<PAGE>   1
                       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 February 28, 1998

                                       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.)

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

                                 (212) 398-6161
              (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.

<TABLE>
<CAPTION>
                                               Outstanding at
             Class of Common Stock             April 20, 1998
             ---------------------             --------------
<S>                                            <C>
                $.01 par value                   11,995,238
</TABLE>
<PAGE>   2
                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES


  Index


 PART I.   FINANCIAL INFORMATION                                        Page No.

 Item 1.   Financial Statements (Unaudited):

           Balance Sheets
           February 28, 1998 and April 30, 1997.......................     3

           Statements of Operations
           Three and Nine months Ended February 28, 1998 and January
           31, 1997...................................................     4

           Statements of Changes in Stockholders' Equity
           Nine months Ended February 28, 1998 
           and one month ended may 31, 1997.............................   5

           Consolidated Statements of Cash Flows Nine months Ended
           February 28, 1998 and year ended April 30, 1997............     6

           Condensed Notes to Consolidated Financial Statements.......   7 - 12

 Item 2.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations........................  13 - 19

PART II.   OTHER INFORMATION..........................................    15
<PAGE>   3
                      THE HE-RO GROUP,LTD. AND SUBSIDIARIES

                                BALANCE SHEETS
                                (In thousands)

<TABLE>
<CAPTION>
                                                        Consolidated
                                                         February 28,         April 30,
                                                            1998               1997(1)
                                                         ------------      ----------------
                                                         (Unaudited)       (Condensed from
                                                                           unaudited finan-
                                                                           cial statements
                                                                             of Nah Nah
        ASSETS                                                             Collection, Inc.)
<S>                                                       <C>              <C>
CURRENT ASSETS:
   Cash ............................................       $   121              $    0
                                                           -------              ------
   Accounts receivable:
     Trade .........................................           926                 350
     Due from factor ...............................                               408
     Suppliers and other ...........................         3,229                   0
                                                           -------              ------
                                                             4,155                 758
   Inventory .......................................        14,144               4,296
   Other current assets ............................           425                   8
                                                           -------              ------
        Total current assets .......................        18,845               5,062
                                                           -------              ------
FIXED ASSETS - at cost, net of accumulated
   depreciation and amortization ...................         1,115                 394
GOODWILL ...........................................        11,218                  --
OTHER ASSETS .......................................         1,055                  75
                                                           -------              ------
                                                           $32,233              $5,531
                                                           =======              ======
        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Cash Overdraft ..................................       $   720              $  166
   Bank loans ......................................           674               1,385
   Due to factor ...................................         5,158                  --
   Accounts payable ................................        11,436               2,007
   Current portion of capital lease obligation .....            12                  20
   Accrued expenses and other current
     liabilities ...................................         1,478                 190
                                                           -------              ------
        Total current liabilities ..................        19,478               3,768
                                                           -------              ------
Long-term debt--stockholder--Subordinated...........         9,691                 250
Long-Term portion of capital lease obligation ......            57                  60
                                                           -------              ------
                                                             9,748                 310
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
        11,995,238 shares ..........................           120                  --
     Common Stock - no par value, authorized, issued
        and outstanding 200 shares .................            --                  50
     Additional paid-in capital ....................         2,867                 250
     Retained earnings .............................            20               1,153
                                                           -------              ------
     Total stockholders' equity ....................         3,007               1,453
                                                           -------              ------
     Total liabilities and stockholders' equity ....       $32,233              $5,531
                                                           =======              ======
</TABLE>

(1)  Reflects the balance sheet of Nah Nah Collection, Inc. prior to
     acquisition.

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


                                        3
<PAGE>   4
                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES

                            STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                               Three Months Ended                Nine Months Ended
                             ---------------------           -----------------------
                           Consolidated                     Condolidated  
                            February 28, January 31,         February 28,    January 31,
                               1998           1997              1998           1997
                             --------        ------           --------        -------
                                        (Condensed from                     (Condensed
                                        unaudited finan-                    from unaudi-
                                        cial statements                      ted finan-
                                          of Nah Nah                         cial state-
                                        Collection, Inc.)                     ments of
                                                                               Nah Nah
                                                                             Collection,
                                                                                Inc.)
<S>                            <C>         <C>               <C>           <C>
Net Sales ...............       $ 10,736        $5,215       $ 21,339        $16,113

Cost of sales ...........          7,648         4,020         15,767         12,242
                                --------        ------       --------        -------

Gross profit ............          3,088         1,195          5,572          3,871

Selling, general and
administrative expenses .          3,033           996          5,324          3,417
                                --------        ------       --------        -------
Amoritization of goodwill            190            --            190             --

Operating income ........           (135)           199           (58)            454

Interest Expense ........            421           125            642            327
                                --------        ------       --------        -------

Income (loss) before
 income taxes ...........           (556)           74           (584)           127

Provision for income
taxes ...................             --            12              6             42
                                --------        ------       --------        -------

Net (loss) income .......           (556)           62           (590)            85
                                ========        ======       ========        =======

Basic and diluted (loss)
  income per share ......       $  (0.05)       $ 0.01       $  (0.09)       $  0.02
                                ========        ======       ========        =======

Weighted average shares
outstanding .............         10,279         5,278          6,926          5,278
                                ========        ======       ========        =======
</TABLE>


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


                                        4
<PAGE>   5
                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                 (In thousands)

                                  (Unaudited)

<TABLE>
<CAPTION>
                                         Common Stock
                                      --------------------     Additional
                                      No. of                     Paid in       Retained
                                      Shares        Amount       Capital       Earnings        Total
                                      ---------------------------------------------------------------
<S>                                   <C>           <C>          <C>         <C>               <C>
Balance, May 1, 1997 Nah Nah
    Collection, Inc.                                 50           250         1,153             1,453

Net Loss for period May 1, 1997
   through May 31, 1997                                                            (543)          (543)
                                       -----        ------       -------       --------        -------
Balance, May 31, 1997  Nah Nah               
   Collection, Inc.                    $            $   50       $   250        $   610        $   910
                                       =====        ======       =======       ========        =======




Balance, June 1, 1997 Nah Nah
   Collection, Inc.                   $            $   50       $   250        $    610        $   910

Increase in Common Stock on
reverse acquisition on December
24, 1997 with The He-Ro Group,
Ltd. and Nah Nah Collection, Inc.      5,278             3         2,617              0          2,620

Common Shares acquired on
reverse acquisition from The
He-Ro Group, Ltd.                      6,717            67             0              0             67

Net loss for the period
June 1, 1997 through
February 28, 1998                                                                  (590)          (590)
                                     -------        ------       -------       --------        -------

Balance at February 28, 1998         $11,995        $  120       $ 2,867       $     20        $ 3,007
                                     =======        ======       =======       ========        =======
</TABLE>


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


                                              5

<PAGE>   6
                     THE HE-RO GROUP, LTD., AND SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                  (Undudited)


<TABLE>
<CAPTION>
                                                          Consolidated
                                                        Nine Months Ended  Twelve Months Ended
                                                        -----------------  -------------------
                                                        February 28, 1998   April 30, 1997
                                                        -----------------   --------------
                                                                            (Condensed from
                                                                             unaudited fin-
                                                                            ancial statement
                                                                               of Nah Nah
                                                                            Collection, Inc.)
<S>                                                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income (loss) ..............................          $  (590)          $   147
                                                             -------           -------
   Adjustments to reconcile net income (loss)to net
     cash provided by (used in) operating
     activities:
     Depreciation and amortization ................              347               134

(Increase) decrease in assets:
   Trade receivables ..............................             (336)              (57)
   Other receivables ..............................            1,077             1,609
   Inventories ....................................           (1,589)             (476)
   Other current assets ...........................               69                12
Increase (decrease) in liabilities:
   Accounts payable ...............................            1,779                 4
   Accrued expenses and other current liabilities .             (169)               42
                                                             -------           -------
   Total adjustments ..............................            1,178             1,268
                                                             -------           -------

Net cash provided by
  operating activities ............................              588             1,415
                                                             -------           -------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of fixed assets ....................             (531)             (180)
   Increase in other assets .......................             (322)                0
                                                             -------           -------
Net cash used in investing activities .............             (853)             (180)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of cash overdraft ....................                0              (349)
   Increase (decrease) in bank loans ..............              327              (870)
   Repayment of equipment lease ...................                0               (16)
                                                             -------           -------
     Net cash provided by (used in)
     financing activities .........................              327            (1,235)
NET INCREASE IN CASH ..............................               62                 0
                                                             -------           -------

CASH, beginning of period .........................               59                 0
                                                             -------           -------

CASH, end of period ...............................          $   121           $     0
                                                             =======           =======
</TABLE>

In connection with the reverse acquisition (see note 2) and a change in Nah
Nah's fiscal year Cash flow information for the nine months ended January 31, 
1997 is unavailable, accordingly the above reflects Cash Flow information of
Nah Nah for the year ended April 30, 1997.

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


                                        6
<PAGE>   7
                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                               February 28, 1998

1.    BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of The HE-RO
      Group, Ltd. and its subsidiaries (hereinafter collectively referred to as
      the "Company" unless the context clearly otherwise requires). 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 Form
      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 and 8-KA filed on March 9, 1998.

         The financial information as of and for the nine months ended February
      28, 1998 and January 31, 1997 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, 1998 ("Fiscal 1998").


2.    Aquisition

         On December 24, 1997 (the "Closing Date"), the Company acquired all of
      the outstanding capital stock of Nah Nah Collection, Inc. ("Nah Nah") from
      Hong J. Han, president of Nah Nah, in exchange for the issuance by the
      Company to Mr. Han of 5,277,905 shares of Common Stock (equivalent to 44%
      of the Company's issued and outstanding capital stock), pursuant to a
      Stock Purchase Agreement dated October 16, 1997 (the "Stock Purchase
      Agreement"), among the Company, Nah Nah, Mr. Han and Della Rounick. In
      addition, Ms. Rounick granted to Mr. Han, or his designee, an irrevocable
      proxy to vote the 4,430,748 shares of Common Stock owned by her, giving
      Mr. Han voting control over a total of approximately 81% of the Company's
      issued and outstanding stock. Nah Nah produces and markets several lines
      of women's ready to wear and special occasion wear consisting of suits and
      dresses under labels including Victor Costa by Nahdree, Constance Saunders
      by Nahdree, Nah Nah Collections and under private label through its NNP
      division.

         On the Closing Date, the Company and all of its active subsidiaries
      entered into a new factoring and revolving inventory loan and security
      agreement (the "Factoring Agreement") with Heller Financial, Inc.
      ("Heller"), replacing Foothill Capital Corporation ("Foothill") as the
      senior lender. All of the outstanding obligations of the Company to
      Foothill were paid in full and Foothill released its liens on the assets
      of the Company and its subsidiaries. The factoring advances, inventory


                                        7
<PAGE>   8
      and letter of credit facility under the Factoring Agreement may not exceed
      an aggregate of $20,000,000 outstanding at any time and includes (a)
      collection factoring with advances not to exceed 85% of the purchase price
      of net eligible accounts; (b) advances not to exceed 60% of eligible
      finished goods inventory located in the United States; (C) documentary
      letters of credit; and (d) an over advance formula facility. The
      significant restrictive covenants as defined in the Factoring Agreement
      are as follows:

         -     Minimum tangible net worth for each fiscal year:  $4,250,000 for
               1998; $7,000,000 for 1999; $10,500,000 for 2000; and $15,500,000
               for each fiscal year thereafter.
         -     Minimum working capital:  $2,200,000.
         -     Minimum current ratio:  1.30 to 1.10.
         -     Capital expenditures may not exceed $300,000 in one fiscal year.

            The Company's principal subsidiaries granted to Heller continuing
      security interests in substantially all of their assets, including
      receivables, inventory (other than raw materials and work-in-progress),
      intangibles, equipment, and any proceeds from any of the above. The
      obligations to Heller are further secured by a guaranty by the Company and
      its other subsidiaries, and the obligations of such guarantors are secured
      by liens on substantially all of the assets of the guarantors.

           At February 28, 1998 the Company was in default of certain financial
      covenants.

           In addition, Mr. Han acquired all of the Company's outstanding
      obligations ($2,750,000 in principal amount) to the Bank Group, and all of
      the collateral therefor, under the Bank Group Credit Agreement. The
      Company's indebtedness to Mr. Han, as successor to the Bank Group, is (i)
      subordinated to the Company's indebtedness to Heller, its new senior
      lender, and (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. The Bank Group also surrendered
      to the Company for cancellation warrants to purchase 250,000 shares of
      common stock of the Company.

            Pursuant to certain conditions set forth in the Stock Purchase
      Agreement, on the Closing Date, Mr. Han also purchased from Ms. Rounick
      subordinated indebtedness of The He-Ro Group, Inc. ("HGI") to the Estate
      of Herbert Rounick (of which Ms. Rounick is executrix) in the amount of
      $4,296,000, plus accrued interest. Ms. Rounick retained $1,000,000, plus
      accrued interest, of subordinated indebtedness. The aggregate indebtedness
      (in the principal amount of $6,660,801, which includes the accrued
      interest) is evidenced by subordinated notes of the Company in favor of
      each of Mr. Han and Ms. Rounick bearing interest at 9.278% per annum. The
      principal is due and payable on demand and the interest is due on the
      first of each month commencing January 1, 1998, or otherwise on demand.
      The Company and all its subsidiaries (except HGI) have guaranteed payment
      and performance of the notes. The payments on, and any conversion of, the
      notes, as well as other provisions on the notes, will be on a pari passu
      basis, subject to certain restrictions, and Ms. Rounick may not take any
      action to collect, enforce, convert or otherwise deal with her note unless
      Mr. Han has taken such action (in


                                       8
<PAGE>   9
      which event Ms. Rounick may take such action but only to the same extent
      and on the same terms as Mr. Han) or unless she has received Mr. Han's
      prior written consent.

           Under the terms of subordination and intercreditor agreements with
      Heller, all interest payments to Ms. Rounick and Mr. Han are subject to
      certain conditions.

           The transaction has been accounted for as a reverse acquisition 
      therefore, the financial statements presented here represent the 
      historical results of Nah Nah (June 1, 1997 to February 28, 1998) and the
      results of operation of The He-Ro Group, Ltd. from the date of acquisition
      (December 24, 1997 to February 28, 1998)

           Prior to the reverse acquisition Nah Nah's fiscal year end was 
      April 30, subsequently, Nah Nah has changed its fiscal year end to May 31.

           Assuming the reverse acquisition had occurred on June 1, 1996, the
      Company's (unaudited) net revenues, net loss and basic and diluted loss
      per share would have been approximately as follows:

           For 1997 the results include the nine months and three months ended
      February 28, 1997 for the He-Ro and nine months and three months ended 
      January 31, 1997 for Nah Nah.
<TABLE>
<CAPTION>
                                                    Three Months                    Nine Months
                                                       Ended                           Ended
                                    Three Months    February 28,    Nine Months     February 28,
                                       Ended            1997           Ended            1997
                                    February 28,   and January 31,  February 28,  and January 31,
                                        1998            1997            1998            1997
                                      --------        --------        --------        --------
<S>                                   <C>             <C>             <C>             <C>
      Net Revenue                     $ 12,289        $ 14,863        $ 43,712        $ 51,242
                                      ========        ========        ========        ========

      Net loss                        $ (1,267)       $ (2,902)       $ (3,024)       $ (4,002)
                                      ========        ========        ========        ========
      Basic and diluted loss 
        per share                     $   (.12)       $   (.55)       $   (.44)       $   (.76)
                                      ========        ========        ========        ========
</TABLE>

10
3.    Earnings (Loss) Per Share

      As of December 15, 1997, the Company adopted Statement of Financial
      Accounting Standards no. ("SFAS") 128, Earnings Per Share Basic Earnings
      share excludes dilution and is computed by dividing earnings available to
      Common Shareholders by the weighted average number of Common Shares
      outstanding for the period.

      Diluted earnings per share is computed by dividing earnings available to
      Common Shareholders by the weighted average number of Common Shares
      outstanding for the period, adjusted to reflect potentially dilutive 
      securities. Options and warrants were not included in the computation of 
      diluted earnings per share because the exercise price was greater then 
      the market price of the stock.

                                       9
<PAGE>   10
4.    INVENTORY

      Inventory is stated at the lower of cost (first-in, first-out) or market.

<TABLE>
<CAPTION>
                                             (In Thousands)
                                              February 28,      April 30,
                                                  1998            1997
                                               ---------         -----
                                                               (Condensed
                                                             from unaudited
                                                                financial
                                                              statements of
                                                                Nah Nah
                                                            Collection, Inc.)
<S>                                           <C>             <C>
      Finished goods ..................          $11,020          $2,342
      Raw materials and work in process            3,124           1,954
                                                 -------          ------
                                                 $14,144          $4,296
                                                 =======          ======
</TABLE>

5.    FIXED ASSETS

      Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                             (In Thousands)
                                              February 28,         April 30,
                                                 1998                1997
                                              -----------            -----
                                                                  (Condensed
                                                                from unaudited
                                                                   financial
                                                                 statements of
                                                                    Nah Nah
                                                               Collection, Inc.)
<S>                                           <C>               <C>
      Machinery and equipment ...........        2,396                $399
      Furniture and fixtures ............        2,588                 182
      Leasehold improvements ............        2,571                 237
                                                ------                ----
                                                 7,555                 818
      Less - Accumulated depreciation and        
      amortization ......................        6,440                 424
                                                ------                ----
                                                $1,115                $394
                                                ======                ====
</TABLE>

6.    GOODWILL

      Goodwill has been recogized to the extent the aggregate fair value of
      He-Ro's outstanding stock exceeds the fair value of the net assets of


                                       10
<PAGE>   11
      He-Ro as of December 24, 1997. Amoritization expense is calculated on a
      straight line basis over ten years. The Company's policy is to evaluate
      long-lived assets, goodwill and certain identifiable intangibles for
      possible impairment whenever events or changes in circumstances indicate
      that the carrying amount of such assets may not be recoverable. This
      evaluation is based on a number of factors, including expectations for
      operating income and undiscounted cash flows that will result from the use
      of such assets. The Company will evaluate the carrying value of goodwill
      at the end of the first full financial year following the acquisition (May
      31, 1999).

7.    NOTE PAYABLE BANK

            At February 28, 1998, the Company had $674,000 outstanding under a
      promissory note which was due and paid by March 31, 1998.

8.    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, 1997 and May 31, 1996. The
      Company does not expect any material impact on its results of operations
      due to the liquidation of GPL.

9.    SUPPLEMENTAL CASH FLOW INFORMATION

            Payments of income taxes were $8,000 and $6,000 for the nine months
      ended February 28, 1998 and year ended April 30, 1997, respectively. 
      Payments of interest during the corresponding periods were $45,500 and 
      $452,000 respectively.

10.   CONTINGENCIES

             The Company has entered into certain employment contacts that
      expire October 1998. The aggregate amount due on these contrcts at 
      February 28, 1998 is $227,000. The Company has also entered into certain 
      agreements with design that expire on various years ending in 2002. 
      The aggregate amount due in these contracts at February 28, 1998 is 
      $1,198,000

                                       11
<PAGE>   12
            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.


                                       12
<PAGE>   13
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS.

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

GENERAL

      The following discussion provides information and analysis of registrant's
results of operations for the three-month and nine-month periods ended February
28, 1998, 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.

      On December 24, 1997, He-Ro Group, Ltd. ("He-Ro") acquired all the
outstanding capital stock of Nah Nah Collection, Inc. ("Nah Nah") from Hong J.
Han, president of Nah Nah, in exchange for the issuance by He-Ro to Mr. Han of
5,277,905 shares of He-Ro common stock (equivalent to 44% of the combined
entities' issued and outstanding capital stock), pursuant to a Stock Purchase
Agreement dated October 16, 1997 (the "Stock Purchase Agreement"), among the
Company, He-Ro, Mr. Han and the former principal shareholder of He-Ro. In
addition, the former principal shareholder of He-Ro granted to Mr. Han, or his
designee, an irrevocable proxy to vote the 4,430,748 shares of He-Ro common
stock owned by her, giving Mr. Han voting control over a total of approximately
81% of He-Ro's issued and outstanding stock. This transaction will be accounted
for as a reverse acquisition.

      The Acquisition is being accounted for as a purchase. Therefore, the
operating results of the accounting acquiror (i.e., Nah Nah) are required to be
presented for periods prior to the effective date of the acquisition to the end
of the period and include He-Ro from the date of Acquisition to the end of the
period.

LIQUIDITY AND CAPITAL RESOURCES

      On December 24, 1997, registrant entered into a Factoring and Revolving
Inventory Loan and Security Agreement ("Heller Agreement") with Heller
Financial, Inc. ("Heller"), replacing the credit agreement with He-Ro's prior
senior lender, Foothill Capital Corp. ("Foothill"). All obligations of He-Ro to
Foothill were paid in full at the time of the Acquisition.

      The Heller Agreement provides that Heller will (i) purchase eligible
receivables and advance to specified operating affiliates of registrant up to
85% of the amount thereof, (ii) in its discretion, make revolving loans, secured
by a lien on assets, upon request in amounts up to approximately 60% of eligible
finished goods inventory located in the United States, plus certain supplemental
amounts, and (iii) arrange for the issuance of letters of credit secured by
funds available to registrant, provided that


                                       13
<PAGE>   14
the amount of loans and letters of credit outstanding at any time may not exceed
$20,000,000 in the aggregate.

      The Heller Agreement contains certain financial covenants, including that
registrant's working capital shall not be less than $2.2 million and its current
ratio shall not be less than 1.30 to 1.00. At February 28, 1998, registrant was
in default of the foregoing covenants, having a negative working capital at such
date of $0.6 million and a current ratio of just under 1 to 1. Registrant
believes that it will be able to work out an accommodation with Heller to
maintain the availability of the resources made available pursuant to the Heller
Agreement. However, there is no assurance that such accommodation will be
achieved. Registrant does not have any alternative sources of funds arranged at
this time to cover the eventuality that Heller might terminate, or curtail the
funds available under, the Heller Agreement.

      Registrant does not anticipate making any significant capital investments
during the forthcoming year and believes that, assuming the accommodation
referred to in the immediately preceding paragraph, the Heller Agreement
provides sufficient capital resources to meet its capital needs for the
foreseeable future. By contracts with registrant's present situations vio-a-vio
Heller, prior to the Acquisition, He-Ro's losses made it impossible to service
its bank debt without violating its credit agreement with Foothill, there was
serious concern about He-Ro's ability to replace or extend that credit
agreement, and as a result, there was substantial doubt about He-Ro's ability to
continue as a going concern.

CHANGES IN FINANCIAL CONDITION

      A comparison of the balance sheet of registrant as at February 28, 1998,
with its balance sheet as at April 30, 1997, indicates that (i) total assets
have increased from $5.5 million to $32.2 million, including $11.2 million of
good will arising out of the Acquisition, and (ii) working capital is a negative
$0.6 million compared with a working capital of $1.3 million at April 30, 1997.
These changes are attributable principally to the effects of the Acquisition.

RESULTS OF OPERATIONS
Comparison of Three and Nine-Month Ended
January 31, 1997, and February 28, 1998

      For the reasons discussed under "General" above, the operating results of
registrant for the three and nine-month periods ended February 28, 1998, and the
corresponding periods ended January 31, 1997, are not truly comparable because
of the reverse acquisition accounting treatment. However, the footnote 2 to the
financial statements included herein indicates that if the Acquisition had
occurred on June 1, 1996, instead of December 24, 1997, registrant's net
revenues for the three months ended February 28, 1998, would have declined to
$12.3 million from $14.9 million for the corresponding period one year earlier,
and for the nine months ended February 28, 1998, would have declined to $43.7
million from $51.2 million for the corresponding period one year earlier. For
the same periods, registrant's loss would have decreased from $2.9 million to
$1.3 million (three-month periods) and from $4.0 million to $3.0 million
(nine-month periods). The declines in net revenues were principally due to a
decline in He-Ro's net revenues during the periods ending with the Acquisition,
the reduction in the losses were principally due to He-Ro's reduction in its
less profitable activities during such periods.

      Management of registrant does not believe that there have been any
significant developments indicative of registrant's future operating results
except that after the Acquisition and prior to February 28, 1998:



                                       14
<PAGE>   15
                  (a) registrant liquidated inventory held in Hong Kong, the
      right to sell which had been restricted by the credit agreement with
      Foothill, a prior lender to He-Ro which was repaid in full as part of the
      Acquisition. Such liquidation involved the sale to a vendor, for about
      $135,000, of inventory with a cost basis of approximately $2.4million, 
      resulting in a non-recurring loss of about $500,000 in excess of
      reserves established therefor. Such non-recurring loss is included in the
      cost of goods sold.

                  (b) in the period ending May 31, 1999, registrant's earnings 
      will be reduced by about $95,000 per month because of the amortization of
      its goodwill on a straight-line basis over ten years. In addition, at 
      May 31, 1999, (the end of the first full fiscal year following the 
      Acquisition), registrant will evaluate the carrying value of certain 
      intangible assets which may not be recoverable, including goodwill, and 
      currently anticipates that the unamortized portion of such goodwill not 
      amortized prior to May 31, 1999, may be expressed in its entirety at 
      that date.


                                     PART II

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS.

            On December 24, 1997, 5,277,905 shares of Common Stock of registrant
("Common Stock"), par value $.01 per share, were issued Hong J. Han in exchange
for the acquisition by He-Ro of all the outstanding shares of capital stock of
Nah Nah, as a result of which Nah Nah became a wholly owned subsidiary of
registrant. Such issuance of Common Stock was exempt from registration under the
Securities Act of 1933 as a transaction by an issuer not involving any public
offering pursuant to Section 4(2) of that Act.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

           Prior to the Acquisition, He-Ro Group, Inc. (a subsidiary of
registrant, was indebted to the estate of Herbert Rounick in the amount of
$5,296,000 plus $1,119,000 of accrued and unpaid interest thereon (the "Rounick
Debt"). Although, under the terms of registrant's credit agreements, payments on
the Rounick debt was prohibited, interest was payable monthly and the failure to
pay such interest constituted a default on the Rounick Debt. The interest on the
Rouncik Debt was added to principal and new demand promissory notes representing
the outstanding Rounick Debt were issued to H. J. Han and the to Della rouncik
(the distributee of the estte of Rounick) reflecting principal of $4,296,000 to
Mr. Han and of $1,000,000 to Mrs Rouncik. Such debt bears interest at 9.278% per
annum payable on


                                       15
<PAGE>   16
the first of each month commencing January 1, 1998, or otherwise on demand.
Because of the terms of the subordination agreements with Heller and Hong J.
Han, interest has not been paid to the estate of Rounick since December 24,
1997. He-Ro had also been in default prior to the Acquisition under its Bank
Groupo Credit Agreement. And registrant is currently in default under certain
financial covenants under the Heller Agreement, as more fully discussed under
"Liquidity and Capital Resources" above.


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

         (a)  Exhibits:

         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.

         10.1     Stock Purchase Agreement dated October 16, 1997, among
                  Registrant, Vasiliki Della Pasvantidou Rou-nick ("Della
                  Rounick"), Nah Nah Collection, Inc. ("Nah Nah"), and Hong J.
                  Han. Incorporated by reference to Exhibit 2.1 of registrant's
                  Current Report on Form 8-K dated December 31, 1997.

         10.2     Debt Purchase and Intercreditor Agreement dated December 24,
                  1997, among Hong J. Han, Della Rounick and The He-Ro Group,
                  Inc. Incorporated by reference to Exhibit C of Form 13-D of
                  Hong H. Han filed January 13, 1998.

         *10.3    Guaranty by registrant and its subsidiaries in favor of Hong
                  J. Han and Della Rounick as Executrix of the Estate of Herbert
                  Rounick dated December 24, 1997.

         *10.4    Registration Rights Agreement dated December 24, 1997, between
                  registrant and Hong J. Han.

         *10.5    Amended and Restated Employment Agreement dated November 1,
                  1997, between The He-Ro Group, Inc. and Katherine Wong.

         *10.6    Amended and Restated Employment Agreement dated November 1,
                  1997, between The He-Ro Group, Inc. and David Minka.

         *10.7    Agreement dated July 30, 1997, among Nah Nah, C.A.S. Designs,
                  Inc. and Constance Saunders.

         *10.8    Employment Agreement dated January 1, 1997, between Nah Nah,
                  and Victor Costa.


                                       16
<PAGE>   17
         10.9     Sublease dated March 6, 1997, between The He-Ro Group, Inc.
                  (as sublessor) and Harve Benard (as sublessee) relating to
                  premises located at One American Way, Secaucus, New Jersey.
                  Incorporated by reference to Exhibit 10.2 to registrant's
                  Annual Report on Form 10-K for the year ended May 31, 1997.

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

         10.10.2  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").

         *10.10.3 Agreement dated December 30, 1997, between The He- Ro Group,
                  Inc., and Oleg Cassini, Inc., amending the Cassini License.

         *10.11   Licensing Agreement dated as of December 24, 1997, between
                  N.N.C.S., Inc. and Nah Nah.

         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.

         *11      Computation of Per Share Earnings Statement

         *27      Financial Data Schedule

         99.1     Irrevocable Proxy granted by Della Rounick in favor of Hong J.
                  Han. Incorporated by reference to to Exhibit B of Form 13-D of
                  Hong H. Han filed January 13, 1998.

         99.2     Factoring Agreement dated December 24, 1997 among Heller
                  Financial, Inc., The He-Ro Group, Inc., HRNL, Inc., Nah Nah,
                  registrant and certain other


                                       17
<PAGE>   18
                  subsidiaries. Incorporated by reference to Exhibit 99.1 to the
                  Registrant's Current Report on Form 8-K dated December 31,
                  1997.

         *99.3    Subordination Agreement dated December 24, 1997, among Hong J.
                  Han, Nah Nah, and Heller Financial Inc. subordinating
                  indebtedness owed by Nah Nah to Hong H. Han.

         *99.4    Subordination Agreement dated December 24, 1997, among Della
                  Rounick, Hong J. Han, The He-Ro Group, Inc., and Heller
                  Financial Inc. subordinating indebtedness owed by The He-Ro
                  Group, Inc. to Della Rounick and Hong J. Han.

            -------------------------
            * Exhibit filed herewith



         (b) Reports on Form 8-K

                  The following reports on Form 8-K were filed during the
         quarter ended February 28, 1998:

                  (i)   A report dated December 24, 1997, was filed on December
         31, 1997, covering Items 1, 2, 4 and 5. No financial statements were
         filed therewith.

                  (ii)  Amendment no. 1 to the report was filed on March 8,
         1998, amending Item 7. No financial statements were filed therewith.

                  (iii) Amendment no. 2 to the report was filed on March 9,
         1998, covering Item 7 and filing the following financing statements:

                        (1) Unaudited Financial Statements of Nah Nah
            Collection, Inc. for three years ended April 30, 1995, 1996, and
            1997, and Interim Financial Statements for the period May 1, 1997 to
            December 23, 1997; and

                        (2) Pro Forma Combined Condensed Balance Sheet and
            Statement of Operations for The He-Ro Group, Ltd. giving effect to
            the reverse acquisition.


                                       18
<PAGE>   19
                                   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.

                                            THE HE-RO GROUP, LTD.


April 20, 1998                              By  /s/ HONG J. HAN
                                                --------------------------------
                                                 Hong J. Han
                                                 President


                                            By  /s/ CHRIS HAN
                                                --------------------------------
                                                 Chris Han
                                                 Principal Financial Officer


                                       19
<PAGE>   20
                                  EXHIBIT INDEX

                                                                        Page No.
                                                                        --------


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.

10.1     Stock Purchase Agreement dated October 16, 1997, among
         Registrant, Vasiliki Della Pasvantidou Rounick ("Della
         Rounick"), Nah Nah Collection, Inc.("Nah Nah"), and Hong J.
         Han. Incorporated by reference to Exhibit 2.1 of registrant's
         Current Report on Form 8-K dated December 31, 1997.

10.2     Debt Purchase and Intercreditor Agreement dated December 24,
         1997, among Hong J. Han, Della Rounick and The He-Ro Group,
         Inc. Incorporated by reference to Exhibit C of Form 13-D of
         Hong H. Han filed January 13, 1998.

*10.3    Guaranty by registant and its subsidiaries in favor of Hong J.
         Han and Della Rounick as Executrix of the Estate of Herbert
         Rounick dated December 24, 1997.

*10.4    Registration Rights Agreement dated December 24, 1997,
         between registrant and Hong J. Han.

*10.5    Amended and Restated Employment Agreement dated November 1,
         1997, between The He-Ro Group, Inc. and Katherine Wong.

*10.6    Amended and Restated Employment Agreement dated November 1,
         1997, between The He-Ro Group, Inc. and David Minka.

*10.7    Agreement dated July 30, 1997, among Nah Nah, C.A.S. Designs,
         Inc. and Constance Saunders.

*10.8    Employment Agreement dated January 1, 1997, between Nah Nah,
         and Victor Costa.
<PAGE>   21
10.9     Sublease dated March 6, 1997, between The He-Ro Group, Inc.
         (as sublessor) and Harve Benard (as sublessee) relating to
         premises located at One American Way, Secaucus, New Jersey.
         Incorporated by reference to Exhibit 10.2 to registrant's
         Annual Report on Form 10-K for the year ended May 31, 1997.

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

10.10.2  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").

*10.10.3 Agreement dated December 30, 1997, between The He-Ro Group,
         Inc., and Oleg Cassini, Inc., amending the Cassini License.

*10.11   Licensing Agreement dated as of December 24, 1997, between
         N.N.C.S., Inc. and Nah Nah.

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.

*11      Computation of Per Share Earnings Statement

*27      Financial Data Schedule
<PAGE>   22
99.1     Irrevocable Proxy granted by Della Rounick in favor of Hong J.
         Han. Incorporated by reference to to Exhibit B of Form 13-D of
         Hong H. Han filed January 13, 1998.

99.2     Factoring Agreement dated December 24, 1997 among Heller
         Financial, Inc., The He- Ro Group, Inc., HRNL, Inc., Nah Nah,
         registrant and certain other subsidiaries. Incorporated by
         reference to Exhibit 99.1 to the Registrant's Current Report
         on Form 8-K dated December 31, 1997.

*99.3    Subordination Agreement dated December 24, 1997, among Hong J.
         Han, Nah Nah, and Heller Financial Inc. subordinating in-
         debtedness owed by Nah Nah to Hong H. Han.

*99.4    Subordination Agreement dated December 24, 1997, among Della
         Rounick, Hong J. Han, The He-Ro Group, Inc., and Heller Finan-
         cial Inc. subordinating indebtedness owed by The He-Ro Group,
         Inc. to Della Rounick and Hong J. Han.


-------------------------
* Exhibit filed herewith