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, 1997

                                       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
           New York, NY                                    10018
           ------------                                    -----
       (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                            April 11,1997
       ---------------------                           --------------
          $.01 par value                                  6,717,333



<PAGE>


                     THE HE-RO GROUP, LTD. AND SUBSIDIARIES


Index


PART I.FINANCIAL INFORMATION

Item 1.  Financial Statements:

         Consolidated Balance Sheets
         February 28, 1997 and May 31, 1996.........................      3

         Consolidated Statements of Income
         Three and Nine Months Ended February 28, 1997 and
         February 29, 1996..........................................      4

         Consolidated Statements of Changes in Stockholders' Equity
         Nine Months Ended February 28, 1997 and
         February 29, 1996..........................................      5

         Consolidated Statements of Cash Flows
         Nine Months Ended February 28, 1997 and
         February 29, 1996..........................................      6

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

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations........................   13-18

PART II. OTHER INFORMATION..........................................      19




                                       2

<PAGE>



                      THE HE-RO GROUP,LTD. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

                                                   February 28,      May 31,
                                                       1997           1996
                                                   ------------      -------
                                                    (unaudited)
ASSETS

CURRENT ASSETS:
     Cash.........................................     $   457        $   405
     Accounts receivable:
        Trade, net of allowances for doubtful
        accounts of $350 (February), $300 (May)...       4,097          1,648
     Suppliers and other..........................       3,445          2,991
                                                       -------        -------
                                                         7,542          4,639
     Inventory....................................      13,946         15,029
     Other current assets.........................         970            493
                                                       -------        -------
            Total current assets..................      22,915         20,566
                                                       -------        -------
FIXED ASSETS - at cost, net of accumulated
     depreciation and amortization................       1,135          2,424
OTHER ASSETS...................................          1,394          1,633
                                                       -------        -------
                                                       $25,444        $24,623
                                                       =======        =======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Bank loans...................................     $ 7,854        $ 5,977
     Current maturities of long-term debt.........     $ 2,750          2,600
     Accounts payable.............................       8,172          5,981
     Accrued expenses and other current
        liabilities...............................       2,728          1,888
                                                       -------        -------
            Total current liabilities.............      21,504         16,446
                                                       -------        -------

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

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


STOCKHOLDERS' EQUITY (DEFICIENCY):
     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)...............      (1,589)       (37,502)
                                                       -------         ------
            Total stockholders' equity (deficiency      (1,356)         2,731
                                                       -------         ------
                                                       $25,444        $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                     Nine Months Ended
                                             ------------------                     -----------------
                                      February 28         February 29        February 28         February 29
                                          1997                1996               1997                1996
                                          ----                ----               ----                ----
<S>                                      <C>                <C>                <C>                 <C> 

Net sales............................    $9,648             $12,278            $35,129             $40,827

Cost of sales........................     6,033               7,635             21,632              24,955
                                         ------               -----             ------              ------

   Gross profit......................     3,615               4,643             13,497              15,872

Operating Expenses...................

   Selling, general and administrative
   expenses..........................     4,725               5,003             14,564              15,666

   Restructuring charges.............     1,300                 -                1,300                 -
                                         ------              ------             ------              ------
                                          6,025               5,003             15,864              15,666
                                         ------              ------             ------              ------

Operating income (loss).............     (2,410)               (360)            (2,367)                206

Interest expense....................        554                 607              1,720               1,903
                                          -----              ------              -----               -----

   Loss before income taxes..........    (2,964)               (967)            (4,087)             (1,697)

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

   Net loss.........................    $(2,964)             $ (967)           $(4,087)            $(1,697)
                                         =======             =======           --------            --------


Net loss per common share..........      $(0.44)            $ (0.14)           $ (0.61)            $ (0.25)
                                         =======            --------           ========            --------

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>


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

<S>                                 <C>           <C>           <C>              <C>                  <C>

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

Net loss                                                                           (1,697)             (1,697)

Balance, February 29, 1996          6,717         $67           $40,166          $(35,271)             $4,962
                                    =====         ===           =======          ========              ======


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

Net loss                                                                           (4,087)             (4,087)

Balance, February 28, 1997          6,717         $67           $40,166          $(41,589)            $(1,356)
                                    =====         ===           =======          ========             =======

</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)
<TABLE>
<CAPTION>

                                                                      Nine months Ended
                                                                      -----------------
                                                            February 28              February 29
                                                                1997                     1996
                                                                ----                     ----
<S>                                                           <C>                      <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss........................................         $(4,087)                 $ (1,697)
                                                              -------                  --------
     Adjustments to reconcile pro forma net
        loss to net cash provided by (used in)
        operating activities:
        Depreciation and amortization................             653                       810
        Loss on disposition of fixed assets..........             724                        50
        Amortization of deferred finance costs.......             239                       204

(Increase) decrease in assets:
     Trade receivables..............................           (2,449)                   (2,910)
     Other receivables..............................             (454)                     (107)
     Inventories....................................            1,083                     1,137
     Other current assets...........................             (477)                       34
Increase (decrease) in liabilities:
     Accounts payable...............................            2,191                      (195)
     Accrued expenses and other current liabilities.              840                      (496)
                                                                 ----                   -------
     Total adjustments..............................            2,350                    (1,473)
                                                               ------                   -------
        Net cash used in operating
        activities..................................           (1,737)                   (3,170)
                                                               ------                   -------


CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of fixed assets....................              (88)                      (57)

     (Increase)Decrease in other assets.............               40                        37
                                                               ------                   -------
        Net cash used in investing activities.......              (48)                      (20)
                                                               ------                   -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Increase (decrease) in bank loans..............            1,877                     3,216
     Deferred finance costs.........................              (40)                     (115)
                                                               ------                   -------
            Net cash provided by financing
            activities..............................            1,837                     3,101
                                                               ------                   -------

NET INCREASE (DECREASE) IN CASH.....................               52                       (89)
CASH, beginning of period...........................              405                       809
                                                               ------                   -------
CASH, end of period.................................            $ 457                   $   720
                                                                =====                   =======

</TABLE>

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)

                                February 28, 1997

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  nine  months  ended
         February 28, 1997 and February 29, 1996 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.


2.       RESTRUCTURING CHARGES

             In February  1997, at a Special  Meeting of the Company's  Board of
         Directors,  as part of its  ongoing  cost  cutting  efforts,  the Board
         adopted a  restructuring  plan in connection with the subletting of the
         Company's  domestic warehouse and distribution  center,  administrative
         offices and retail store which are currently located in a single leased
         facility  in  Secaucus,  New  Jersey,  and in March,  1997 the  Company
         entered  into a  sublease  with  Harve  Benard  with  respect  to  such
         facility.  Because the Company has  downsized its operation to its core
         eveningwear business as a result of a restructuring plan adopted by the
         Board in October,  1993,  the  Company's  current  operations no longer
         justify the use of the more expansive  facilities  located in Secaucus,
         New   Jersey.   Accordingly,   the  Company   plans  to  relocate   its
         administrative  offices  and retail  store to smaller  leased  space in
         Secaucus,  and utilize an independent  third party for the distribution
         and  warehousing  of  inventory.  As a  result  of the  foregoing,  the
         restructuring  charge for the nine months  ended  February  28, 1997 is
         $1.3  million,  of  which  $0.8  million  reflects  losses  due  to the
         abandonment of certain fixed assets and leasehold improvements and $0.5
         million of costs related to the loss incurred by the Company due to the
         lower rent payable by the sublessee and other  expenses  related to the
         sublet. The Company's sublet of its Secaucus facilities and move to new
         space will be effected during June, 1997.



                                        7

<PAGE>



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


3.       INVENTORY

             Inventory is stated at the lower of cost  (first-in,  first-out) or
         market,  and at February 28, 1997 was calculated using the gross profit
         method.
                                                       (In Thousands)
                                              February 28,              May 31,
                                                  1997                   1996
                                               -----------              ------
                                               (UNAUDITED)

        Finished goods.......................      $10,146             $10,647
        Raw materials........................        3,800               4,382
                                                   -------              ------

                                                   $13,946             $15,029
                                                   -------             =======

4.      FIXED ASSETS

        Fixed assets consist of the following:
                                                       (In Thousands)
                                              February 28,              May 31,
                                                  1997                   1996
                                               ----------               ------
                                               (UNAUDITED)

        Machinery and equipment...............     $ 1,943             $ 3,115
        Furniture and fixtures................       2,536               2,979
        Leasehold improvements................       2,696               3,647
                                                   -------             -------
               7,175                                 9,741
        Less - Accumulated depreciation and
        amortization..........................       6,040               7,317
                                                   -------             -------
                                                   $ 1,135             $ 2,424
                                                   -------             =======

5.      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 February 28, 1997 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. (See Note 9 for further discussion.)





                                        8

<PAGE>



 
6.  BANK LOANS AND LONG TERM DEBT

           On May 12, 1995, the Company signed a 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
        February  28, 1997) plus 2 1/2% per annum.  At February  28,  1997,  the
        direct  debt  outstanding   under  the  Foothill  Credit  Agreement  was
        $7,854,000  and the  Company  was  contingently  liable for  outstanding
        letters of credit of approximately $350,000.

           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  February  28,  1997,  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
        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  March  1997,  because  these
        liquidity  standards  were not met, the Company was not permitted to pay
        the monthly installments of principal to the Bank Group, and accordingly
        was 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 9, the Company  will be seeking to  refinance  or revise its credit
        facilities  with  Foothill.  Additionally,  the  Company  has reached an
        agreement in principle  with the Bank Group to settle their  outstanding
        balance upon the closing of the transaction.

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



                                        9

<PAGE>

           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 1.0

        -  The maximum liabilities to net worth must equal: 38.0 to 1.0

        -  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 February  28,  1997,  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.


7.      SUPPLEMENTAL CASH FLOW INFORMATION

           Payments of income taxes were $41,000 and $10,000 for the nine months
        ended February 28, 1997 and February 29, 1996, respectively. Payments of
        interest during the corresponding periods were $1,354,000 and $1,732,000
        respectively.

8.      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. 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
        




                                       10

<PAGE>


        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.
        Legislative  attempts  to defeat  the  Presidential  Determination  were
        unsuccessful  during  the 104th  Congress.  "Most-favored-nation"  trade
        status was renewed  effective 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 or otherwise restricting the importation of goods
        from China. A bill was introduced into the House of  Representatives  in
        January of 1997 which would ban all entries or  importations  of Chinese
        origin articles unless the Secretary of the Treasury determines that the
        merchandise is not the product, growth or manufacture of forced labor.

           In February  1997,  the United  States and China  entered into a four
        year  bilateral  textile  agreement,   covering  certain  cotton,  wool,
        man-made  fiber,  silk  blend and other  vegetable  fiber  textiles  and
        textile products,  expiring  December 31, 2000. Among other things,  the
        agreement  reduces  China's  export quotas with respect to fourteen (14)
        apparel and fabric  categories  and permits the United  States to impose
        significant  penalties  for  transshipment  violations.  Such  penalties
        include the  assessment  of  "transshipment  charges"  against the quota
        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 previous bilateral textile agreement with China,
        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 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  January 1, 1997
        through  December  31, 1997.  This  agreement  replaced a  substantially
        similar agreement which was in effect for goods so produced and exported
        to the United States from April 1, 1994 through December 31, 1996.

           On July 1, 1997, the British Crown Colony of Hong Kong reverts to the
        People's  Republic  of  China.  The  United  States  has  announced  its
        agreement  with China on the separate  treatment  of textile  quotas for
        Hong Kong after reversion of such territory. Should the United States in
        the future 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.



                                       11

<PAGE>



           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 have been
        finalized.  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 has 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.

9.      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 February 28, 1997, 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 6 for discussion).  The Company is projecting losses from continued
        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.




                                       12

<PAGE>




            On March  12,  1997,  the  Company  announced  that it had  signed a
        purchase  agreement with Oleg Cassini,  Oleg Cassini,  Inc.  ("OCI") and
        Stonehill Investment  Corporation  ("Stonehill"),  pursuant to which Mr.
        Cassini and  Stonehill  will invest  $7,000,000 in the Company (of which
        $5,000,000  will  be  invested  at  the  closing  of  the   transactions
        contemplated  in the purchase  agreement,  and an additional  $1,000,000
        will be  invested at each of the first and second  anniversaries  of the
        closing),  and OCI  will  contribute  certain  licensing  income  to the
        Company in connection with a licensing management  agreement,  for which
        they will  receive  80% of the  Company's  common  stock.  In  addition,
        Stonehill  has  negotiated  to  purchase  the  principal   shareholder's
        subordinated note (see Note 6).

           In connection with the close of this  transaction,  the Company plans
        to establish revised financing arrangements.

           The  transaction  is subject to certain  third  party and  regulatory
        approvals and certain other closing conditions.  Consequently, there can
        be no assurance that the Company will consummate this transaction.

           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 nine month period ended  February 28,
1997,  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. 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.  Legislative attempts
to defeat the  Presidential  Determination  were  unsuccessful  during the 104th
Congress. "Most-favored-nation" trade status was renewed effective 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 or otherwise  restricting the importation of goods from China. A bill was
introduced into the House of  Representatives in January of 1997 which would ban
all entries or  importations  of Chinese origin articles unless the Secretary of
the Treasury  determines  that the  merchandise  is not the  product,  growth or
manufacture of forced labor.

        In February  1997,  the United States and China entered into a four year
bilateral textile agreement, covering certain cotton, wool, man-made fiber, silk
blend and other vegetable fiber textiles and textile products, expiring December
31, 2000. Among other things,  the agreement  reduces China's export quotas with
respect to fourteen  (14) apparel and fabric  categories  and permits the United
States  to impose  significant  penalties  for  transshipment  violations.  Such
penalties  include the assessment of  "transshipment  charges" against the quota





                                       14

<PAGE>


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


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 previous bilateral textile agreement with China, 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  subjects to
quota  limitations,  China's exports of apparel containing 70% or more by weight
of  silk.  This  agreement  is  effective  with  respect  to goods  produced  or
manufactured  in China and exported to the United  States during the period from
January  1,  1997  through   December  31,  1997.  This  agreement   replaced  a
substantially  similar  agreement  which was in effect for goods so produced and
exported to the United States from April 1, 1994 through December 31, 1996.

        On July 1, 1997,  the British  Crown  Colony of Hong Kong reverts to the
People's  Republic of China.  The United States has announced its agreement with
China on the separate  treatment of textile quotas for Hong Kong after reversion
of such territory.  Should the United States in the future  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 have been finalized.  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 has 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.



                                       15

<PAGE>


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


          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.

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

     Net sales of $9.6  million for the three  months  ended  February  28, 1997
decreased by $2.7 million (21.4%) compared to net sales of $12.3 million for the
three months ended February 29, 1996. This decrease is primarily attributable to
the  downsizing  of the Company's  operations,  in addition to reduced sales for
evening wear products due to the soft economy in the apparel industry.

        Cost of sales for the three  months  ended  February  28,  1997 was $6.0
million,  or 62.5% of net sales compared to $7.6 million,  or 62.2% of net sales
for the three months ended February 29, 1996.  Gross profit for the three months
ended  February 28, 1997 was $3.6  million,  or 37.5% of net sales,  compared to
$4.7  million,  or 37.8% of net sales for three months ended  February 29, 1996.
The decrease in gross profit  dollars was primarily due to the decrease in sales
volume described above.

        Selling,  general and administrative expenses ("SGA") were $4.7 million,
or 49.0% of net sales for the three months ended February 28, 1997,  compared to
$5.0  million,  or 40.8% of net sales for the three  months  ended  February 29,
1996.  The lower  selling,  general and  administrative  expenses  for the three
months ended February 28, 1997 are primarily attributable to decreases in salary
expenses, rent and occupancy, insurance and professional fees resulting from the
Company's planned cost cutting measures.

        Restructuring  charges were $1.3 million, or 13.5% of net sales, for the
three  months  ended  February  28,  1997.  (See  Note 2 of  Condensed  Notes to
Consolidated Financial Statements.)

        Operating  loss was $2.4  million  or 25.0% of net  sales  for the three
months ended  February 28, 1997 compared to $.4 million or 2.9% of net sales for
the three months ended  February 29, 1996.  This increase in operating  loss was
primarily  attributable to a reduction in net sales and related gross profit and
restructuring charges described above.

        Interest  expense for the three months ended  February 28, 1997 was $0.6
million,  or 5.7% of net sales compared to $.6 million, or 4.9% of net sales for
the three months ended February 29, 1996.

        As a result of the factors  described  above, the Company had a net loss
of $3.0 million  ($.44 per share) for the three  months ended  February 28, 1997
compared to a net loss of $1.0  million (or $.14 per share) for the three months
ended February 29, 1996.





                                       16

<PAGE>


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



Results of Operations
Nine months Ended February 28, 1997 Compared to Nine months Ended
February 29, 1996

        Net sales of $35.1  million for the nine months ended  February 28, 1997
decreased by $5.7 million  (14.0%) below net sales of $40.8 million for the nine
months ended February 29, 1996.  This decrease is primarily  attributable to the
downsizing of the Company's operations, in addition to reduced sales for evening
wear products due to the soft economy in the apparel industry.

        Cost of sales for the nine  months  ended  February  28,  1997 was $21.6
million,  or 61.6% of net sales compared to $24.9 million, or 61.1% of net sales
for the nine months ended  February  29, 1996.  Gross profit for the nine months
ended  February 28, 1997 was $13.5 million,  or 38.4% of net sales,  compared to
$15.9 million or 38.9% of net sales for the nine months ended February 29, 1996.
The decrease in gross profit  dollars was primarily due to the decrease in sales
volume described above.

        Selling,  general and administrative  expenses of $14.6 million or 41.5%
of net sales for the nine  months  ended  February  28,  1997  compared to $15.7
million,  or 38.4%  for the nine  months  ended  February  29,  1996.  The lower
selling,  general and administrative expenses for the nine months ended February
28, 1997 are primarily  attributable to decreases in salary  expenses,  rent and
occupancy, professional fees and insurance.

        Restructuring  charges were $1.3 million,  or 3.7% of net sales, for the
nine  months  ended  February  28,  1997.  (See  Note 2 of  Condensed  Notes  to
Consolidated Financial Statements.)

        Operating  loss of $2.4 million or 6.7% of net sales for the nine months
ended February 28, 1997 compared to an operating income of $.2 million or .5% of
net  sales for the nine  months  ended  February  29,  1996.  This  decrease  in
operating  income was  primarily  attributable  to reduced net sales and related
gross profit and restructuring charges described above.

        Interest  expense  of $1.7  million  or 4.9% of net  sales  for the nine
months ended  February 28, 1997 compared to $ 1.9 million,  or 4.7% of net sales
for the nine months ended February 29, 1996.

        As a result of the factors  described  above, the Company's net loss was
$4.1  million (or $.61 per share) for the nine months  ended  February  28, 1997
compared  to a net loss of $1.7  million (or $.25 per share) for the nine months
ended February 29, 1996.

Liquidity and Capital Resources

        At  February  28,  1997,  the  Company had a decrease in cash flows from
operating  activities of $1.7 million.  This decrease resulted  primarily from a





                                       17

<PAGE>


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


net loss of $4.1  million  for the nine  months  then ended and an  increase  in
receivables of $2.9 million, and offset partially by a net decrease in inventory
of $1.1  million,  and an increase in accounts  payable and accrued  expenses of
$3.0 million for the nine 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 nine
months of fiscal 1997 and 1996, 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 $.2 million.

        Cash flows from financing activities increased by $1.8 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  and,
accordingly, was not in compliance with it credit agreement with its bank group.
In addition,  as of February 28, 1997,  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 6 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 9 of Condensed  Notes to  Consolidated  Financial  Statements.  The Company
believes that the  contemplated  transaction  with a potential  purchaser of the
Company as discussed in Note 9, as well as funds  generated  by  operations,  in
addition to management's ability to reduce expenses,  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.  There can be no
assurance  that the Company will  consummate a  transaction  with the  potential
purchaser as discussed in Note 9 or with any other 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:

                          27      Financial Data Schedule


                 (b)      Reports on Form 8-K:

                          None




                                   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:  April 10, 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:  April 10, 1997

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


                                       19

<PAGE>

                                INDEX TO EXHIBITS
                                       TO
                              THE QUARTERLY REPORT
                                  ON FORM 10-Q
                     FOR THE QUARTER ENDED FEBRUARY 28, 1997
                                       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.