SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                    FORM 10-Q

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

                For the quarterly period ended November 30, 1996

                                       OR

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

                         Commission file number 1-10860

                              THE HE-RO GROUP, LTD.

             (Exact name of registrant as specified in its charter)

                Delaware                                   13-3615898
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)

          550 Seventh Avenue                                  10018
          New York, NY
         (Address of principal                            (Zip Code)
         executive offices)

                                 (212) 840-6047
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

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 CORPORATE ISSUERS:

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

                                                   Outstanding at
     Class of Common Stock                         January 13,1997
     ---------------------                         ---------------
        $.01 par value                                6,717,333

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES


Index


PART I. FINANCIAL INFORMATION                                       Page No.

Item 1. Financial Statements:

        Consolidated Balance Sheets
        November 30, 1996 and May 31, 1996........................       3

        Consolidated Statements of Income
        Three and Six months Ended November 30, 1996 and 1995.....       4

        Consolidated Statements of Changes in Stockholders' Equity
        Six months Ended November 30, 1996 and 1995...............       5

        Consolidated Statements of Cash Flows
        Six months Ended November 30, 1996 and 1995...............       6

        Condensed Notes to Consolidated Financial Statements......  7 - 13

Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.............. 14 - 18

PART II. OTHER INFORMATION........................................ 19 - 20


<PAGE>


                      THE HE-RO GROUP,LTD. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

                                                    November 30,       May 31,
                                                       1996             1996
                                                       ----             ----
                                                    (unaudited)
           ASSETS
CURRENT ASSETS:
    Cash.........................................     $   727          $   405
    Accounts receivable:
        Trade, net of allowances for doubtful
        accounts of $300 (November), $300 (May)..       2,878            1,648
    Suppliers and other..........................       3,536            2,991
                                                        -----            -----
                                                        6,414            4,839
    Inventory....................................      12,713           15,029
    Other current assets.........................         853              493
                                                          ---              ---
           Total current assets..................      20,707           20,566
                                                       ------           ------
FIXED ASSETS - at cost, net of accumulated
    depreciation and amortization................       2,033            2,424
OTHER ASSETS.....................................       1,475            1,633
                                                        -----            -----
                                                      $24,215          $24,623
                                                      =======          =======

           LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Bank loans...................................     $ 6,234          $ 5,977
    Current maturities of long-term debt.........       2,750            2,600
    Accounts payable.............................       6,535            5,981
    Accrued expenses and other current
        liabilities..............................       1,792            1,888
                                                        -----            -----
           Total current liabilities.............      17,311           16,446
                                                       ------           ------

Subordinated Notes and Obligations Payable -
    stockholder..................................       5,296            5,296
                                                        -----            -----

Long-term debt, net of current maturities........         -                150
                                                        -----              ---

        COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value; 1,000,000
        authorized shares; no shares outstanding.         -                -
 Common stock, $.01 par value; 25,000,000
        authorized shares; issued and outstanding
        6,717,333 shares.........................          67               67
    Additional paid-in capital...................      40,166           40,166
    Retained earnings (deficiency)...............     (38,625)         (37,502)
                                                      -------          ------- 
           Total stockholders' equity............       1,608            2,731
                                                        -----            -----
                                                      $24,215          $24,623
                                                      =======          =======

The  accompanying  condensed  notes are an integral  part of these  consolidated
statements.

                                        3

<PAGE>



                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                 Three Months Ended                     Six months Ended
                                                     November 30,                          November 30,
                                              1996                1995                1996               1995
                                              ----                ----                ----               ----
<S>                                        <C>                 <C>                 <C>                <C>  

Net sales............................      $13,904             $14,845             $25,481            $28,549

Cost of sales........................        8,664               9,388              15,599             17,320
                                             -----               -----              ------             ------

   Gross profit......................        5,240               5,457               9,882             11,229

Operating Expenses...................
   Selling, general and
   administrative expenses...........        4,764               5,416               9,839             10,663

Operating income ....................          476                  41                  43                566

Interest expense.....................          605                 682               1,166              1,296
                                               ---                 ---               -----              -----

   Income (loss) before income taxes          (129)               (641)             (1,123)              (730)

Provision for income taxes...........           -                   -                   -                  -
                                               ---                 ---                 ---                --- 

   Net income (loss).................        $(129)              $(641)            $(1,123)            $ (730)
                                             =====               =====             =======             ====== 

Net income (loss) common share.......       $(0.02)             $(0.10)            $ (0.17)            $(0.11)
                                            ======              ======             =======             ====== 

Weighted average shares outstanding..        6,717               6,717               6,717              6,717
                                             =====               =====               =====              =====


</TABLE>

The  accompanying  condensed  notes are an integral  part of these  consolidated
statements.

                                        4

<PAGE>



                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                 (In thousands)

                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                          Common Stock            Additional        Retained          Total
                                      No. of                      Paid-in           Earnings          Stockholders'
                                      Shares       Amount         Capital          (Deficiency)       Equity
                                      ----------------------------------------------------------------------

<S>                                   <C>            <C>          <C>               <C>                <C> 
Balance, May 31, 1995                 6,717          $67          $40,166           $(33,574)          $ 6,659

Net loss                                                                                (730)             (730)
                                      -----          ---           ------               ----              ---- 

Balance, November 30, 1995            6,717          $67          $40,166           $(34,304)          $ 5,929
                                      =====          ===          =======           ========           =======


Balance, May 31, 1996                 6,717          $67          $40,166           $(37,502)          $ 2,731


Net loss                                                                              (1,123)           (1,123)
                                      -----          ---          -------             ------            ------ 
                                                                    
Balance, November 30, 1996            6,717          $67          $40,166           $(38,625)          $ 1,608
                                      =====          ===          =======           ========           =======

</TABLE>


The  accompanying  condensed  notes are an integral  part of these  consolidated
statements.

                                        5

<PAGE>



                     THE HE-RO GROUP, LTD., AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (UNAUDITED)

                                                             Six months Ended
                                                               November 30,
                                                          1996           1995
                                                          ----           ----
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)..............................   $ (1,123)      $   (730)
                                                      --------       -------- 
    Adjustments to reconcile pro forma net
        income to net cash provided by (used in)
        operating activities:
        Depreciation and amortization..............        473            545
        Loss on disposition of fixed assets........         -              69
        Amortization of deferred finance costs.....        159            109

(Increase) decrease in assets:
    Trade receivables..............................     (1,230)        (1,125)
    Other receivables..............................       (545)          (577)
    Inventories....................................      2,316          1,456
    Other current assets...........................       (360)            99
Increase (decrease) in liabilities:
    Accounts payable...............................        554           (678)
    Accrued expenses and other current liabilities.        (96)          (274)
                                                           ---           ---- 
    Total adjustments..............................      1,271           (376)
                                                         -----           ---- 
        Net cash provided by (used in)
        operating activities.......................        148         (1,106)
                                                           ---         ------ 


CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of fixed assets....................        (82)           (69)
    (Increase)Decrease in other assets.............         39             26
                                                            --             --
        Net cash provided by (used in)
        investing activities.......................        (43)           (43)
                                                           ---            --- 

CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in bank loans..............        257          1,077
    Deferred finance costs.........................        (40)           (90)
                                                           ---            --- 
           Net cash provided by (used in)
           financing activities....................        217            987
                                                           ---            ---

NET INCREASE (DECREASE) IN CASH....................        322           (162)
CASH, beginning of period..........................        405            809
                                                           ---            ---
CASH, end of period................................    $   727       $    647
                                                       =======       ========


The  accompanying  condensed  notes are an integral  part of these  consolidated
statements.

                                        6

<PAGE>

                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
              Condensed Notes To Consolidated Financial Statements
                                   (UNAUDITED)

                                November 30, 1996

1.      BASIS OF PRESENTATION

             The consolidated  financial  statements include the accounts of The
        HE-RO Group, Ltd. and its subsidiaries (the "Company"). The consolidated
        financial  statements are presented in accordance with the  requirements
        of the quarterly report on Form 10-Q and consequently do not include all
        of the  disclosures  normally  made in an annual  report on 10-K filing.
        Accordingly,  the  consolidated  financial  statements  included  herein
        should  be  reviewed  in  conjunction  with the  consolidated  financial
        statements  and the notes  included  therein with the  Company's  Annual
        report on Form 10-K.

             The  financial  information  as of and  for the  six  months  ended
        November 30, 1996 and November 30, 1995 has been  prepared in accordance
        with  the  Company's  customary  accounting  practices  and has not been
        audited.  In  the  opinion  of  management,  the  information  presented
        reflects  all  adjustments  necessary  for a fair  statement  of interim
        results.  All such adjustments are of a normal and recurring nature. The
        foregoing interim results are not necessarily  indicative of the results
        of operations for the full year ending May 31, 1997 ("Fiscal 1997").

2.      INVENTORY

             Inventory is stated at the lower of cost  (first-in,  first-out) or
        market:
                                                           (In Thousands)
                                                  November 30,         May 31,
                                                      1996              1996
                                                      ----              ----
                                                   (UNAUDITED)

        Finished goods.......................          $ 9,040        $10,647
        Raw materials........................            3,673          4,382
                                                         -----          -----
                                                       $12,713        $15,029
                                                       =======        =======

3.      FIXED ASSETS

        Fixed assets consist of the following:
                                                           (In Thousands)
                                                  November 30,         May 31,
                                                      1996              1996
                                                      ----              ----
                                                   (UNAUDITED)

        Machinery and equipment...............         $ 3,117        $ 3,115
        Furniture and fixtures................           2,998          2,979
        Leasehold improvements................           3,708          3,647
                                                         -----          -----
                                                         9,823          9,741
        Less - Accumulated depreciation and
        amortization..........................           7,790          7,317
                                                         -----          -----

                                                       $ 2,033        $ 2,424
                                                       =======        =======

                                        7

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)



4.      RELATED PARTY TRANSACTIONS

           The Company has an investment of $798,000 in Great  Projects  Limited
        ("GPL"),  a Hong Kong  corporation.  Fifty  percent of GPL is owned by a
        subsidiary  of the  Company,  and 25% is owned by each of two Hong  Kong
        companies  that are  unaffiliated  with the  Company or its  officers or
        directors.  As of October 31, 1993,  the partners  agreed to discontinue
        the operations of GPL. In January 1996, liquidation  proceedings in Hong
        Kong were  commenced  to wind up GPL.  Included in  accounts  payable is
        $2,151,000 due to the foreign affiliate at November 30, 1996 and May 31,
        1996. The Company does not expect any material  impact on its results of
        operations due to the liquidation of GPL.

           Notes and obligations payable to the beneficial principal stockholder
        in the aggregate principal amount of $5,296,000 are subordinated to bank
        borrowing  and bear  interest  varying  from 8% to 12% per annum.  These
        obligations  are due upon  demand  but  because  these  obligations  are
        subordinated to the bank borrowing,  the liability  relating thereto has
        been classified as long-term.

5.      BANK LOANS AND LONG TERM DEBT

           On May 12, 1995, the Company signed a financing credit agreement (the
        "Foothill  Credit   Agreement")   with  Foothill   Capital   Corporation
        ("Foothill")  for a two year term  expiring  June 2, 1997, to enable the
        Company to borrow,  assuming that borrowing base thresholds are met (for
        direct loans and letters of credit),  amounts not exceeding  $15,000,000
        during the term of the credit agreement. The indebtedness incurred under
        the  Foothill  Credit  Agreement  is  secured  by a  first  lien  on the
        Company's  domestic  inventory  and  accounts  receivable,  among  other
        collateral.

           Interest  on  direct  debt is  payable  at the prime  rate  (8.25% at
        November  30, 1996) plus 2 1/2% per annum.  At November  30,  1996,  the
        direct  debt  outstanding   under  the  Foothill  Credit  Agreement  was
        $6,234,000  and the  Company  was  contingently  liable for  outstanding
        letters of credit of approximately $200,000.

           The  Company's  credit line with  Foothill  refinanced a  substantial
        portion of the indebtedness previously outstanding from the Company to a
        group of four  banks (the "Bank  Group").  At  November  30,  1996,  the
        outstanding indebtedness of the Company to the Bank Group was $2,750,000
        in the aggregate, evidenced by a term note to each bank with interest at
        2% above the prime rate. The Company's indebtedness to the Bank Group is
        (i) subordinated to the Company's  indebtedness to Foothill (ii) secured
        by a second lien on the  domestic  inventory  and  accounts  receivable,
        among other  collateral,  and a first lien on the  inventory  located in
        Hong Kong and China,  and (iii)  subject to a  mandatory  prepayment  of
        $100,000 for any month in which the Company's inventory in Hong Kong and
        China decrease below certain  minimum  thresholds.  This loan is due and
        

                                        8

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


        payable in monthly  installments  of  principal  ranging from $50,000 to
        $150,000 beginning August 1995, plus monthly interest payments, with the
        final payment due in June 1997.  These payments are permitted  under the
        Foothill Credit  Agreement if certain  liquidity  standards are met. For
        the months ended  December  1995 through  December  1996,  because these
        liquidity  standards  were not met, the Company was not permitted to pay
        the monthly  installment of principal to the Bank Group, and accordingly
        is not in compliance with its credit agreement with the Bank Group. As a
        result  of  the  foregoing  and  in  connection  with  the  contemplated
        transaction  with a potential  purchaser  of the Company as discussed in
        Note 8, the Company  will be seeking to  refinance  or revise its credit
        facilities.

           As partial  consideration  for entering into the amended and restated
        credit agreement with the Bank Group, warrants previously granted to the
        Bank Group to  purchase  up to an  aggregate  of  250,000  shares of the
        Company's common stock at a price of $2.00 per share were extended for a
        one year term to September 17, 1999.


           The  Company's  credit  agreements  with  Foothill and the Bank Group
        requires Della Rounick and the estate of Herbert Rounick,  collectively,
        to own or  control  at least  51% of the  Company's  outstanding  common
        stock.  In  addition,  the more  significant  restrictive  covenants  as
        defined in the Foothill Credit Agreement are as follows:

        -   The minimum current ratio must equal:  1.0 to 1

        -   The maximum liabilities to net worth must equal: 38.0 to 1

        -   The minimum net worth required:  $400,000

        -   The minimum working capital required :  $3,500,000

        -   Capital expenditures may not exceed $500,000 in one year.

        -   The Company is prohibited from paying dividends  throughout the term
            of the agreement.

        -   The net income on a cumulative basis and measured at the end of each
            fiscal quarter may not fall below negative  $4,500,000  from June 1,
            1995.

           As of November  30,  1996,  the Company  was not in  compliance  with
        certain  financial  covenants under the Foothill Credit  Agreement.  The
        Company has received a waiver from  Foothill  relating to the  foregoing
        non-compliance (see Note 8 for further discussion).


                                        9

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)



6.      SUPPLEMENTAL CASH FLOW INFORMATION

           Payments of income  taxes were  $37,000 and $9,000 for the six months
        ended November 30, 1996 and November 30, 1995, respectively. Payments of
        interest during the  corresponding  periods were $914,000 and $1,243,000
        respectively.


7.      CONTINGENCIES

           Because  a  substantial   amount  of  the   Company's   products  are
        manufactured in The People's  Republic of China  ("China"),  the loss of
        "most-favored-nation"  ("MFN")  trading status for China would have, and
        the  conditional  granting  of  MFN  trading  status  for  China  or the
        imposition of retaliatory  trade  sanctions  against China involving the
        Company's  products could have a material adverse effect on the Company,
        resulting  from  significantly  higher  rates  of duty and  other  trade
        sanctions imposed on goods originating in China.

           In May 1996,  President  Clinton issued a Presidential  Determination
        recommending the renewal of "most-favored-nation" trade status for China
        for  the  twelve  months  ending  July  2,  1997.  Although  resolutions
        disapproving  such  renewal were  introduced  in June 1996 into both the
        U.S. Senate and the House of  Representatives,  the House resolution was
        voted on and failed to pass. As has occurred in the last two years, in a
        break  with  previous  years,  the  Presidential  Determination  did not
        recommend subjecting any future renewal of  "most-favored-nation"  trade
        status for China to various conditions,  such as China's compliance with
        the 1992 bilateral  agreement with the United States  concerning  prison
        labor and overall  progress  with respect to human  rights,  release and
        accounting  of  Chinese  citizens   imprisoned  or  detained  for  their
        political  and  religious   beliefs,   humane  treatment  of  prisoners,
        protecting  Tibet's  religious  and  cultural  heritage  and  permitting
        international    radio   and   television    broadcasts    into   China.
        "Most-favored-nation"  trade  status  was  renewed  in July  1996 for an
        additional year. There is no assurance that the President will recommend
        the renewal of "most-favored-nation" trade status for China for the year
        commencing  July 3, 1997 or  thereafter  or that Congress will not enact
        legislation  denying or conditioning the grant of  "most-favored-nation"
        trade status to China in the future.

           In January  1994,  the United  States and China  entered into a three
        year bilateral textile agreement expiring December 31, 1996. Among other
        things,  the agreement  reduced by 13% China's market access for certain
        cotton,  wool,  man-made  fiber,  silk blend and other  vegetable  fiber
        textiles and textile products  exported to the United States and permits
        the United  States to impose  significant  penalties  for  transshipment
       

                                       10

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


        violations.  Such  penalties  include the  assessment of  "transshipment
        charges" against the restraint levels of affected categories which could
        result in such levels  filling more rapidly or becoming  fully  utilized
        with  little or no advance  notice.  Pursuant to the  bilateral  textile
        agreement, such transshipment charges have, on occasion, been applied by
        the United States. In addition,  a separate agreement between the United
        States and China was reached  which,  for the first time,  subjected  to
        quota limitations,  China's exports of apparel containing 70% or more by
        weight of silk.  This  agreement  was  effective  with  respect to goods
        produced or  manufactured  in China and  exported  to the United  States
        during  the  period  from  April 1,  1994  through  December  31,  1996.
        Previously,  these  products had not been subject to quota  limitations.
        Negotiations with respect to these expiring agreements are underway. The
        Company cannot predict the terms of any renewal of such agreements.

           On July 1, 1997, the British Crown Colony of Hong Kong reverts to the
        People's Republic of China. As negotiations  relating to a new bilateral
        textile  agreement with China,  effective January 1, 1997, have not been
        concluded, it is uncertain how Hong Kong textile quota will be viewed in
        relation to Chinese textile quota. If the United States should determine
        that goods  produced in Hong Kong would be subjected  to Chinese  quota,
        such a determination would adversely affect any contingency plans of the
        Company to lessen the impact of punitive measures taken by the U.S. with
        respect to Chinese quota, to the extent that such contingency  plans are
        premised on the shifting of  production or assembly of the products from
        China to Hong Kong.

           In addition, over the past several years (including 1996), the Office
        of the United States Trade  Representative  has conducted and may in the
        future  conduct  investigations  relating to China's trade  policies and
        practices. While previous investigations were resolved without resort to
        retaliatory  trade  sanctions  against  China by the United  States,  an
        unfavorable  resolution of any future  investigation could result in the
        imposition of retaliatory  trade sanctions against China and on products
        imported from China,  including punitive duties, fees or restrictions on
        certain Chinese products, including products manufactured by the Company
        in China.

           Legislation  implementing the Uruguay Round of the General  Agreement
        on Tariffs and Trade was signed by President Clinton in late 1994. Among
        other  provisions,  it  contained a section  which  amended the rules of
        origin  applicable  to textile  and  textile  products,  effective  with
        respect to goods entered or withdrawn from warehouse for  consumption on
        or after July 1,  1996.  Regulations  implementing  these  changes  took
        effect on that date.  In general,  and with  specified  exceptions,  the
        statute and regulations  provide that most textile apparel articles will
        be  considered  to  originate  in the  country  in which they are wholly
        assembled.  In many cases,  this  represents a change from the manner in
        

                                       11

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


        which country of origin had been  determined,  which in many  instances,
        was based on where the  components  were cut.  The  Company  cannot  now
        predict to what extent the new rules  concerning  country of origin will
        change import trade patterns or how it will impact upon quota usage from
        exporting countries.

           The  Company  is a  party  to  various  claims,  legal  actions,  and
        complaints arising in the ordinary course of business. In the opinion of
        the Company's management,  all such matters are without merit or involve
        such  amounts  in  which an  unfavorable  disposition  would  not have a
        material effect on the consolidated financial statements of the Company.

8.      SUBSEQUENT EVENT

           Because the Company had incurred  losses from operations and has been
        incurring net losses, there has been insufficient liquidity, as required
        by its  credit  agreement  with  its  senior  lender,  Foothill  Capital
        Corporation  ("Foothill"),  to allow the Company to pay required monthly
        installments of principal to its group of four banks that rank junior to
        Foothill.  In addition,  as of November 30, 1996, the Company was not in
        compliance  with certain  financial  covenants under the Foothill Credit
        Agreement for which the Company has received a waiver from Foothill (see
        Note 5 for discussion). The Company is projecting losses from operations
        for  the   remainder  of  fiscal   1997,   which  would  result  in  its
        non-compliance  with the financial  covenants under its credit agreement
        with Foothill. The combination of these factors raises substantial doubt
        about  the  Company's  ability  to  continue  as a  going  concern.  The
        Company's  independent  public  accountants  had issued a going  concern
        opinion  for the year  ended  May 31,  1996.  As  described  above,  the
        conditions  leading to that  opinion  continue to exist.  In response to
        these  conditions,  in the  fourth  quarter of fiscal  1996 the  Company
        engaged Arthur Andersen  Worldwide - Corporate  Finance as its financial
        advisor to explore options including alliances with other companies,  an
        infusion of capital into the Company, the sale or merger of the Company,
        or any combination of the foregoing.

           On September 25, 1996, the Company  signed a purchase  agreement (the
        "Purchase  Agreement") with an affiliate of Sun Capital  Partners,  Inc.
        ("Sun Capital"),  a merchant banking and investment banking firm located
        in West Palm Beach,  Florida.  On November 18, 1996, Sun Capital and the
        Company entered into an amendment to the Purchase  Agreement that, among
        other things,  amended the no-shop  provisions of the Purchase Agreement
        to allow the Company to negotiate  with other  potential  investors  and
        purchasers without incurring a break-up fee. Effective January 14, 1997,
        the Company and Sun  Capital  terminated  the  Purchase  Agreement.  The
        Company  is  currently   conducting   negotiations  with  respect  to  a
        transaction with another potential purchaser.  There can be no assurance
        that  the  Company  will  consummate  the  transaction  currently  being
        negotiated or any  transaction for the sale of, or investment of capital
        into, the Company.




                                       12

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
       CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


           In the absence of the preceding  transaction  or similar  events that
        would   provide   plans  to   restructure   debt,  to  reduce  or  delay
        expenditures,  or  to  increase  ownership  equity,  there  could  be  a
        substantial doubt as to the Company's success of future operations.  The
        result includes a possible  discontinuance  of operations in which there
        is a commencement  of  dissolution  or bankruptcy,  or there could be an
        externally forced revision of its present operating structure.


                                       13

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



General

        The  following  discussion  provides  information  and  analysis  of the
Company's  results of  operations  for the six month period  ended  November 30,
1996,  and its liquidity and capital  resources.  The following  discussion  and
analysis should be read in conjunction with the Unaudited Consolidated Financial
Statements included elsewhere herein.

        Because a substantial  amount of the Company's products are manufactured
in The People's Republic of China ("China"),  the loss of  "most-favored-nation"
("MFN") trading status for China would have, and the conditional granting of MFN
trading  status  for China or the  imposition  of  retaliatory  trade  sanctions
against China  involving the Company's  products  could have a material  adverse
effect on the Company,  resulting  from  significantly  higher rates of duty and
other trade sanctions imposed on goods originating in China.

     In  May  1996,  President  Clinton  issued  a  Presidential   Determination
recommending the renewal of "most-favored-nation" trade status for China for the
twelve  months  ending  July 2, 1997.  Although  resolutions  disapproving  such
renewal were  introduced in June 1996 into both the U.S. Senate and the House of
Representatives,  the House  resolution  was voted on and failed to pass. As has
occurred in the last two years, in a break with previous years, the Presidential
Determination   did   not   recommend   subjecting   any   future   renewal   of
"most-favored-nation"  trade  status  for China to various  conditions,  such as
China's  compliance  with the 1992  bilateral  agreement  with the United States
concerning  prison  labor and overall  progress  with  respect to human  rights,
release and  accounting  of Chinese  citizens  imprisoned  or detained for their
political  and religious  beliefs,  humane  treatment of  prisoners,  protecting
Tibet's religious and cultural heritage and permitting  international  radio and
television  broadcasts  into  China.  "Most-favored-  nation"  trade  status was
renewed in July 1996 for an  additional  year.  There is no  assurance  that the
President will recommend the renewal of  "most-favored-nation"  trade status for
China for the year  commencing  July 3, 1997 or thereafter or that Congress will
not enact legislation denying or conditioning the grant of "most-favored-nation"
trade status to China in the future.

        In January  1994,  the United States and China entered into a three year
bilateral textile agreement  expiring December 31, 1996. Among other things, the
agreement  reduced by 13%  China's  market  access  for  certain  cotton,  wool,
man-made  fiber,  silk blend and other  vegetable  fiber  textiles  and  textile
products  exported to the United  States and permits the United States to impose
significant penalties for transshipment  violations.  Such penalties include the
assessment of  "transshipment  charges" against the restraint levels of affected
categories  which could  result in such levels  filling more rapidly or becoming
fully  utilized  with little or no advance  notice.  Pursuant  to the  bilateral
textile agreement, such transshipment charges have, on occasion, been applied by
the United States. In addition,  a separate  agreement between the United States
and China was reached which, for the first time, subjected to quota limitations,


                                       14

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



China's  exports  of  apparel  containing  70% or more by weight  of silk.  This
agreement was effective with respect to goods produced or  manufactured in China
and exported to the United  States  during the period from April 1, 1994 through
December 31, 1996.  Previously,  these  products had not been subjected to quota
limitations.   Negotiations  with  respect  to  these  expiring  agreements  are
underway.  The  Company  cannot  predict  the  terms  of  any  renewal  of  such
agreements.

        On July 1, 1997,  the British  Crown  Colony of Hong Kong reverts to the
People's Republic of China. As negotiations  relating to a new bilateral textile
agreement with China, effective January 1, 1997, have not been concluded,  it is
uncertain  how Hong Kong  textile  quota will be viewed in  relation  to Chinese
textile quota. If the United States should determine that goods produced in Hong
Kong would be subjected to Chinese quota,  such a determination  would adversely
affect any  contingency  plans of the  Company to lessen the impact of  punitive
measures  taken by the U.S.  with respect to Chinese  quota,  to the extent that
such contingency plans are premised on the shifting of production or assembly of
the products from China to Hong Kong.

        In addition, over the past several years (including 1996), the Office of
the United  States  Trade  Representative  has  conducted  and may in the future
conduct investigations  relating to China's trade policies and practices.  While
previous  investigations  were  resolved  without  resort to  retaliatory  trade
sanctions against China by the United States,  an unfavorable  resolution of any
future  investigation  could  result  in the  imposition  of  retaliatory  trade
sanctions against China and on products imported from China,  including punitive
duties,  fees or restrictions on certain Chinese  products,  including  products
manufactured by the Company in China.

        Legislation  implementing the Uruguay Round of the General  Agreement on
Tariffs  and Trade was signed by  President  Clinton in late 1994.  Among  other
provisions,  it contained a section which amended the rules of origin applicable
to textile and textile  products,  effective  with  respect to goods  entered or
withdrawn from warehouse for  consumption on or after July 1, 1996.  Regulations
implementing  these  changes  took  effect on that date.  In  general,  and with
specified  exceptions,  the statute and  regulations  provide  that most textile
apparel  articles  will be  considered to originate in the country in which they
are wholly assembled. In many cases, this represents a change from the manner in
which country of origin had been determined,  which in many instances, was based
on where the components  were cut. The Company cannot now predict to what extent
the new rules concerning  country of origin will change import trade patterns or
how it will impact upon quota usage from exporting countries.

        The Company is a party to various claims,  legal actions, and complaints
arising in the  ordinary  course of  business.  In the opinion of the  Company's
management,  all such matters are without merit or involve such amounts in which
an unfavorable  disposition would not have a material effect on the consolidated
financial statements of the Company.




                                       15

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Results of Operations
Second Quarter Fiscal 1996 Compared to Second Quarter Fiscal 1995

        Net sales of $13.9 million for the three months ended  November 30, 1996
decreased by $.9 million  (6.3%)  compared to net sales of $14.8 million for the
three months ended November 30, 1995. This decrease is primarily attributable to
reduced  sales for evening wear  products due to the soft economy in the apparel
industry.

        Cost of sales for the three  months  ended  November  30,  1996 was $8.7
million,  or 62.3% of net sales compared to $9.4 million,  or 63.2% of net sales
for the three months ended November 30, 1995.  Gross profit for the three months
ended  November 30, 1996 was $5.2  million,  or 37.7% of net sales,  compared to
$5.5  million,  or 36.8% of net sales for three months ended  November 30, 1995.
The decrease in gross profit  dollars was primarily due to the decrease in sales
volume described above.

        Selling, general and administrative expenses were $4.8 million, or 34.3%
of net sales for the three  months ended  November  30,  1996,  compared to $5.4
million, or 36.5% of net sales for the three months ended November 30, 1995. The
lower selling,  general and  administrative  expenses for the three months ended
November 30, 1996 are primarily  attributable  to decreases in salary  expenses,
advertising, rent and occupancy.

        Operating  income  was $.5  million  or 3.4% of net  sales for the three
months ended  November 30, 1996  compared to $.1 million or .3% of net sales for
the three months ended November 30, 1995. This increase in operating  income was
primarily  attributable  to the reduced  selling,  general,  and  administrative
expenses described above.

        Interest  expense for the three months  ended  November 30, 1996 was $.6
million,  or 4.4% of net sales compared to $.7 million, or 4.6% of net sales for
the three months ended November 30, 1995.

        As a result of the  factors  described  above,  the  Company  had a loss
before  income taxes of $(.1)  million,  or (1.0)% of net sales during the three
months ended November 30, 1996,  compared to a loss before income taxes of $(.6)
million, or (4.3)% of net sales for the three months ended November 30, 1995.

        As a result of the factors  described  above, the Company had a net loss
of $(.1) million  ($.02 per share) for the three months ended  November 30, 1996
compared to a net loss of $(.6) million (or $.10 per share) for the three months
ended November 30, 1995.




                                       16

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Results of Operations
Six months  Ended  November 30, 1996  Compared to Six months Ended  November 30,
1995

        Net sales of $25.4  million for the six months  ended  November 30, 1996
decreased by $3.1 million  (10.7%)  below net sales of $28.5 million for the six
months ended  November  30, 1995.  This  decrease is primarily  attributable  to
reduced  sales for evening wear  products due to the soft economy in the apparel
industry.

        Cost of sales  for the six  months  ended  November  30,  1996 was $15.6
million,  or 61.2% of net sales compared to $17.3 million, or 60.7% of net sales
for the six months  ended  November  30,  1995.  Gross profit for the six months
ended  November 30, 1996 was $9.9  million,  or 38.8% of net sales,  compared to
$11.2 million or 39.3% of net sales for the six months ended  November 30, 1995.
The decrease in gross profit  dollars was primarily due to the decrease in sales
volume described above.

        Selling,  general and administrative  expenses of $ 9.8 million or 38.6%
of net sales for the six  months  ended  November  30,  1996  compared  to $10.7
million, or 37.3% for the six months ended November 30, 1995. The lower selling,
general and  administrative  expenses for the six months ended November 30, 1996
are primarily  attributable to decreases in salary expenses,  advertising,  rent
and occupancy.

        Operating  income of $.1  million or .2% of net sales for the six months
ended November 30, 1996 compared to $.6 million or 2.0% of net sales for the six
months ended November 30, 1995. This decrease in operating  income was primarily
attributable to the reduced sales and gross profit dollars described above.

        Interest expense of $1.2 million or 4.6% of net sales for the six months
ended November 30, 1996 compared to $ 1.3 million,  or 4.5% of net sales for the
six months ended November 30, 1995.

        As a result of the  factors  described  above,  the  Company  had a loss
before  income  taxes of $(1.1)  million,  or (4.4)% of net sales during the six
months  ended  November  30,  1996,  compared  to a loss  before  taxes of $(.7)
million, or (2.5)% of net sales for the six months ended November 30, 1995.

        As a result of the factors  described  above, the Company's net loss was
$(1.1)  million (or $.17 per share) for the six months  ended  November 30, 1996
compared  to a net loss of $(.7)  million (or $.11 per share) for the six months
ended November 30, 1995.




                                       17

<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Liquidity and Capital Resources

        At  November  30,  1996,  the Company had an increase in cash flows from
operating activities of $.1 million. This increase resulted primarily from a net
loss of $1.1  million  for the six  months  then  ended  and a net  increase  in
receivables  of $1.2  million,  offset by a net  decrease in  Inventory  of $2.3
million for the six months then ended.  The  Company's  level of cash flows from
operating  activities  varies from quarter to quarter due to the  seasonality of
its business.

        In regard to cash flows from investing activities,  during the first six
months of fiscal 1996 and 1995, the Company spent  approximately  $.1 million on
capital  improvements  and  replacement  expenditures  in each  period.  Capital
improvements  and  replacements  for the full fiscal  1997 year are  expected to
approximate $.3 million.

        Cash flows from financing  activities increased by $.2 million resulting
primarily  from  increased  borrowings  under  the  Company's  revolving  credit
facilities.

        Because the Company had  incurred  losses from  operations  and has been
incurring net losses, there has been insufficient  liquidity, as required by its
credit  agreement  with  its  senior  lender,   Foothill   Capital   Corporation
("Foothill"),  to allow the  Company to pay  required  monthly  installments  of
principal to its group of four banks that rank junior to Foothill.  In addition,
as of  November  30,  1996,  the  Company  was not in  compliance  with  certain
financial  covenants under the Foothill  Credit  Agreement for which the Company
has received a waiver from Foothill (see Note 5 for discussion).  The Company is
projecting  losses from operations for the remainder of fiscal 1997, which would
result in its  non-compliance  with the  financial  covenants  under its  credit
agreement with  Foothill.  The  combination of these factors raises  substantial
doubt about its ability to generate  sufficient  cash to support its operations.
The Company's  independent public accountants had issued a going concern opinion
for the year ended May 31, 1996. As described above,  the conditions  leading to
that opinion  continue to exist.  The  Company's  ability to continue as a going
concern  is  dependent  upon  plans to  restructure  debt,  to  reduce  or delay
expenditures, or to increase ownership equity as discussed in Note 8 of Notes to
Consolidated  Financial  Statements.  The Company believes that the contemplated
transaction with a potential purchaser of the Company as discussed in Note 8, as
well as funds generated by operations (i.e.  management's  ability to reduce the
net  losses),  the  availability  of credit  under the revised  credit  facility
coupled with reduced  inventory  levels will contribute to meeting the Company's
working capital,  letter of credit and capital expenditure  requirements for the
foreseeable  future.  (See Note 5 for further  discussion of the revised  credit
facility.)  There  can be no  assurance  that  the  Company  will  consummate  a
transaction with an investor or purchaser.


                                       18

<PAGE>

                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES

                           PART II. OTHER INFORMATION



           Item 6.         Exhibits and Reports on Form 8-K


           (a)             Exhibits:

           10.20           Amendment to Note and Common Stock Purchase
                           Agreement, dated November 18, 1996, by and
                           among Registrant, The He-Ro Group, Inc.,
                           Vasiliki Della Pasvantidou Rounick,
                           individually and as the Executrix of the Estate
                           of Herbert Rounick, and Sun Investment
                           Partnership I, Ltd.

           27.             Financial Data Schedule.



           (b)             Reports on Form 8-K:

                           None



                                       19

<PAGE>




                                   SIGNATURES


                  Pursuant to the requirements of the Securities Exchange Act of
1934, The He-Ro Group,  Ltd. has duly caused this Quarterly  Report on Form 10-Q
to be signed on its behalf by the undersigned thereunto duly authorized.

Date:        January 13, 1997            THE HE-RO GROUP, LTD.
                                             (Registrant)


                                         By: /s/ DELLA ROUNICK
                                             -----------------
                                             Della Rounick
                                             Co-Chairman of the Board
                                             of Directors and Chief
                                             Executive Officer


Date:        January 13, 1997


                                             /s/ SAM D. KAPLAN
                                             -----------------
                                             Sam D. Kaplan
                                             Chief Financial Officer
                                             and Secretary
                                             (Principal Financial and
                                              Accounting Officer)


                                       20

<PAGE>



                                INDEX TO EXHIBITS
                                       TO
                              THE QUARTERLY REPORT
                                  ON FORM 10-Q
                     FOR THE QUARTER ENDED NOVEMBER 30, 1996
                                       OF
                              THE HE-RO GROUP, LTD.



Exhibit                                                            Sequentially
  No.             Description                                      Numbered Page
-------           -----------                                      -------------

 3.1              Restated Certificate of Incorporation of
                  Registrant.  Incorporated by reference to
                  Exhibit 3.1 of Registrant's Annual Report on
                  Form 10-K for the year ended May 31, 1995
                  ("Registrant's 1995 10-K").

 3.2              Bylaws of Registrant, as amended. Incorporated
                  by reference to Exhibit 3.2 of Registrant's
                  1995 10-K.

 3.3              Specimen Certificate for Common Stock of
                  Registrant.  Incorporated by reference to
                  Exhibit 3.3 of Registrant's 1995 10-K.

 10.1             Lease dated December 20, 1990, between Hartz
                  Mountain Industries, Inc. and The He-Ro Group,
                  Inc. relating to the premises located at 35
                  Enterprise Avenue, Secaucus, New Jersey.
                  Incorporated by reference to Exhibit 10.1 of
                  Registrant's 1995 10-K.

 10.2             Sublease dated May 24, 1994 between The He-Ro
                  Group, Inc. (as sublessor) and USA Cargo
                  Distribution Center (as sublessee) relating to
                  the premises located at One American Way,
                  Secaucus, New Jersey.  Incorporated by
                  reference to Exhibit 10.2 of the Registrant's
                  1995 10-K.

 10.3             Lease dated September 21, 1994, between The
                  Louis Adler Realty Company and H.R.I., Inc.
                  relating to the premises located at 550
                  Seventh Avenue, New York, New York.
                  Incorporated by reference to Exhibit 10.3 of
                  Registrant's 1995 10-K.



<PAGE>



Exhibit                                                            Sequentially
  No.             Description                                      Numbered Page
-------           -----------                                      -------------

 10.4             Lease dated September 24, 1994, between The
                  Louis Adler Realty Company and H.R.I., Inc.
                  relating to the premises located at 550
                  Seventh Avenue, New York, New York.
                  Incorporated by reference to Exhibit 10.4 of
                  Registrant's 1995 10-K.

 10.5             Lease dated September 21, 1994, between The
                  Louis Adler Realty Company and H.R.I., Inc.
                  relating to the premises located at 550
                  Seventh Avenue, New York, New York.
                  Incorporated by reference to Exhibit 10.10 of
                  Registrant's 1995 10-K.

 10.6             Lease dated September 21, 1994, between The
                  Louis Adler Realty Company and The He-Ro
                  Group, Inc. relating to the premises located
                  at 530 Seventh Avenue, New York, New York.
                  Incorporated by reference to Exhibit 10.6 of
                  Registrant's 1995 10-K.

 10.7             Tenancy Agreement dated December 20, 1994,
                  between Grandford Development and The He-Ro
                  Group, Inc. relating to the premises located
                  at Cosmos Sing Shing Building, 81 Hung To
                  Road, Kwun Tong, Kowloon, Hong Kong.
                  Incorporated by reference to Exhibit 10.7 of
                  Registrant's 1995 10-K.

 10.8             License Agreement dated June 1, 1990, between
                  The He-Ro Group, Inc. and Oleg Cassini, Inc.
                  Incorporated by reference to Exhibit 10.8 of
                  Registrant's 1995 10-K.

 10.8.1           Letter Agreement dated December 15, 1995, from
                  Oleg Cassini, Inc. to the He-Ro Group, Inc.,
                  amending the Cassini License.  Incorporated by
                  reference to Exhibit 10.8.1 of Registrant's
                  Annual Report on Form 10-K for the year ended
                  May 31, 1996 ("Registrant's 1996 10-K").

 10.9             Fourth Amended and Restated Revolving Credit
                  Agreement dated as of May 15, 1995, by and
                  among The He-Ro Group, Inc., and Marine
                  Midland Bank, N.A., as agent, The Chase
                  Manhattan Bank, The Hongkong and Shanghai
                  Banking Corporation Limited and ABN AMRO Bank
                  N.V.  Incorporated by reference to Exhibit
                  10.9 of Registrant's 1995 10-K.



<PAGE>




Exhibit                                                            Sequentially
  No.             Description                                      Numbered Page
-------           -----------                                      -------------

 10.10            Loan and Security Agreement dated as
                  of May 12, 1995, by and between The
                  He-Ro Group, Ltd. and certain of its
                  subsidiaries and Foothill Capital
                  Corporation.  Incorporated by
                  reference to Exhibit 10.10 of
                  Registrant's 1995 10-K.

 10.11            Contribution Agreement dated as of
                  May 20, 1991, between the Registrant
                  and Herbert Rounick.  Incorporated
                  by reference to Exhibit 10.11 of
                  Registrant's 1995 10-K.

 10.12            1991 Stock Option Plan. Incorporated
                  by reference to Exhibit 10.12 of
                  Registrant's 1995 10-K.

 10.13            1992 Outside Director Stock Option
                  Plan.  Incorporated by reference to
                  Exhibit 10.13 of Registrant's 1995
                  10-K.

 10.14            1993 Outside Director Stock Option
                  Plan.  Incorporated by reference to
                  Exhibit 10.14 of Registrant's 1995
                  10-K.

 10.15            Amended and Restated 1994 Outside
                  Director Stock Option Plan.
                  Incorporated by reference to Exhibit
                  10.15 of Registrant's 1996 10-K.

 10.16            Employment Agreement dated May 14,
                  1993 by and between Allan R. Bogner
                  and The He-Ro Group, Ltd.  (the
                  "Bogner Employment Agreement").
                  Incorporated by reference to Exhibit
                  10.16 of Registrant's 1995 10-K.

 10.17            Letter dated June 1, 1994 from the
                  He-Ro Group, Ltd. to Allan R. Bogner
                  relating to Bogner Employment
                  Agreement.  Incorporated by
                  reference to Exhibit 10.17 of
                  Registrant's 1995 10-K.



<PAGE>



Exhibit                                                            Sequentially
  No.             Description                                      Numbered Page
-------           -----------                                      -------------

 10.18            Settlement Agreement dated November
                  30, 1995, between Allan R. Bogner
                  and the Registrant.  Incorporated by
                  reference to Exhibit 10.18 of
                  Registrant's Quarterly Report on
                  Form 10-Q for the quarter ended
                  February 29, 1996.

 10.19            Note and Common Stock Purchase
                  Agreement dated as of September 25,
                  1996, by and among Registrant, The
                  He-Ro Group, Inc., Vasiliki Della
                  Pasvantidou Rounick, individually
                  and as the Executrix of the Estate
                  of Herbert Rounick, and Sun
                  Investment Partnership I, Ltd.
                  Incorporated by reference to Exhibit
                  10.19 of Registrant's Quarterly Report
                  on Form 10-Q for the quarter ended
                  August 31, 1996.

*10.20            Amendment to Note and Common Stock
                  Purchase Agreement, dated November
                  18, 1996, by and among Registrant,
                  The He-Ro Group, Inc., Vasiliki
                  Della Pasvantidou Rounick,
                  individually and as the Executrix of
                  the Estate of Herbert Rounick, and
                  Sun Investment Partnership I, Ltd.

 21.1             Subsidiaries of the Registrant.
                  Incorporated by reference to Exhibit
                  21.1 of Registrant's 1995 10-K.

*27.              Financial Data Schedule





* Filed herewith.



<PAGE>

                                 EXHIBIT 10.20

<PAGE>


                                    Amendment
                                       to
                    Note and Common Stock Purchase Agreement



     Amendment  dated  November 18, 1996,  to that certain Note and Common Stock
Purchase Agreement dated as of September 25, 1996 (the "Purchase Agreement"), by
and  among  The  He-Ro  Group,  Ltd.,  The He-Ro  Group,  Inc.,  Vasiliki  Della
Pasvantidou Rounick  ("Rounick")  individually and as Executrix of the Estate of
Herbert  Rounick (the  "Estate"),  the Estate and Sun Investment  Partnership I,
Ltd. (the "Purchaser").

     WHEREAS, the parties hereto have agreed to revise the terms of the Purchase
Agreement to allow the Company to pursue alternative  strategic  alliances while
the Purchase Agreement is still in effect and to allow the Purchaser during this
period to continue pursuing a Financing Commitment; and

     WHEREAS, the parties agree that until the Financing Commitment is obtained,
the requirements of the Company pursuant to the Purchase Agreement to obtain the
Purchaser's approval in connection with certain operations and management of the
Company will be removed; and

     WHEREAS,  the parties also agree to revise the Purchase Agreement to delete
the imposition of a Termination Fee and all references thereto;

     WHEREAS,  the  Company  has agreed to  reimburse  Sun for its  expenses  in
accordance with the schedule annexed hereto;

     NOW, THEREFORE, the parties hereto agree as follows:

     1.  Definitions.  All  capitalized  terms  used in this  Amendment,  unless
expressly  defined,  shall have the same meanings  ascribed to such terms in the
Purchase Agreement.

     2.  Amendments.  Each of the  undersigned  hereby  agrees that the Purchase
Agreement shall be hereby amended as follows:

          A. Section 4.13 (Exclusivity) is hereby deleted in its entirety

          B.  Except  for the first  sentence  of  Section  11.3,  Section  11.3
     (Certain Termination Fees) is hereby deleted in its entirety.

          C. All references in the Purchase  Agreement to the  Termination  Fee,
     Section  11.3 (other than the first  sentence  thereof) or Section 4.13 are
     hereby deleted.

          D. Section 4.17 is hereby amended to delete subclauses  (viii),  (ix),
     (x), (xi),  (xiv), (xv) and (xx) therefrom until such time as the Purchaser
     obtains a Financing Commitment.

          E. Section 11.1 (Termination) is hereby amended as follows:


<PAGE>




               Section 11.1 is hereby  deleted in its entirety and the following
          shall be substituted therefor:

               "11.1  Termination.  This Agreement may be terminated at any time
          upon ten (10)  days'  written  termination  notice  (the  "Termination
          Notice") from any of the Company, Rounick or the Purchaser."

          F.  Section  11.2  (Effect of  Termination)  is hereby  deleted in its
     entirety and the following shall be substituted therefor:

               "11.2 Effect of Termination.  In the event of termination of this
          Agreement as provided above,  this Agreement shall forthwith become of
          no further  effect  (except as set forth in  Sections  14.5,  14.9 and
          14.10 hereof,  which shall survive the termination) and as of the date
          that such  Termination  Notice  is sent:  (a) each of  Purchaser,  its
          officers, directors,  stockholders,  affiliates, agents, predecessors,
          servants,  employees,  and the heirs,  successors,  assigns  and legal
          representatives  of  each  (the  "Purchaser-Releasor"),  shall  hereby
          release,  remise,  quitclaim and give up to Rounick, the Estate, He-Ro
          and the Company and its officers, directors, stockholders, affiliates,
          agents,  servants,  employees,  and the predecessors,  heirs, assigns,
          successors and legal representatives of each, and all those is privity
          with  them,  and  any  other  person,   firm  or  corporation  legally
          responsible (the "Company-Releasee"),  of and from any and all rights,
          claims, demands,  actions or causes of action which Purchaser-Releasor
          has or may claim to have from the  beginning of time arising out of or
          relating to the Purchase Agreement,  except that the foregoing Release
          expressly  does not release the Company  from  payment of the Expenses
          pursuant to the terms  provided in this  Amendment;  and,  (b) each of
          Rounick, the Estate,  He-Ro and the Company, its officers,  directors,
          stockholders,  affiliates, agents, predecessors,  servants, employees,
          and the heirs,  successors,  assigns and legal representatives of each
          (the "Company-Releasor"),  shall hereby release, remise, quitclaim and
          give  up  to  Purchaser   its   officers,   directors,   stockholders,
          affiliates, agents, servants, employees, and the predecessors,  heirs,
          assigns,  successors and legal  representatives of each, and all those
          is  privity  with  them,  and any other  person,  firm or  corporation
          legally  responsible (the  "Purchaser-Releasee"),  of and from any and
          all  rights,  claims,  demands,  actions  or causes  of  action  which
          Company-  Releasor has or may claim to have from the beginning of time
          arising out of or relating to the  Purchase  Agreement.  Upon  request
          therefor,  each party shall  redeliver all documents,  work papers and
          other  material  of any  other  party  relating  to  the  transactions
          contemplated  hereby,  whether  obtained before or after the execution
          hereof, to the party furnishing same."

     3.  Expenses.  The Company shall  reimburse the Purchaser for its remaining
expenses in accordance  with the first sentence of Section 11.3 in the amount of
$86,769.11 (the  "Expenses")  payable by wire transfer as follows:  $40,000 upon
execution of this  Amendment,  $15,000 on or prior to December 6, 1996,  $15,000
payable on or prior to December 12, 1996 and the balance ($16,769.11) payable on
or prior to  December  19,  1996.  Purchaser  acknowledges  and agrees that such
payment shall be in full  satisfaction of all fees and expenses due and owing by
the Company under the Purchase  Agreement,  and the Company shall not be further
obligated  to pay for any  additional  expenses  under the terms of the Purchase
Agreement  after the date hereof  unless  otherwise  agreed to by the Company in
writing. The Company  acknowledges and agrees that the Purchaser's  agreement to



                                        2

<PAGE>



the Amendments set forth in Section 2 hereof is conditioned upon full payment of
the Expenses,  and that if the Company does not pay the Expenses as set forth in
this Section 3, the Purchaser shall have the right,  unilaterally,  to terminate
this Amendment  upon five (5) business days' written notice to the Company,  and
upon  termination,  Purchaser  and the Company will have all of their rights and
remedies as set forth in the Purchase Agreement, exclusive of this Amendment.

     4. Full Force and Effect of Purchase Agreement. Except as set forth in this
Amendment, the Purchase Agreement remains in full force and effect.

     5. Effective Date. This Amendment shall be deemed  effective as of the date
hereof upon execution of this Amendment by all of the parties hereto.

     6.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts,  each  of  which  shall  be an  original  and all of  which  shall
constitute one agreement.

     IN WITNESS WHEREOF,  the undersigned has executed this Amendment on the day
and year first above written.

                                The He-Ro Group, Ltd.
                                The He-Ro Group, Inc.

                                By:  /s/ Della Rounick
                                -------------------------------------------
                                     Name:      Della Rounick
                                     Title:     Chief Executive Officer
                                                and Co-Chairman of the Board


                                Sun Investment Partnership I, Ltd.

                                By:  /s/ Marc Leder
                                -------------------------------------------
                                     Name:      Marc Leder
                                     Title:     Managing Director


                               Estate of Herbert Rounick

                                By:  /s/ Vasiliki Della Pasvantidou Rounick
                                -------------------------------------------
                                     Name:      Vasiliki Della Pasvantidou
                                                Rounick
                                     Title:     Executrix


                                     /s/ Vasiliki Della Pasvantidou Rounick
                                -------------------------------------------
                                Vasiliki Della Pasvantidou Rounick
                                Individually


                                        3

<PAGE>


STATE OF NEW YORK       )
                        :  ss.:
COUNTY OF NEW YORK      )

                  On the day of November,  1996,  before me personally  appeared
DELLA ROUNICK,  to me known, who being by me duly sworn, did depose and say that
she is the Chief  Executive  Officer and  Co-Chairman  of the Board of The He-Ro
Group, Ltd. and The He-Ro Group, Inc., the corporation(s) described in and which
executed the foregoing  document,  and that she signed her name thereto by order
the Board of Directors of said corporation.


                                  --------------------
                                  Notary Public


STATE OF OF FLORIDA    )
                       :  ss.:
COUNTY OF              )

                  On the day of November,  1996,  before me personally  appeared
MARC LEDER to me known,  who being by me duly sworn,  did depose and say that he
is  the  Managing   Director  of  Sun   Investment   Partnership  I,  Ltd.,  the
corporation(s)  described in and which executed the foregoing document, and that
he  signed  his  name  thereto  by  order  of the  Board  of  Directors  of said
corporation.


                                  --------------------
                                  Notary Public


STATE OF NEW YORK     )
                      :  ss.:
COUNTY OF NEW YORK    )

                  On the day of November,  1996,  before me personally  appeared
DELLA VASILIKI PASVANTIDOU ROUNICK,  individually and as Executrix of the Estate
of Herbert Rounick,  to me known, who being by me duly sworn, did depose and say
that she is the person described in and who executed the foregoing document.


                                  --------------------
                                  Notary Public

                                        4