<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                  FORM 10-Q/A

 
   X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  ---   EXCHANGE ACT OF 1934
        For the quarterly period ended June 30, 1998

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
  ---   1934
        For the transition period from                to 
                                       --------------    --------------

                        Commission File Number 0-28596


                             THE NORTH FACE, INC.
            (Exact name of registrant as specified in its charter)


                 Delaware                                94-3204082
      (State or other jurisdiction          (I.R.S. Employer Identification No.)
      of incorporation or organization)

   407 Merrill Avenue, Carbondale, Colorado                81623
   (Address of principal executive offices)              (Zip Code)

                                (970) 704-2300
             (Registrant's telephone number, including area code)

              2013 Farallon Drive, San Leandro, California  94577
             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether 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        No   X
    ---        --- 

The number of shares of Common Stock, $0.0025 par value per share, outstanding
on April 30, 1999 was 12,725,656.

                                       1
<PAGE>
 
                             THE NORTH FACE, INC.

                                 JUNE 30, 1998


                             INDEX TO FORM 10-Q/A

<TABLE>
<CAPTION>
PART I.        FINANCIAL INFORMATION                                                    PAGE NO.
<S>            <C>                                                                      <C>

     Item 1 -  Financial Statements (unaudited)

               Condensed Consolidated Balance Sheets as of June 30, 1998 (Restated),
                  December 31, 1997 and June 30, 1997....................................   3

               Condensed Consolidated Statements of Operations for the Three and
                  Six Months Ended June 30, 1998 (Restated) and 1997.....................   4

               Condensed Consolidated Statements of Cash Flows for the
                  Six Months Ended June 30, 1998 (Restated) and 1997.....................   5

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

     Item 2 -  Management's Discussion and Analysis of Financial Condition and
               Results of Operations.....................................................   9


PART II.       OTHER INFORMATION

     Item 1 -  Legal Proceedings.........................................................   14

     Item 4 -  Submission of Matters to a Vote of Security Holders.......................   15

     Item 6 -  Exhibits and Reports on Form 8-K..........................................   15
</TABLE>

                                       2
<PAGE>
 
ITEM 1.  FINANCIAL STATEMENTS

                              THE NORTH FACE, INC.
                                        
                     CONDENSED CONSOLIDATED BALANCE SHEETS
              (In thousands, except share and per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                           June 30,    December 31,  June 30,
                                                                             1998          1997        1997
                                                                         -----------  -------------  --------
                                                                           RESTATED
                                ASSETS                                   (See Note 4)
<S>                                                                      <C>           <C>           <C>
Current assets:                                                       
Cash and cash equivalents...............................................    $  5,303       $  4,511  $  1,695
Accounts receivable, net................................................      56,236         54,857    27,658
Inventories.............................................................      64,852         46,682    47,326
Deferred taxes..........................................................       2,865          2,865     2,488
Other current assets....................................................      10,642          9,046     5,802
                                                                            --------       --------  --------
  Total current assets..................................................     139,898        117,961    84,969
                                                                      
Property and equipment, net.............................................      20,072         17,524    16,390
Trademarks and intangibles, net.........................................      28,405         29,066    29,460
Other assets............................................................       6,274          2,898     2,452
                                                                            --------       --------  --------
  Total assets..........................................................    $194,649       $167,449  $133,271
                                                                            ========       ========  ========
                                                                      
                LIABILITIES AND STOCKHOLDERS' EQUITY                                  
Current liabilities:                                                  
Accounts payable, accrued expenses and other current liabilities........    $ 30,428       $ 30,232  $ 18,992
Short-term borrowings and current portion of long-term debt and       
 capital lease obligations..............................................      40,985         25,734    19,520
                                                                            --------       --------  --------
  Total current liabilities.............................................      71,413         55,966    38,512
                                                                      
Long-term debt and obligations under capital leases.....................       4,435          5,177       942
Other long-term liabilities.............................................       6,045          6,165     6,576
                                                                            --------       --------  --------
  Total liabilities.....................................................      81,893         67,308    46,030
                                                                            --------       --------  --------
                                                                      
Commitments and contingencies...........................................          --             --        --
                                                                      
Stockholders' equity:                                                 
Common stock, $.0025 par value--shares authorized 50,000,000;         
 issued and outstanding; 12,337,000 at June 30, 1998, 11,502,000      
 at December 31, 1997 and 11,258,000 at June 30, 1997..................           31             29        29
Additional paid-in capital.............................................       97,761         81,727    78,609
Subscriptions receivable...............................................           --             --       (15)
Retained earnings......................................................       14,647         18,068     8,341
Accumulated other comprehensive income-cumulative translation        
 adjustments...........................................................          317            317       277
                                                                            --------       --------  --------
  Total stockholders' equity...........................................      112,756        100,141    87,241
                                                                            --------       --------  --------
  Total liabilities and stockholders' equity...........................     $194,649       $167,449  $133,271
                                                                            ========       ========  ========
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                             THE NORTH FACE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                               Three Months Ended        Six Months Ended
                                                                    June 30,                 June 30,
                                                             -----------------------  ----------------------- 
                                                                 1998        1997         1998        1997
                                                             ------------  ---------  ------------  --------- 
                                                               RESTATED                 RESTATED
                                                             (See Note 4)             (See Note 4)
<S>                                                          <C>           <C>        <C>           <C>
Net sales..................................................     $ 43,171   $ 31,087     $  88,875   $ 70,429
Cost of sales..............................................       24,261     18,046        50,040     40,173
                                                             ------------  ---------  ------------  --------- 
Gross profit...............................................       18,910     13,041        38,835     30,256
Operating expenses.........................................       21,253     15,975        41,578     32,748
Other operating expenses...................................        1,518        --          1,518        --
                                                             ------------  ---------  ------------  --------- 
Operating loss.............................................       (3,861)    (2,934)       (4,261)    (2,492)
Interest expense...........................................         (848)      (301)       (1,522)      (420)
Other income (expense), net................................          517        (87)          220        (25)
                                                             ------------  ---------  ------------  --------- 
Loss before benefit for income taxes.......................       (4,192)    (3,322)       (5,563)    (2,937)
Benefit for income taxes...................................       (1,613)    (1,315)       (2,141)    (1,165)
                                                             ------------  ---------  ------------  --------- 
Net loss...................................................      $(2,579)   $(2,007)     $ (3,422)   $(1,772)
                                                             ============  =========  ============  =========
Net loss per share:
  Basic.....................................................      $(0.22)    $(0.18)       $(0.29)    $(0.16)
  Diluted...................................................      $(0.22)    $(0.18)       $(0.29)    $(0.16)
 
Weighted average shares outstanding:
  Basic.....................................................      11,968     11,222        11,752     11,220
  Diluted...................................................      11,968     11,222        11,752     11,220
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                              THE NORTH FACE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                            -----------------------
                                                                                                1998        1997
                                                                                            -----------   ---------
<S>                                                                                         <C>           <C>
                                                                                              RESTATED
                                                                                            (See Note 4)
CASH FLOWS FROM OPERATING ACTIVITIES:                                                     
Net loss..................................................................................      $(3,422)   $(1,772)
Adjustments to reconcile net loss to cash used in operating activities:                   
  Depreciation and amortization............................................................       3,073      1,886
  Loss from the disposal of property and equipment.........................................         912          -
  Provision for doubtful accounts..........................................................         220        736
  Tax benefit of exercise of stock options.................................................       1,306      2,339
  Other....................................................................................         (43)         2
Effect of changes in:                                                                  
  Accounts receivable......................................................................      (1,266)    (2,584)
  Inventories..............................................................................     (18,171)   (15,851)
  Income tax receivable....................................................................        (782)    (2,197)
  Other assets.............................................................................      (1,816)    (4,073)
  Accounts payable, accrued expenses and other current liabilities.........................          76      1,710
                                                                                            -----------   ---------
NET CASH USED IN OPERATING ACTIVITIES.....................................................      (19,913)   (19,804)
                                                                                            -----------   ---------
                                                                                          
CASH FLOWS FROM INVESTING ACTIVITIES:                                                     
Deposit for investment in La Sportiva S.r.l...............................................       (2,488)         -
Purchases of property and equipment.......................................................       (6,090)    (7,135)
Proceeds from the sale of property and equipment..........................................           43          -
                                                                                            -----------   ---------
NET CASH USED IN INVESTING ACTIVITIES.....................................................       (8,535)    (7,135)
                                                                                            -----------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                     
Borrowings on long-term debt..............................................................            -      1,793
Repayments of long-term debt..............................................................         (624)      (134)
Proceeds from revolver, net...............................................................       15,134     18,573
Payment of debt acquisition costs.........................................................            -        (88)
Collection of note receivable.............................................................        6,549          -
Proceeds from issuance of stock...........................................................        8,181        220
                                                                                            -----------   ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................................       29,240     20,364
                                                                                            -----------   ---------
Effect of foreign currency fluctuations on cash...........................................            -        (45)
                                                                                            -----------   ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..........................................          792     (6,620)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................        4,511      8,315
                                                                                            -----------   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................     $  5,303   $  1,695
                                                                                            ===========   =========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Noncash Financing Actitities:
    Issuance of common stock for note receivable..........................................     $  6,549   $      -
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                              THE NORTH FACE, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)


NOTE 1.  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of
The North Face, Inc. and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Accordingly, the interim unaudited financial statements should be
read in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1997 (the
"Form 10-K/A"). Operating results for the six month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998.

     These financial statements have been prepared by the Company in a manner
consistent with that used in the preparation of the consolidated financial
statements included in the Form 10-K/A.  In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal and recurring adjustments, necessary for a fair presentation of the
financial position, results of operations, and cash flows for the periods
presented.  All significant intercompany accounts and transactions have been
eliminated.

     The Condensed Consolidated Balance Sheet as of  December 31, 1997, has been
derived from the Consolidated Balance Sheet as of December 31, 1997 included in
the Form 10-K/A.

     Reclassification.  Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.  Such
reclassifications had no effect on net earnings.

NOTE 2.  RECENTLY ISSUED ACCOUNTING STANDARDS

     In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
established standards for reporting and displaying comprehensive income and its
components in financial statements.  Comprehensive income is defined as a change
in equity from transactions and other events and circumstances from nonowner
sources. Accumulated other comprehensive income consists entirely of foreign
currency translation adjustments.  Total comprehensive loss for the three months
ended June 30, 1998 and 1997 was $2,644,000 and $1,882,000, respectively, and
$3,422,000 and $1,817,000 for the six months ended June 30, 1998 and 1997,
respectively.

NOTE 3.   OTHER OPERATING EXPENSES

     During the quarter ended June 30, 1998 the Company recorded a charge of
$1,518,000, related to the closing of an out-dated manufacturing facility in
Scotland,  the integration of its Canadian subsidiary into a combined North
American business operation, and the termination of its German sales agent.

                                       6
<PAGE>
 
NOTE 4. RESTATEMENT

     Subsequent to the issuance of the Company's Condensed Consolidated
Financial Statements for the three and six months ended June 30, 1998, the
Company's management determined that certain consignment revenue resulting from
a barter transaction had been improperly recognized, certain severance costs had
not been properly accrued, certain capitalized costs related to information
systems selection, consulting and product development costs should have been
expensed, and certain other income should have been recorded in the three months
ended June 30, 1998 rather than the three months ended March 31, 1998.  As a
result, the condensed consolidated financial statements as of June 30, 1998 and
for the three and six months then ended have been restated from amounts
previously reported.  The effects of the restatement have been reflected herein.

     In addition to the restatements reflected herein, the Company has also 
restated its previously issued Consolidated Financial Statements for the year 
ended December 31, 1997 and its Condensed Consolidated Financial Statements for 
the three and nine months ended March 31, 1998 and September 30, 1998.  See the 
Form 10-K/A and the Company's Quarterly Reports on Form 10-Q/A for the three and
nine months ended March 31, 1998 and September 30, 1998.

     A summary of the effects of the restatement as of the June 30, 1998 and for
the three and six months then ended follows:

<TABLE>
<CAPTION>
                                                               Three Months Ended       Six Months Ended
                                                                    June 30,                June 30,
                                                             ----------------------  ---------------------
                                                                1998        1998        1998        1998
                                                             ----------   ---------  ----------   --------
                                                             PREVIOUSLY              PREVIOUSLY
                                                              REPORTED    RESTATED    REPORTED    RESTATED
                                                               (In thousands, except per share amounts)
                                                                              (unaudited)
<S>                                                          <C>          <C>        <C>          <C>
Net sales..................................................     $42,553    $43,171      $90,362    $88,875
Cost of sales..............................................      23,564     24,261       50,381     50,040
Operating expenses.........................................      20,801     21,253       40,172     41,578
Other operating expenses..................                        1,620      1,518        1,620      1,518
Other income (expense), net................................        (133)       517          220        220
Loss before benefit for income taxes.......................      (4,413)    (4,192)      (3,653)    (5,563)
Benefit for income taxes...................................      (1,743)    (1,613)      (1,443)    (2,141)
Net loss...................................................      (2,670)    (2,579)      (2,210)    (3,422)
Net loss per share:
  Basic.....................................................     $(0.22)    $(0.22)      $(0.19)    $(0.29)
  Diluted...................................................     $(0.22)    $(0.22)      $(0.19)    $(0.29)
</TABLE>

<TABLE>
<CAPTION>
                                                                     June 30,              June 30,
                                                                       1998                  1998
                                                                  ---------------      ---------------
                                                                     PREVIOUSLY 
                                                                     REPORTED              RESTATED
                                                                             (In thousands)
                                                                              (unaudited)
<S>                                                               <C>                  <C>
Total current assets............................................       $138,519        $139,898
Property and equipment, net.....................................         22,428          20,072
Other assets....................................................          6,461           6,274
Total current liabilities.......................................         68,405          71,413
Other long-term liabilities.....................................          5,854           6,045
Retained earnings...............................................         19,010          14,647
</TABLE>

                                       7
<PAGE>
 
NOTE 5.  SUBSEQUENT EVENTS

     On July 2, 1998, the Company acquired a 20% interest in La Sportiva S.r.l.,
a premier manufacturer and distributor of trekking, mountaineering, and climbing
footwear located in Ziano di Fiemme, Italy for a purchase price of $2.5 million,
and incurred direct costs of approximately $0.6 million, for a total purchase
price of approximately $3.1 million.  In August 1998, La Sportiva S.r.l. changed
its name to La Sportiva S.p.A.  The majority shareholders of La Sportiva S.p.A.
have a "put option" which may require the Company to purchase, in a single
transaction, an additional 31% interest in La Sportiva S.p.A. for 6.8 billion
lira ($3.8 million at July 2, 1998).  This put option may be exercised at any
time during the period beginning on July 1, 2000 and ending on July 1, 2003.
After the expiration of the "put option" and until December 31, 2004, the
Company may exercise a "call option" which, if exercised, would require the
majority shareholders of La Sportiva S.p.A. to sell an additional 31% interest
to the Company for 6.8 billion lira ($3.8 million at July 2, 1998).  The Company
has accounted for its 20% interest in La Sportiva S.p.A. under the equity
method.  The purchase price of La Sportiva S.p.A. exceeded the Company's
proportionate share of the net assets acquired by $2.4 million, which was
recorded as goodwill and is being amortized on a straight line basis over 40
years.

  In a related transaction on July 2, 1998, the Company acquired 100% of the
outstanding common stock of La Sportiva USA, (which owns the exclusive rights to
distribute footwear for La Sportiva S.p.A. in the United States) located in
Boulder, Colorado, for a purchase price of approximately $3.9 million.  The
purchase price includes $3.1 million which was paid in 133,335 shares of the
Company's Common Stock and additional $0.8 million in cash to be paid to the
former owners of La Sportiva USA over the next five years.

     The purchase price of La Sportiva USA exceeded the fair value of the net
assets acquired by approximately $3.8 million, which was recorded as goodwill
and is being amortized on a straight line basis over 40 years.  The fair value
of the net assets acquired is based on preliminary estimates, which are subject
to change. The acquisition was recorded under the purchase method of accounting.
The Company has consolidated the results of La Sportiva USA beginning on July 2,
1998.

     On February 27, 1999, the Company's Board of Directors approved a
Transaction Agreement (the "Transaction Agreement") between the Company and TNF
Acquisition LLC ("TNF"), an affiliate of Leonard Green & Partners, L.P. ("LGP").
The Transaction Agreement provides for a tender offer for all of the Company's
outstanding stock (other than shares held by James G. Fifield, Chief Executive
Officer) at $17 cash per share and the acquisition of control of the Company by
LGP and Mr. Fifield.  On March 5, 1999, the Company withdrew its tender offer,
however, the Transaction Agreement remained in full force and effect.  There can
be no assurance that the transactions contemplated by the Transaction Agreement
(the "Transactions") will be consummated at all or on terms favorable to the
Company's shareholders.  If the Transaction Agreement is terminated, the Company
could be required under certain circumstances to pay TNF a $7 million
termination fee plus up to $5.5 million of TNF's expenses associated with the
Transactions.

     In connection with the Transactions and following the Company's accounting
related announcements, which reported the restatement of the Company's 1997
Consolidated Financial Statements and 1998 interim Condensed Consolidated
Financial Statements, several lawsuits have been filed against the Company.
There can be no assurance that the Company will successfully defend these
lawsuits. Regardless of whether the Transactions are consummated or of the
outcome of these lawsuits, the Company will likely incur significant related
expenses and costs that could have a material adverse effect on the Company's
business and operations.

                                       8
<PAGE>
 
     During the first week of March 1999, various complaints were filed against
the Company and its Board of Directors in the Delaware Court of Chancery and in
the California Superior Court, Alameda County in connection with the
Transactions. The complaints, filed on behalf of a purported class of the
Company's shareholders, generally allege that the Transactions are unfair and
inadequate to the Company's shareholders and charge the defendants with self-
dealing and breach of fiduciary duties. The various complaints generally request
injunctive relief to prevent the consummation of the Transactions, and seek
other remedies in the event the Transactions are completed. The Company has not
yet responded to these complaints.

     On March 9, 1999, a purported shareholder class action complaint was filed
in federal district court in Colorado, alleging that the Company and various of
its officers and directors violated the federal securities laws by making false
and misleading statements about the Company's financial results during a class
period from April 25, 1997 through March 4, 1999.  Markus v. The North Face,
Inc., et al., Civ. A. No. 99-WM-473.  Subsequently, complaints with similar
allegations and class periods on behalf of persons trading in the Company's
securities, have been filed in federal district courts in Colorado and
California (collectively, the "Securities Litigation").  The Company believes it
has meritorious defenses to these claims and intends to contest the Securities
Litigation vigorously.  An unfavorable resolution of the Securities Litigation
could have a material adverse effect on the business, results of operations or
financial condition of the Company.

     On April 6, 1999, a shareholder derivative action purportedly on behalf of
the Company, captioned Eng v. Cason, et al., Civil Action No. 810726-0, was
filed in California Superior Court, Alameda County.  The complaint alleges that
the Company's directors and various officers violated California law and
breached fiduciary duties to the Company by engaging in alleged wrongful conduct
from April 25, 1997 through March 12, 1999, including the conduct complained of
in the Securities Litigation.  The Company is named solely as a nominal
defendant, against whom the plaintiff seeks no recovery.


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

     Subsequent to the issuance of the Company's Condensed Consolidated
Financial Statements for the three and six months ended June 30, 1998, the
Company's management determined that certain consignment revenue resulting from
a barter transaction had been improperly recognized, certain severance costs had
not been properly accrued, certain capitalized costs related to information
systems selection, consulting and product development costs should have been
expensed, and certain other income should have been recorded in the three months
ended June 30, 1998 rather than the three months ended March 31, 1998.  As a
result, the Condensed Consolidated Financial Statements as of June 30, 1998 and
for the three and six months then ended have been restated from amounts
previously reported.  The effects of the restatement are presented in Note 4 to
the Condensed Consolidated Financial Statements and have been reflected herein.

     In addition to the restatements reflected herein, the Company has also 
restated its previously issued Consolidated Financial Statement for the year 
ended December 31, 1997 and its Condensed Consolidated Financial Statements for 
the three and nine months ended March 31, 1998 and September 30, 1998.  See the 
Form 10-K/A and the Company's Quarterly Reports on Form 10-Q/A for the three and
nine months ended March 31, 1998 and September 30, 1998.

Overview--Factors That May Affect Future Results

     When used below in connection with matters that may occur in the future,
the words "anticipate," "estimate," "expect" or similar words identify forward
looking statements within the meaning of federal securities laws.  Forward
looking statements below are based on the Company's current expectations of

                                       9
<PAGE>
 
future events. The matters described in the forward looking statements are
subject to risks and uncertainties. The actual results of these matters may
differ substantially from the results anticipated by the Company. The Company
cannot assure that future results will meet its current expectations. Risks and
uncertainties relating to forward looking statements and to the Company's
business include, but are not limited to, those described herein, under "Factors
That May Affect Our Business," in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and in other documents that may be
subsequently filed with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

     The following tables set forth, for the periods indicated, certain items in
the Company's consolidated statements of operations as a percentage of net sales
(except for income taxes, which are shown as a percentage of pretax income).
The results of operations for the three and six months ended June 30, 1998 and
1997 are not necessarily indicative of future results to be expected for the
full year.

<TABLE>
<CAPTION>
                                                          Three Months Ended      Six Months Ended
                                                               June 30,               June 30,
                                                         --------------------    ------------------ 
                                                           1998        1997       1998       1997
                                                         --------    --------    -------    ------- 
<S>                                                      <C>         <C>         <C>        <C>
Net sales..............................................     100.0%      100.0%     100.0%     100.0%
Gross profit...........................................      43.8%       42.0%      43.7%      43.0%
Operating expenses.....................................      49.2%       51.4%      46.8%      46.5%
Other operating expenses...............................       3.5%        0.0%       1.7%       0.0%
Operating loss.........................................      (8.9)%      (9.4)%     (4.8)%     (3.5)%
Interest expense.......................................      (2.0)%      (1.0)%     (1.7)%     (0.6)%
Loss before benefit for income taxes...................      (9.7)%     (10.7)%     (6.3)%     (4.2)%
Benefit for income taxes...............................     (38.5)%     (39.6)%    (38.5)%    (39.7)%
Net loss...............................................      (6.0)%      (6.5)%     (3.9)%     (2.5)%
</TABLE>

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

Net Sales.  Net sales increased by 38.9% to $43.2 million from $31.1 million for
the three months ended June 30, 1998 (the "Second Quarter 1998") over the three
months ended June 30, 1997 (the "Second Quarter 1997").

     Net sales to wholesale customers increased by 43.1% to $36.6 million from
$25.6 million for the Second Quarter 1998 compared to the Second Quarter 1997.
This increase was primarily a result of increased unit sales to the Company's
existing wholesale customers resulting from continued strong sales of existing
products and increased sales through the Summit Shop program.

     Retail sales in the U.S. and Canada increased by 19.2% to $6.6 million from
$5.5 million for the Second Quarter 1998 compared to the Second Quarter 1997.
On a comparable store basis, retail sales increased by 12.7% (approximately 9.6%
for retail stores and 17.2% for outlets).  This increase is primarily the result
of a successful sale held at the outlets in May, a better merchandising mix of
inventory at both the outlets and retail stores, and a more volume oriented
pricing strategy at the outlets.

Gross Profit.  Gross profit as a percentage of net sales for the Second Quarter
1998 was 43.8% compared to 42.0% for the Second Quarter 1997.  The increase in
gross margin was primarily attributable to improved pricing in production and
operating leverage due to growth.

                                       10
<PAGE>
 
Operating Expenses.  Operating expenses, which include selling, marketing, and
general administrative expenses, increased by 33.0% to $21.3 million from $16.0
million for the Second Quarter 1998 compared to the Second Quarter 1997.  The
increase of $5.3 million is primarily due to increases in variable and fixed
costs to support the growth of the Company's business.  However, operating
expenses as a percentage of net sales declined from 51.4% to 49.2%, reflecting
the Company's improved operating, expense leverage.

Other Operating Expense.  During the Second Quarter 1998 the Company recorded a
charge of $1.5 million related to the closing of an out-dated manufacturing
facility in Scotland, the integration of its Canadian subsidiary into a combined
North American business operation, and the termination of its German sales
agent.

Interest Expense.  Interest expense for the Second Quarter 1998 increased to
$0.8 million from $0.3 million for the Second Quarter 1997.  The low level of
interest in the Second Quarter 1997 was primarily a result of the Company using
the proceeds from its two public offerings in 1996 to repay debt which allowed
the Company to maintain a lower average level of debt in 1997.

Provision for Income Taxes.  Income taxes as a percentage of pretax loss was
approximately 38.5% for the Second Quarter 1998 compared to 39.6% for the Second
Quarter 1997.  This decrease in the effective tax rate reflects the application
of tax credits for research and development activities as well as the mix of the
Company's pretax earnings amongst domestic and international operations, which
are subject to different tax rates.

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

Net Sales.  Net sales increased by 26.3% to $88.9 million from $70.4 million for
the six months ended June 30, 1998 (the "First Six Months 1998") compared to the
six months ended June 30, 1997 (the "First Six Months 1997").

     Net sales to wholesale customers increased by 30.7% to $74.4 million from
$56.9 million for the First Six Months 1998 compared to the First Six Months
1997.  This increase was primarily a result of increased unit sales to the
Company's existing wholesale customers resulting from continued strong sales of
existing products and increased sales through the Summit Shop program.

     Retail sales in the U.S. and Canada increased by 7.0% to $14.5 million from
$13.5 million for the First Six Months 1998 compared to First Six Months 1997.
On a comparable store basis, retail sales increased by 2.3% (approximately 1.0%
for retail stores and 4.7% for outlets).  This increase is due to a successful
sale held at the outlets in May and a better merchandising mix of inventory
during the Second Quarter 1998, offset by poor sales in January and early
February due to inadequate inventory levels of retail product in that period.

Gross Profit.  Gross profit as a percentage of net sales for the First Six
Months 1998 was 43.7% compared to 43.0% for the First Six Months 1997.  The
higher gross margin was primarily attributable to improved pricing in production
and operating leverage due to growth.

Operating Expenses.  Operating expenses, which include selling, marketing, and
general and administrative expenses, increased by 27.0% to $41.6 million from
$32.7 million for the First Six Months 1998 compared to the First Six Months
1997.  The increase of $8.8 million is primarily due to increases in variable
and fixed costs to support the growth of the Company's business.

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<PAGE>
 
Other Operating Expenses.  During the First Six Months 1998 the Company recorded
a charge of $1.5 million related to the closing of an out-dated manufacturing
facility in Scotland, the integration of its Canadian subsidiary into a combined
North American business operation and the termination of its German sales agent.

Interest Expense.  Interest expense increased to $1.5 million from $.4 million
for the First Six Months 1998 compared to the First Six Months 1997.  The low
level of interest in the First Six Months 1997 was primarily a result of the
Company using the proceeds from its two public offerings in 1996 to repay debt
which allowed the Company to maintain a lower average level of debt in 1997.

Provision for Income Taxes.  Income taxes as a percent of pretax loss were
approximately 38.5% for the First Six Months 1998 compared to 39.7% for the
First Six Months 1997. This decrease in the effective tax rate reflects the
application of tax credits for research and development activities as well as
the mix of the Company's pretax earnings amongst domestic and international
operations, which are subject to different tax rates.


Seasonality

     The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized substantially all of its profits in the
third quarter and has recognized losses during the first and second quarter,
with the exception of the first quarter of 1997. The Company's results of
operations may fluctuate from quarter to quarter as a result of, among other
things, the amount and timing of shipments to wholesale customers, government
shipments, the timing and magnitude of discounts in retail stores, advertising
and marketing expenditures, increases in the number of employees and overhead to
support growth and store opening costs.

     The Company anticipates that it will continue to incur net losses during
the first and second calendar quarter for the foreseeable future.  Additionally,
the Company's effective tax rate can vary significantly from quarter to quarter
due to the relative mix of earnings from the Company's domestic and
international operations, which are taxed at different rates.

Year 2000 Compliance

     Many currently installed computer systems and software products are coded
to accept only six digit entries in the date code field.  These date code fields
will need to accept eight digit entries to distinguish 21st century dates from
20th century dates.  As a result, during the next year, computer systems,
software and some non-information technology ("IT") products used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.

     State of Readiness.  We have conducted an internal review of our
information and significant non-IT systems.  We are involved in an enterprise-
wide project to upgrade or modify portions of our software so that our computer
systems will meet Year 2000 requirements.  We have been using both external and
internal resources to reprogram or upgrade our software.  We plan to complete
the modifications and upgrades, including testing, of all systems by November
1999.  No significant Year 2000 problems have been identified in the Company's
non-IT systems.

     Costs to Address the Year 2000 Issue. Based on Management's current
estimates, the total cost for addressing the Year 2000 issue is estimated to be
approximately $750,000 of which $366,000 has been incurred through December 31,
1998.

     Risks Presented by the Year 2000 Issue.  We believe that the modifications
and upgrades to our software will mitigate any Year 2000 problems associated
with our internal systems.   However, if we do not complete the process of
modifying and upgrading our software in a timely manner, or at all, or if we do
not identify computer systems and non-IT systems that need to be upgraded, the
Year 2000 issue could have a material impact on our operations.  We have
surveyed our significant vendors and other third parties on whom we rely to
ensure that they will convert their systems in a timely manner.  We currently
are in the process of analyzing third party responses to our survey.  We cannot
be sure that other companies will convert their systems effectively or in a
timely manner.  If third parties, such as suppliers, manufacturers and other
vendors, fail to meet Year 2000 requirements, our business could be materially
adversely affected.

     Contingency Plans.  The Company's Year 2000 plan includes the development
of contingency plans in the event that the Company has not completed all of its
remediation plans in a timely manner or any third parties who provide goods or
services essential to the Company's business fail to appropriately address their
Year 2000 issues.  The Company plans to conclude the development of these plans
by the end of the third quarter of 1999.

                                       12
<PAGE>
 
Stock Market Risks

     The trading price of the Company's Common Stock has fluctuated
significantly since the Company's initial public offering in July 1996, and may
fluctuate in the future as a result of many factors, including the Company's
operating results, new products introduced by the Company or its competitors,
market conditions for the Company's products, changes in earnings estimates by
analysts, actual results reported by the Company which may be better or worse
than estimates provided by analysts, insider selling of Common Stock and
speculation in the trade or business press. The trading price may also be
affected by retail industry, stock market, or economic factors unrelated to the
Company's operating performance. Future sales of substantial amounts of Common
Stock by existing stockholders may also adversely affect prevailing market
prices for the Common Stock and could impair the Company's ability to raise
equity capital in the future.

     Trading in the Company's Common Stock was halted on April 16, 1999. There
can be no assurance that the trading price of the Company's Common Stock will
not fluctuate significantly upon resumption of trading in its Common Stock or
that there will not be any other adverse effect on the Company's business or
operations as a result of the trading halt.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's credit facility (the "Credit Facility") provides for
borrowings up to $60.0 million under its revolving line of credit with actual
borrowings limited to the lesser of $60.0 million or available collateral
(approximately $60.0 million of gross availability as of June 30, 1998). In
addition, the Company had a term note for capital expenditures of $4.8 million
at June 30, 1998. The Credit Facility also provides a sub-limit for letters of
credit of up to $25.0 million to finance the Company's purchases of product from
foreign suppliers. As of June 30, 1998, the Company had approximately $6.3
million of letters of credit outstanding under the Credit Facility.
 
     In September 1998, the Company entered into a new five year Global Senior
Secured Revolving Credit Facility (the "New Credit Facility") with The
Industrial Bank of Japan, Limited, New York Branch (as syndication agent and
documentation agent), and IBJ Whitehall Business Credit Corporation (as
arrangers, collateral agent and as administrative agent for itself and the other
lenders), and other financial institutions (the "Financial Institutions"). This
agreement includes a term note, a revolving line of credit and a letter of
credit facility. The term note (availability up to $15,000,000) is payable in
equal quarterly installments based on five year amortization of the outstanding
term loan from the last day of the term loan availability period with payments
commencing on October 1, 1999, but the outstanding principal balance shall be
due and payable in full on the termination date which is September 2003. The
term note carries interest payable monthly at the higher of (a) the bank's base
commercial lending rate minus one-half of one percent (.50%) and (b) one-half of
one percent (.50%) above the federal funds effective rate plus the applicable
margin. The Company had an outstanding $5,000,000 term note as of December 31,
1998, with the interest rate of 7.25%. The

                                       13
<PAGE>
 
revolving line of credit provides for borrowing up to $115 million with the
actual borrowings limited to available collateral, representing eligible
receivables and inventory (approximately $91.9 million of gross availability as
of December 31, 1998, of which the Company borrowed $55.1 million at December
31, 1998). Interest on the revolving line of credit is payable monthly at a rate
of either (1) the prime rate which is the higher of (a) the bank's base
commercial lending rate minus .50% and (b) .50% above the federal funds
effective rate plus the applicable margin, or (2) LIBOR plus the applicable
margin, at the option of the Company. The average interest rate was 7.15% at
December 31, 1998. The revolving line of credit agreement provides a sublimit
facility for letters of credit up to a maximum of $40 million (approximately
$10.5 million outstanding as of December 31, 1998). Fees for outstanding letters
of credit are payable quarterly at 1.5% per annum. The Company also pays a
monthly unused line fee on the revolver at .375% per annum. Borrowings and
outstanding letters of credit under the New Credit Facility are secured by
substantially all of the assets of the Company. The New Credit Facility includes
certain financial covenants and restrictions on new indebtedness and the payment
of cash dividends. On May 3, 1999, the Company received a written waiver from
the Financial Institutions for violations of certain of the Company's non-
financial covenants as set forth in the agreements relating to the New Credit
Facility.

     In the Second Quarter 1998, the Company received $14.0 million resulting
from the issuance of 665,060 shares of the Company's Common Stock which were
purchased by James G. Fifield, the Company's President and Chief Executive
Officer.

     The Company's capital expenditures in 1998 were approximately $17.2
million.  This amount is was used principally for investment in Summit Shops,
the upgrade of management information systems, the expansion of the Company's
administration and distribution facilities, the establishment of operating
facilities in Colorado, the expansion of its European sales and marketing
operations and the remodeling of existing retail stores.

     The Company anticipates that cash available under the Company's credit
facilities and through increased bank financing, will be sufficient to satisfy
its cash requirements for at least the next 12 months.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     During the first week of March 1999, various complaints were filed against
the Company and its Board of Directors in the Delaware Court of Chancery and in
the California Superior Court, Alameda County in connection with the
transactions (the "Transactions") contemplated by the Transaction Agreement
dated February 27, 1999, between the Company and TNF Acquisition LLC. The
complaints, filed on behalf of a purported class of the Company's shareholders,
generally allege that the Transactions are unfair and inadequate to the
Company's shareholders and charge the defendants with self-dealing and breach of
fiduciary duties. The various complaints generally request injunctive relief to
prevent the consummation of the Transactions, and seek other remedies in the
event the Transactions are completed. The Company has not yet responded to these
complaints.

     On March 9, 1999, a purported shareholder class action complaint was filed
in federal district court in Colorado, alleging that the Company and various of
its officers and directors violated the federal securities laws by making false
and misleading statements about the Company's financial results during a class
period from April 25, 1997 through March 4, 1999.  Markus v. The North Face,
Inc., et al., Civ. A. No. 99-WM-473.  Subsequently, complaints with similar
allegations and class periods on behalf of persons trading in the Company's
securities, have been filed in federal district courts in Colorado and

                                       14
<PAGE>
 
California (collectively, the "Securities Litigation").  The Company believes it
has meritorious defenses to these claims and intends to contest the Securities
Litigation vigorously.  An unfavorable resolution of the Securities Litigation
could have a material adverse effect on the business, results of operations or
financial condition of the Company.

     On April 6, 1999, a shareholder derivative action purportedly on behalf of
the Company, captioned Eng v. Cason, et al., Civil Action No. 810726-0, was
filed in California Superior Court, Alameda County.  The complaint alleges that
the Company's directors and various officers violated California law and
breached fiduciary duties to the Company by engaging in alleged wrongful conduct
from April 25, 1997 through March 12, 1999, including the conduct complained of
in the Securities Litigation.  The Company is named solely as a nominal
defendant, against whom the plaintiff seeks no recovery.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Filed as an Item with corresponding Item number to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended June 30,
          1998 and incorporated herein by reference.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits
 
               (27.1)  Financial Data Schedule


          (b)  Reports on Form 8-K

          Form 8-K dated June 30, 1998 was filed on July 7, 1998 disclosing
          recent acquisitions, the plan to relocate a portion of the Company's
          executive offices and realign other operations of the Company, the
          plan to establish a facility in Hong Kong to manage the Company's
          relationship with certain third party manufacturers, and the adoption
          of a Stockholder Rights Plan.

                                       15
<PAGE>
 
SIGNATURES

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

                                         THE NORTH FACE, INC.
                                            (Registrant)



     Dated:                         By:  /s/ James G. Fifield
                                         ---------------------------------
             May 7, 1999                 James G. Fifield
                                         President and Chief Executive Officer



     Dated:                         By:  /s/ Jeffrey C. Mack
                                         ---------------------------------
             May 7, 1999                 Jeffrey C. Mack
                                         Acting Chief Financial Officer
                                         (Principal Financial and Accounting
                                         Officer of the Registrant)

                                       16
<PAGE>
 
                               INDEX OF EXHIBITS
                                        

27.1  Financial Data Schedule

                                       17