>
related to its rapid growth, (v) the Company's dependence on a limited number of
suppliers  and (vi) the  ability of the  Company  and third  parties,  including
customers or suppliers, to adequately address Year 2000 issues. The accompanying
information contained in this report,  including the information set forth under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations",  identifies  important  factors that could cause such  differences.
Such  forward-looking  statements speak only as of the date of this report,  and
the Company  cautions  potential  investors not to place undue  reliance on such
statements.  The  Company  undertakes  no  obligation  to update  or revise  any
forward-looking  statements.  All  subsequent  written  or oral  forward-looking
statements  attributable  to the  Company  or  persons  acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.

                                      -20-



<PAGE>



                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         On November 17,  1997,  the  Company's  wholly-owned  subsidiary,  Asia
Expert,  Ltd.  received a letter from the United States Customs  Service stating
that a monetary claim in the amount of $694,860 was being  contemplated  against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor.  The trans-shipment in question involved a Hong Kong
contractor  who  allegedly  diverted  goods that were to be sewn in Hong Kong to
China.  Upon completion,  the goods were then returned to Hong Kong for shipment
to the  United  States  without  disclosing  the  diversion,  which  would  be a
violation of U.S. Customs laws.  However,  it is the Company's position that its
subsidiary  did not knowingly or  intentionally  participate in any violation of
U.S.  Custom laws and the Company  intends to vigorously  pursue all appropriate
legal  defenses.  The Company has  conducted its own  investigation  through its
customs  legal  counsel.  As a result  of the  investigation,  the  Company  has
obtained  an  admission  from the  contractor  that actual  trans-shipments  had
occurred,   but  that  the  contractor  acted  independently  and  intentionally
misrepresented its actions to the Company. The contractor further confirmed in a
sworn affidavit that these practices were done entirely without the knowledge of
the Company.  Based upon these facts, the Company responded to U.S. Customs in a
letter dated January 8, 1998  requesting  termination of the proceeding  without
the issuance of any  penalties.  On May 4, 1998,  the  Company's  customs  legal
counsel  received  a letter  from the U.S.  Customs  Service  responding  to the
Company's  request.  In the letter,  the U.S. Customs Service stated that it had
decided to close the case against Asia  Expert,  Ltd.,  based upon its review of
the January 8, 1998 letter and the documentation submitted therewith, as well as
the statements made by the contractor.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits:

                  27     Financial Data Schedule

         (b)      Reports on Form 8-K:

                  None.





                                      -21-

<PAGE>



                                   SIGNATURES

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


                                         KASPER A.S.L., Ltd.
                                         (Registrant)


                                         /s/ Lester E. Schreiber
                                         ---------------------------------
                                         Lester E. Schreiber
                                         Chief Operating Officer


Dated:  August 18, 1998                  /s/ Dennis P. Kelly
                                         ----------------------------------
                                         Dennis P. Kelly
                                         Chief Financial Officer


                                      -22-

<PAGE>


                                  EXHIBIT INDEX
                                  -------------

Exhibit
Number            Description
-------           -----------

27                Financial Data Schedule