<PAGE>

                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
                                    FORM 10-K/A
                                  AMENDMENT NO. 3

(Mark One)
/X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934 

For the fiscal year ended JANUARY 31, 1998 OR

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

For the transition period from __________________ to __________________

Commission file number 0-14577

                                    GANTOS, INC.
-------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)


          MICHIGAN                                      38-1414122
          --------                                      ----------
 (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                   Identification No.)

           1266 E. MAIN STREET, FIFTH FLOOR, STAMFORD, CONNECTICUT 06902
             (Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code:  (203) 358-0294

Securities registered pursuant to Section 12(b) of the Act:

                                        NONE

Securities registered pursuant to Section 12(g) of the Act:

                      COMMON SHARES, PAR VALUE $.01 PER SHARE
                                  (Title of Class)

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  
                                ----            ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.  [  ]

   
The aggregate market value of the voting stock held by nonaffiliates of the 
registrant as of April 24, 1998 calculated by reference to the closing sale 
price as reported by Nasdaq on such date, was approximately $4,031,939.
    

Indicate by check mark whether the registrant has filed all documents and 
reports required to be filed by Section 12, 13 or 15(d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a 
plan confirmed by a court.

                           Yes    X         No  
                                ----            ----

The number of shares outstanding of the registrant's common shares, $.01 par
value per share, as of April 24, 1998 was 7,581,713.

                        DOCUMENTS INCORPORATED BY REFERENCE

None

<PAGE>


                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     14(a)(1)  FINANCIAL STATEMENTS

   
     The list of the report, financial statements and notes required by this 
     Item 14(a)(1) is set forth in the "Index to Financial Statements" on 
     page F-1 of this Report.
    

     14(a)(2)  FINANCIAL STATEMENT SCHEDULES

   
     The Financial Statement Schedule required by this Item 14(a)(2) is set 
     forth in the "Index to Financial Statements" on page F-1 of this Report.
    

     14(a)(3)  EXHIBITS

     The list of exhibits required by this Item 14(a)(3) is set forth in the 
     "Index to Exhibits" on pages 44 to 47 of this Report.

     14(b)  REPORTS ON FORM 8-K

     The Company did not file any reports on Form 8-K during the fourth 
     quarter ended January 31, 1998.

<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) 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.
   
Date: August 6, 1998
    
<TABLE>
<S>                                           <C>        <C>
                                              GANTOS, INC.
                                              (Registrant)
 
                                              By:                   /s/ ARLENE H. STERN
                                                         -----------------------------------------
                                                                      Arlene H. Stern
                                                         ITS: PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
   
    
<PAGE>
                                  GANTOS, INC.
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                             ---------
<S>                                                                                                          <C>
Report of Independent Accountants, Price Waterhouse LLP....................................................     F-2
 
Financial Statements
 
  Statements of Income (Loss) for the three years ended January 31, 1998...................................     F-3
 
  Balance Sheets as of January 31, 1998 and February 1, 1997...............................................     F-4
 
  Statements of Cash Flows for the three years ended January 31, 1998......................................     F-5
 
  Statements of Changes in Shareholders' Equity for the three years ended January 31, 1998.................     F-6
 
  Notes to Financial Statements............................................................................     F-7
 
Quarterly Financial Information (unaudited)................................................................    F-19
 
Financial Statement Schedule
 
  Schedule II--Valuation and Qualifying Accounts...........................................................    F-20
</TABLE>
 
                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Shareholders of
Gantos, Inc.
 
    In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Gantos, Inc.
at January 31, 1998 and February 1, 1997, and the results of its operations and
cash flows for each of the three years in the period ended January 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
 
    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company suffered losses from operations and a
tightening of trade credit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
    As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for long-lived assets to conform with Statement of
Financial Accounting Standards No. 121 in fiscal 1995.
 
PRICE WATERHOUSE LLP
 
Battle Creek, Michigan
April 30, 1998
 
                                      F-2
<PAGE>
                                  GANTOS, INC.
 
                          STATEMENTS OF INCOME (LOSS)
 
<TABLE>
<CAPTION>
                                                       1997         1996         1995
                                                    -----------  -----------  -----------
                                                     (THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>          <C>
Net sales.........................................  $   161,966  $   184,366  $   192,790
Cost of sales (including buying, distribution and
  occupancy costs)................................     (137,237)    (147,022)    (151,912)
                                                    -----------  -----------  -----------
Gross income......................................       24,729       37,344       40,878
Selling, general and administrative expense.......      (38,343)     (37,407)     (40,018)
Finance charge and other revenue..................        4,843        4,732        4,472
Credit for facilities closings and other..........          703      --               944
                                                    -----------  -----------  -----------
Operating income (loss)...........................       (8,068)       4,669        6,276
Interest expense (contractual interest of $2,585
  for 1995).......................................       (2,341)      (2,332)      (2,278)
                                                    -----------  -----------  -----------
Income (loss) before reorganization items and
  income taxes....................................      (10,409)       2,337        3,998
                                                    -----------  -----------  -----------
Reorganization items:
  Professional fees...............................      --           --              (530)
  Interest earned on accumulating cash from
    Chapter 11 proceedings........................      --           --               251
                                                    -----------  -----------  -----------
                                                        --           --              (279)
                                                    -----------  -----------  -----------
Income (loss) before income taxes.................      (10,409)       2,337        3,719
(Provision) benefit for income taxes..............          615      --           --
                                                    -----------  -----------  -----------
Net income (loss).................................  $    (9,794) $     2,337  $     3,719
                                                    -----------  -----------  -----------
                                                    -----------  -----------  -----------
Net income (loss) per share (basic and diluted)...  $     (1.30) $      0.31  $      0.55
                                                    -----------  -----------  -----------
                                                    -----------  -----------  -----------
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                             financial statements.
 
                                      F-3
<PAGE>
                                  GANTOS, INC.
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                          JANUARY 31,  FEBRUARY 1,
                                                                                             1998         1997
                                                                                          -----------  -----------
                                                                                          (THOUSANDS, EXCEPT SHARE
                                                                                            AND PER SHARE DATA)
<S>                                                                                       <C>          <C>
                                                      ASSETS
 
Current assets:
  Cash and cash equivalents.............................................................   $   1,295    $   4,346
  Accounts receivable, less allowance for doubtful accounts of $591 and $636 at January
    31, 1998 and February 1, 1997, respectively.........................................      18,607       21,973
  Merchandise inventories...............................................................      22,540       22,373
  Prepaid expenses and other............................................................       8,205        3,171
                                                                                          -----------  -----------
    Total current assets................................................................      50,647       51,863
                                                                                          -----------  -----------
Property and equipment, at cost:
  Leasehold improvements................................................................      30,506       30,168
  Furniture and fixtures................................................................      32,034       32,159
  Other.................................................................................         122           52
                                                                                          -----------  -----------
    Total property and equipment........................................................      62,662       62,379
Less--Accumulated depreciation and amortization.........................................     (48,115)     (48,384)
                                                                                          -----------  -----------
    Net property and equipment..........................................................      14,547       13,995
                                                                                          -----------  -----------
Total Assets............................................................................   $  65,194    $  65,858
                                                                                          -----------  -----------
                                                                                          -----------  -----------
 
                                       LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable......................................................................   $   7,644    $  10,749
  Accrued expenses and other............................................................       8,472       10,307
  Reserve for facilities closings.......................................................      --            1,567
                                                                                          -----------  -----------
    Total current liabilities...........................................................      16,116       22,623
                                                                                          -----------  -----------
Long-term debt..........................................................................      27,398       11,940
                                                                                          -----------  -----------
Shareholders' equity:
  Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued
  Common stock, $.01 par value, 20,000,000 shares authorized; 7,583,000 issued and
    outstanding at January 31, 1998 and 7,563,000 issued and outstanding at February 1,
    1997................................................................................          76           76
  Additional paid-in capital............................................................      40,977       40,798
  Accumulated deficit...................................................................     (19,373)      (9,579)
                                                                                          -----------  -----------
    Total shareholders' equity..........................................................      21,680       31,295
                                                                                          -----------  -----------
Total Liabilities and Shareholders' Equity..............................................   $  65,194    $  65,858
                                                                                          -----------  -----------
                                                                                          -----------  -----------
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                             financial statements.
 
                                      F-4
<PAGE>
                                  GANTOS, INC.
                            STATEMENTS OF CASH FLOWS

   
<TABLE>
<CAPTION>
                                                                                        1997       1996       1995
                                                                                      ---------  ---------  ---------
                                                                                                (THOUSANDS)
<S>                                                                                   <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).................................................................  $  (9,794) $   2,337  $   3,719
                                                                                      ---------  ---------  ---------
Adjustments to reconcile net income (loss) to net cash provided (used)
  by operating activities:
    Reorganization items............................................................     --         --            279
    Credit for facilities closings and other........................................       (703)    --           (944)
    Cash used for facilities closings and other.....................................       (864)        (9)      (571)
    Depreciation and amortization...................................................      4,782      5,493      6,241
    Loss on disposals of property and equipment.....................................     --         --         --
    Restricted stock compensation expense...........................................        109        142        161
 
    Changes in assets and liabilities:
    Accounts receivable.............................................................      3,366        646      2,676
    Merchandise inventories.........................................................       (167)     1,582     (1,411)
    Prepaid expenses and other......................................................     (5,034)      (320)      (265)
    Accounts payable................................................................     (3,105)    (1,370)     3,645
    Accrued expenses and other......................................................     (1,835)    (2,410)     1,281
    Income tax receivable...........................................................     --         --         --
                                                                                      ---------  ---------  ---------
      Total adjustments.............................................................     (3,451)     3,754     11,092
                                                                                      ---------  ---------  ---------
Net cash (used) provided by operating activities before reorganization items........    (13,245)     6,091     14,811
                                                                                      ---------  ---------  ---------
Net change to liabilities subject to compromise.....................................     --         --        (64,941)
Net non-cash change to liabilities subject to compromise............................     --         --         33,374
                                                                                      ---------  ---------  ---------
Net cash payments on liabilities subject to compromise..............................     --         --        (31,567)
Reorganization items................................................................     --         --           (279)
Change in accrued interest receivable...............................................     --         --             88
Change in accrued bankruptcy expenses...............................................     --         --         (1,352)
                                                                                      ---------  ---------  ---------
Net cash used by reorganization items...............................................     --         --        (33,110)
                                                                                      ---------  ---------  ---------
 
Net cash (used) provided by operating activities....................................    (13,245)     6,091    (18,299)
                                                                                      ---------  ---------  ---------
Cash flows from investing activities:
  Capital expenditures..............................................................     (4,901)    (2,696)    (6,057)
Net cash used by investing activities...............................................     (4,901)    (2,696)    (6,057)
                                                                                      ---------  ---------  ---------
Cash flows from financing activities:
  Principal payments under capital lease obligations and other long-term debt.......     (4,119)      (455)       (25)
  Issuance of Common Stock..........................................................         70         54     --
  Borrowings under long-term credit facility........................................    204,550    206,467    175,561
  Payments under long-term credit facility..........................................   (184,973)  (206,568)  (176,272)
  Other.............................................................................       (433)    --         --
                                                                                      ---------  ---------  ---------
Net cash provided (used) by financing activities....................................     15,095       (502)      (736)
                                                                                      ---------  ---------  ---------
Net (decrease) increase in cash.....................................................     (3,051)     2,893    (25,092)
Cash and cash equivalents at beginning of year......................................      4,346      1,453     26,545
                                                                                      ---------  ---------  ---------
Cash and cash equivalents at end of year............................................  $   1,295  $   4,346  $   1,453
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
Cash paid during the year:
  Interest..........................................................................  $   2,378  $   1,818  $   2,136
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
  Income taxes......................................................................  $      92  $      54  $      48
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
</TABLE>
    
   The accompanying Notes to Financial Statements are an integral part of the
                             financial statements.

                                     F-5
<PAGE>
                                  GANTOS, INC.
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                              COMMON STOCK        ADDITIONAL                     TOTAL
                                                        ------------------------    PAID-IN    ACCUMULATED   SHAREHOLDERS'
                                                          SHARES       AMOUNT       CAPITAL      DEFICIT        EQUITY
                                                        -----------  -----------  -----------  ------------  -------------
                                                                                   (THOUSANDS)
<S>                                                     <C>          <C>          <C>          <C>           <C>
Balance January 28, 1995..............................       2,665    $      27    $  20,789    $  (15,635)   $     5,181
Issuance of restricted stock..........................         177            2           (2)       --            --
Restricted stock compensation expense.................      --           --              162        --                162
Stock issued in conjunction with Plan of
  Reorganization......................................       4,735           47       19,654        --             19,701
Net income for the year...............................      --           --           --             3,719          3,719
                                                             -----          ---   -----------  ------------  -------------
Balance February 3, 1996..............................       7,577    $      76    $  40,603    $  (11,916)   $    28,763
Restricted stock compensation expense.................      --           --              142        --                142
Cancellation of restricted stock......................         (34)      --           --            --            --
Exercise of stock options.............................           2       --                8        --                  8
Shares issued under employee stock purchase plan......          18       --               45        --                 45
Net income for the year...............................      --           --           --             2,337          2,337
                                                             -----          ---   -----------  ------------  -------------
Balance February 1, 1997..............................       7,563    $      76    $  40,798    $   (9,579)   $    31,295
Restricted stock compensation expense.................      --           --              109        --                109
Cancellation of restricted stock......................         (14)      --           --            --            --
Cancellation of old common stock......................         (28)      --           --            --            --
Shares issued under employee stock purchase plan......          62       --               70        --                 70
Net loss for the year.................................      --           --           --            (9,794)        (9,794)
                                                             -----          ---   -----------  ------------  -------------
Balance January 31, 1998..............................       7,583    $      76    $  40,977    $  (19,373)   $    21,680
                                                             -----          ---   -----------  ------------  -------------
                                                             -----          ---   -----------  ------------  -------------
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                             financial statements.
 
                                      F-6
<PAGE>
                                  GANTOS, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
1.  CHAPTER 11 REORGANIZATION:
 
    On November 12, 1993 (the "Petition Date"), Gantos, Inc. and Gantos Stores,
Inc. (collectively referred to as "Debtor" or "Company") filed petitions under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Michigan (the "Bankruptcy Court"). The Company managed its
affairs and operated its business under Chapter 11 as a debtor-in-possession
while a plan of reorganization was formulated.
 
    Through a reorganization under Chapter 11, management restructured the
operations and capitalization of the Company in order to strengthen the
Company's financial position and operating performance.
 
    On January 19, 1995, the Company filed the Second Amended Joint Plan of
Reorganization of Gantos, Inc. and Gantos Stores, Inc. (as amended March 7,
1995, the "POR"). On March 7, 1995, the Bankruptcy Court confirmed the POR which
became effective March 31, 1995.
 
    Pursuant to the POR, the former Gantos, Inc. merged into Gantos Stores, Inc.
which changed its name to Gantos, Inc.
 
    As provided for in the POR, all holders of secured and priority claims
received cash equal to the allowed amount of such claims, and unsecured
creditors generally received 50% of the allowed amount of each claim in cash and
50% of the allowed amount of each claim in new common shares valued at $4.16 per
share. Certain unsecured creditors received approximately $12.4 million in
original principal amount of 6-year notes bearing interest at 12.75%.
 
    The Company issued 4,735,000 common shares, and paid approximately
$31,567,000 in cash along with the notes as settlement for these claims. All
holders of old common shares were entitled to receive one new common share for
every two old common shares outstanding prior to March 31, 1995.
 
   
    Secured and priority claims creditors received $34 million cash 
representing 100% of their claims, $28.8 million of which was paid prior to 
the effective date. Unsecured creditors received 100% of their claims as 
follows: $26.4 million cash, $12.4 million notes and $20.8 million paid as 
4,735,000 common shares.
    

    Prior to the March 31, 1995 effective date of the POR, the Company followed
the American Institute of Certified Public Accountants (AICPA) Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code". After the March 31, 1995 effective date, the Company's assets
and liabilities continued to be recorded at their historical basis.
 
2.  BASIS OF PRESENTATION:
 
    The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the year ended January 31, 1998, the Company incurred a loss
of $9.8 million and has experienced a tightening of trade credit. These factors
among others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
 
    Management does not believe that the Company will be able to meet the
minimum net worth covenant on the Indenture during the second quarter of 1998
and might not be able to meet the Fleet Facility liquidity test in the third
quarter of 1998. The Company is negotiating with Fleet Bank and with the
principal holder of the Notes to amend these covenants. Additionally, the
Company has engaged a financial advisor to assist it in exploring its strategic
alternatives.
 
    The financial statements do not include any adjustment relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate sufficient
cash flow to meet its obligations on a timely basis, to comply with the terms of
the Fleet Facility and the Indenture agreement, and future profitable
operations.

                                      F-7

<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
    Industry Information--The Company operates 115 women's apparel specialty
stores in 23 states located primarily in the Western, Midwestern and
Northeastern United States. The following is a summary of significant accounting
policies:
 
    The Company's fiscal year ends on the Saturday closest to the end of
January. Fiscal year 1997 consisted of fifty-two weeks and ended on January 31,
1998; fiscal year 1996 consisted of fifty-two weeks and ended on February 1,
1997; and fiscal year 1995 consisted of fifty-three weeks and ended on February
3, 1996.
 
    For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investment instruments purchased with a maturity of three months
or less to be cash equivalents.
 
    Non-cash financing charges in connection with the Company's POR, including
the issuance of long-term debt and additional common stock, are described in
Note 1 above.
 
    Accounts receivable consists principally of Gantos credit card customer
receivables. Finance charges are imposed on the unpaid balance at annual rates
varying from 18% to 21% depending upon state laws. Minimum monthly payments of
$15 or 10% of the unpaid balance, whichever is greater, are required.
 
    Merchandise inventories are valued at the lower of cost or market, using the
cost method, on the First-in, First-out (FIFO) basis. Approximately $1.4 and
$1.3 million of merchandise development, procurement, storage and distribution
costs are included in inventory at year end 1997 and 1996, respectively.
 
    Commissions earned on leased shoe sales are included in net sales and
totaled $889,000 in 1997, $874,000 in 1996, and $789,000 in 1995. Third party
leased shoe sales totaled $6.4, $6.5, and $6.3 million in 1997, 1996 and 1995,
respectively.
 
    Cost of sales includes the net cost of merchandise, buying, distribution and
occupancy expenses.
 
    Depreciation and amortization are computed using the straight-line method.
Furniture and fixtures are depreciated over their estimated useful lives,
generally five to ten years. Leasehold improvements are amortized over the terms
of the respective leases or their estimated useful lives, whichever is shorter,
generally seven to ten years.
 
    The Company expenses preopening costs of new stores in the year in which the
store is opened.
 
    Advertising costs are expensed the first time the advertising takes place.
Net advertising expense approximated $1.5 million, $1.2 million, and $1.0
million in 1997, 1996 and 1995, respectively.
 
    As part of the Company's POR, each shareholder of record on the effective
date, was entitled to receive one new common share for every two common shares
previously held. All share and per share data in the financial statements and
notes reflect this stock distribution for all periods presented. Each
shareholder of record on the effective date, was required to surrender or be
deemed to have surrendered such shares within two years of the effective date or
have its claim for a distribution pursuant to the POR discharged. Accordingly,
approximately 28,000 common shares were forfeited under this provision in 1997.
As part of the POR, the Company issued 4,567,000 common shares as partial
settlement for certain claims, 143,000 restricted common shares to management
(net of 14,000, 34,000, and 23,000 restricted common shares forfeited during
1997, 1996, and 1995, respectively) and 168,000 common shares as partial
settlement of a shareholder lawsuit.
 
    Basic net earnings per share is determined by dividing net earnings by the
weighted average number of common shares outstanding during the period. The
weighted average number of common shares
 
                                      F-8
<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
outstanding was 7,550,000 in 1997, 7,574,000 in 1996, and 6,759,000 in 1995.
Diluted net earnings per share is similarly determined except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if all dilutive potential common shares had been
issued. Dilutive potential common shares are principally comprised of employee
stock options issued by the Company and had an insignificant impact on the
computation of diluted net earnings per share during the periods presented.
 
    The Company follows Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," in accounting for its employee stock
options and other stock-based compensation. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized. As permitted, the Company has elected to adopt the disclosure
provisions only of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation."
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
    Certain amounts from the prior year have been reclassified to conform with
the presentation used in the current year.
 
4.  CLASS ACTION LAWSUIT:
 
    On March 16, 1994, a shareholder of the Company (the Plaintiff) filed a
purported class action lawsuit in the United States District Court for the
Western District of Michigan, against certain current and former Officers and
Directors of the Company (the Defendants). The lawsuit claimed that the
Defendants caused the Company to issue statements containing material
misstatements and omissions. In addition, a proof of claim which mirrored the
lawsuit, was filed in the Bankruptcy Court on behalf of the Plaintiff class.
 
    In January 1995, the Company, Defendants and the Plaintiff entered into a
settlement of the lawsuit. The settlement provided for the Company's insurance
company to pay $550,000 and the Company to issue $700,000 worth of new common
stock on the POR effective date. The $700,000 worth of new common stock, 168,000
shares, was issued effective March 31, 1995 as part of the Company's emergence
from the Chapter 11 proceedings. The Company's expense was included in the
Credit for Facilities Closing and Other in 1994.
 
5.  RESERVE FOR FACILITIES CLOSINGS:
 
    On November 11, 1993, the Board of Directors approved a plan to realign the
Company's operations in an effort to improve the long-term profit potential of
the Company. This realignment enabled the Company to concentrate its efforts on
those stores that management believed provided potential for ongoing
profitability. Pursuant to this plan, the Company closed 41, 5 and 2 stores in
fiscal years 1993, 1994 and 1995, respectively. In October 1994, the Company
opened one of the stores closed in the prior year.
 
    The provision of $29.3 million recorded for the anticipated costs of the
realignment consisted primarily of the expected costs of future lease
obligations and rejection claims, losses on disposal of
 
                                      F-9
<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
5.  RESERVE FOR FACILITIES CLOSINGS: (CONTINUED)
property and equipment, expenses and losses associated with the disposal of
merchandise inventory in the closed stores and other expenses and losses
directly related to the closure of the stores.
 
    During 1994, the Company was unsuccessful in renegotiating its office and
distribution center lease with its former landlord (See Note 9) and elected to
reject the lease in its bankruptcy proceedings. As a result, the Company
reallocated $7.8 million of the remaining reserve to cover the anticipated costs
of rejecting the lease and relocating the corporate office and distribution
center.
 
    During 1995, the Company settled the remaining disputes with its landlords
for less than the amounts accrued and reversed the reserve by $0.9 million,
which is recorded as a credit for facilities closing and other. During 1994, the
Company negotiated favorable lease terms with its landlords on many of the
remaining underperforming stores. As a result, the reserve was reduced by $1.8
million, which was recorded as a credit for facilities closing and other.
 
    In addition, during 1994, the Company entered into settlement agreements
with certain of its creditors whereby early cash payments for approximately 25%
of their legally allowed claim were made as full settlement of the Company's
obligation, which resulted in a $1.6 million reduction in the reserve for
facilities closing and other. This amount, which was treated as forgiveness of
debt, and was included as an extraordinary gain in the Company's Statements of
Income during 1994.
 
    During 1997, the Company completed the relocation of its distribution
center, financial and support functions to another facility in Grand Rapids,
Michigan, as well as the establishment of a merchandising office in Stamford,
Connecticut. The costs incurred were charged against the reserve for facilities
closings. The total costs incurred were less than the amount accrued and as
such, the accrual was reduced by $0.7 million, which was recorded as a credit
for facilities closing and other in 1997.
 
                                      F-10
<PAGE>

                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
5.  RESERVE FOR FACILITIES CLOSINGS: (CONTINUED)
    The following table sets forth the facilities closing provision established
in 1993 and the related subsequent activity:
 
FACILITIES CLOSING PROVISION
 
<TABLE>
<CAPTION>
                                                                                NON-CASH
                                                                                COSTS AND
                                                      PROVISION   CASH COSTS      ASSET                 RESERVE AT
                                                      RECORDED     INCURRED    WRITE-OFFS     OTHER    FEB. 3, 1996
                                                     -----------  -----------  -----------  ---------  ------------
                                                                              (THOUSANDS)
<S>                                                  <C>          <C>          <C>          <C>        <C>
Lease rejection costs..............................   $  14,590    $  (4,592)   $  (5,914)  $  (4,084)  $   --
Asset write-offs...................................      10,420       --           (9,703)        163          880
Inventory disposition costs........................       3,514       (1,980)         (19)     (1,515)      --
Other..............................................         730       (1,270)         927       1,150        1,537
                                                     -----------  -----------  -----------  ---------  ------------
                                                      $  29,254    $  (7,842)   $ (14,709)  $  (4,286)  $    2,417
                                                     -----------  -----------  -----------  ---------  ------------
                                                     -----------  -----------  -----------  ---------  ------------
</TABLE>
 
<TABLE>
<CAPTION>
   
                                                                                NON-CASH
                                                     RESERVE AT                 COSTS AND
                                                       FEB. 3,    CASH COSTS      ASSET                 RESERVE AT
                                                        1996       INCURRED    WRITE-OFFS     OTHER    FEB. 1, 1997
                                                     -----------  -----------  -----------  ---------  ------------
    
<S>                                                  <C>          <C>          <C>          <C>        <C>
Lease rejection costs..............................   $  --        $  --        $  --       $  --       $   --
Asset write-offs...................................         880       --             (841)        (39)      --
Inventory disposition costs........................      --           --           --          --           --
Other..............................................       1,537           (9)      --              39        1,567
                                                     -----------  -----------  -----------  ---------  ------------
                                                      $   2,417    $      (9)   $    (841)  $  --       $    1,567
                                                     -----------  -----------  -----------  ---------  ------------
                                                     -----------  -----------  -----------  ---------  ------------
</TABLE>
 
<TABLE>
<CAPTION>
   
                                                                                NON-CASH
                                                     RESERVE AT                 COSTS AND               RESERVE AT
                                                       FEB. 1,    CASH COSTS      ASSET                  JAN. 31,
                                                        1997       INCURRED    WRITE-OFFS     OTHER        1998
                                                     -----------  -----------  -----------  ---------  ------------
    
<S>                                                  <C>          <C>          <C>          <C>        <C>
Lease rejection costs..............................   $  --        $  --        $  --       $  --       $   --
Asset write-offs...................................      --           --           --          --           --
Inventory disposition costs........................      --           --           --          --           --
Other..............................................       1,567         (864)      --            (703)      --
                                                     -----------  -----------  -----------  ---------  ------------
                                                      $   1,567    $    (864)   $  --       $    (703)  $   --
                                                     -----------  -----------  -----------  ---------  ------------
                                                     -----------  -----------  -----------  ---------  ------------
</TABLE>
 
    Non-cash costs in 1996 represent the write-off of assets at the Company's
then current corporate office and distribution center that were abandoned as
part of the relocations.
 
6.  VALUATION OF LONG-LIVED ASSETS:
 
    During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Statement
requires companies to record impairments of long-lived assets, certain
identifiable intangibles and goodwill when there is evidence that events or
changes in circumstances have made recovery of asset carrying values unlikely.
Asset impairment is determined to exist if estimated future cash flows,
undiscounted and without interest charges, are less than the carrying amount.
The Company identified assets in certain retail stores that were impaired
because of a history of and projected
 
                                      F-11

<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
6.  VALUATION OF LONG-LIVED ASSETS: (CONTINUED)
future cash flow losses in these specific stores. Upon adoption, an impairment
loss of $687,000 was recorded for these retail store assets and is recorded in
selling, general and administrative expense in the Statement of Income for 1995.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used.
 
7.  LONG TERM DEBT:
 
    A summary of long-term debt is as follows:
 
<TABLE>
<CAPTION>
                                                                      JANUARY 31,  FEBRUARY 1,
                                                                         1998         1997
                                                                      -----------  -----------
                                                                            (THOUSANDS)
<S>                                                                   <C>          <C>
Revolving Credit Agreement due March 31, 2000, bearing interest at
  variable rates....................................................   $  19,577    $  --
Notes issued pursuant to an Indenture Agreement due in sixteen
  quarterly installments of $775,000 beginning July 1, 1997, bearing
  interest at 12.75%................................................       7,821       11,940
                                                                      -----------  -----------
                                                                       $  27,398    $  11,940
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>
 
    Since March 10, 1995, the Company has had a borrowing agreement with Fleet
Bank N.A. (formerly NatWest Bank N.A.) (the "Fleet Facility"). The Company
amended the Fleet Facility as of April 25, 1996, March 18, 1997, October 8,
1997, February 1, 1998, February 27, 1998, March 30, 1998, April 29, 1998 and
April 30, 1998, and it currently expires March 31, 2000. The Fleet Facility
provides the Company with revolving credit loans and letters of credit up to $40
million, subject to a borrowing base formula and lender reserves (as defined in
the agreement). Undrawn and unreimbursed letters of credit under the facility
may not exceed $15 million in face amount. During 1997, the maximum amount
outstanding on the Revolving Credit Agreement was $17.3 million, while the
average amount outstanding during the year was $8.0 million.
 
    Prior to the October 8, 1997 amendment loans under the Fleet Facility bore
interest at Fleet's prime rate plus 1 1/4%, or, at the Company's option, the
reserve adjusted LIBOR rate plus 2 1/2%. The October 8, 1997 amendment provides
for an adjustment to the interest rate for both prime rate and LIBOR rate loans
beginning in 1998. Based upon the Company's financial performance in 1997, loans
under the Fleet Facility bear interest at Fleet's prime rate plus 2%, or, at the
Company's option, the reserve adjusted LIBOR rate plus 3 1/4%. These rates are
adjusted quarterly based upon the Company's financial performance for the four
quarters then ended. The interest is payable in arrears on the last business day
of each month for prime rate loans and on the last day of the applicable one,
two, three or six-month interest period or at the end of three months, whichever
is sooner, for the reserve adjusted LIBOR rate loans. As of January 31, 1998,
the Fleet prime rate is 8.5%.
 
    The Fleet Facility carries commitment fees of .5% of the difference between
$40 million and the average amount outstanding under the facility (including the
face amount of letters of credit) and 1.50% (1.75% for standby letters of
credit) of the face amount of outstanding letters of credit. This facility is
secured by substantially all of the Company's assets. The Fleet Facility also
provides for a .5% reduction fee if the agreement is terminated on or before
December 31, 1998.
 
    The Fleet Facility contains, among other things, covenants with respect to
(i) additional indebtedness, (ii) investments, (iii) capital expenditures, (iv)
fixed charge coverage ratios, (v) earnings before interest,
 
                                      F-12

<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
7.  LONG TERM DEBT: (CONTINUED)
taxes, depreciation and amortization, (vi) interest coverage ratios, and (vii)
prohibitions on paying cash dividends.
 
    In part because of the net loss reported by the Company for the twenty-six
weeks ended August 2, 1997, the Company would not have been in compliance with
the covenant concerning, earnings before interest, taxes, depreciation and
amortization for the four quarters ended August 2, 1997 had Fleet Bank N.A. and
LaSalle National Bank not granted a waiver of such covenant for such period.
 
    On October 8, 1997, the Company entered into Amendment No. 3 to the Fleet
Facility (the Third Amendment). The Third Amendment provides for the adjustment
to the interest rates described above, an increase in the loan advance rate on
inventory during the months of October through January, and adjustments to the
financial covenants so that compliance with the financial covenants is based on
a liquidity test as long as minimum levels of liquidity are maintained. It also
provides that if the Company prepays its 12.75% Notes outstanding under its
Indenture, it must pay Fleet Bank a fee of $750,000 and the loan advance rate
would be reduced to pre-amendment levels. Additionally, on October 8, 1997,
Fleet Bank N.A. purchased LaSalle National Bank's interest in the Fleet Facility
and currently is the sole lender.
 
    The February 1, 1998, February 27, 1998, March 30, 1998, and April 24, 1998,
amendments to the Fleet Facility extend the increase in the loan advance rate on
inventory in 1998 until February 28, 1998, March 31, 1998, May 2, 1998, and
January 31, 1999, respectively. Without the February 1, 1998, February 27, 1998
and March 30, 1998 amendments the Company would not have been in compliance with
the new liquidity test.
 
    As of April 30, 1998, the Company entered into Amendment No. 8 to the Fleet
Facility (the Eighth Amendment). The Eighth Amendment provides for an increase
in the availability under the Fleet Facility in an amount equal to the lesser of
ten percent of the eligible inventory (as defined in the agreement) and
$2,000,000. Additionally, the Eighth Amendment carries a $100,000 amendment fee
payable on January 1, 1999 if there are obligations still due under the Fleet
Facility as of that date.
 
    As described in Note 1, the Company issued to some unsecured creditors
approximately $12.4 million in original principal amount of six-year notes
bearing interest payable quarterly at 12.75%. The Notes were issued pursuant to
an Indenture, dated as of March 1, 1995, between the Company and State Street
Bank and Trust Company (formerly Fleet Bank, N.A. and Shawmut Bank Connecticut,
National Association). The Notes are payable in 16 quarterly installments of
approximately $775,000 beginning July 1, 1997 and ending April 1, 2001. The
Notes are also subject to prepayment within 50 days after the end of each fiscal
year of the Company in an amount equal to the Company's "Excess Cash Flow".
Excess Cash Flow is 50% of the Company's "Free Cash Flow" in excess of $1.4
million in 1995, $3.5 million in 1996, $3.4 million in 1997, $2.4 million in
1998, and $4.3 million in 1999. Free Cash Flow is the Company's net income
before extraordinary items, plus depreciation expense, minus specified capital
expenditures and principal payments made with respect to indebtedness for
borrowed money (other than the quarterly payments with respect to the Notes and
payments under the Fleet Facility). The amounts due within one year have been
classified as long-term debt as the Company has both the intent and ability,
through the Fleet Facility, to refinance these amounts on a long term basis. The
Company must also prepay the Notes with the proceeds of specified asset and
securities sales. If Excess Cash Flows (as defined in the indenture) were not at
least $2.25 million by March 31, 1997, the Company was required to pay the
shortfall. In fiscal 1996, the Company made an Excess Cash Flow Payment for
fiscal 1995 of $455,000. During fiscal 1996, the Company did not have Excess
Cash Flow and, accordingly, made a payment of $1.8 million for the shortfall
during fiscal 1997. During 1997, the Company did not have Excess Cash Flow and
accordingly, is not required to make a payment.
 
                                      F-13
<PAGE>
                                  GANTOS, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
7.  LONG TERM DEBT: (CONTINUED)
    The Notes are secured by a $5,000,000 life insurance policy on the life of a
certain director of the Company until the Notes are transferred to a third
party. The Notes secured by the policy must be prepaid with any proceeds from
the life insurance policy. The Indenture contains, among other things, covenants
with respect to (i) additional indebtedness, (ii) capital expenditures, (iii)
minimum net worth, (iv) earnings before interest, taxes, depreciation and
amortization, (v) interest coverage ratios, and (vi) prohibitions on paying
dividends.
 
    In part because of the Company's net loss for the twenty-six weeks ended
August 2, 1997 and the thirty-nine weeks ended November 1, 1997, the Company was
not in compliance with the earnings before interest, taxes, depreciation and
amortization covenant for both quarters ended August 2, 1997 and November 1,
1997, and it was not in compliance with the interest coverage ratio covenant for
the quarter ended November 1, 1997. On December 15, 1997, the Company entered
into the Supplemental Indenture No. 1 and an agreement with the trustee and
principal holder of the Notes, respectively, to waive the existing EBITDA and
interest coverage ratio defaults and to revise some of the financial covenants
under the Indenture so that compliance with those covenants is based on a
liquidity test as long as minimum levels of liquidity are maintained under the
Fleet Facility. The Indenture Supplement was entered into in exchange for the
payment of approximately $400,000 plus expenses to the trustee for the benefit
of the Note holders.
 
    The Indenture, as amended continues to require a minimum net worth of $20
million at the end of each quarter. As of January 31, 1998, the Company's net
worth was approximately $21.7 million. Management does not believe that the
Company will be able to meet this covenant in the second quarter of fiscal 1998
and might not be able to meet the new liquidity test in the third quarter of
1998. The Company is negotiating with Fleet Bank and the principal holder of the
Notes to amend these covenants. If the Company is unsuccessful in renegotiating
these covenants on terms and conditions acceptable to the Company, it would
consider refinancing the applicable indebtedness. Any inability by the Company
to renegotiate these covenants or to refinance the applicable indebtedness on
terms and conditions acceptable to the Company could have a material adverse
effect on the Company's business, operations, liquidity, financial condition and
results of operations, and could require the Company to substantially reduce or
discontinue its operations.
 
    Even if the Company is successful in renegotiating the net worth covenant
under the Indenture, there can be no assurance that the Company would be able to
meet the revised net worth covenant or the liquidity test under the Indenture or
the Fleet facility for the next 12 months, unless sales substantially improve.
The Company has engaged a financial advisor to assist it in exploring its
strategic alternatives, although there can be no assurance that any viable
strategic alternatives will be found.
 
8.  INCOME TAXES:
 
    The Company's (provision) benefit for income taxes is composed of the 
following:

<TABLE>
<CAPTION>

                                1997            1996            1995
                               ------          ------          ------
<S>                            <C>             <C>             <C>
Federal
  Current                      $  615          $    -          $    -
  Deferred                          -               -               -
                               ------          ------          ------
                                  615               -               -
                               ------          ------          ------
State
  Current                           -               -               -
  Deferred                          -               -               -
                               ------          ------          ------
                                    -               -               -
                               ------          ------          ------
  (Provision) benefit
   for income taxes            $  615          $    -          $    -
                               ------          ------          ------
                               ------          ------          ------

    The effective tax rate varies from the statutory rate as follows:

Statutory rate                   35.0%           35.0%           35.0%
Effect of graduated tax rate     (1.0)           (1.0)           (1.0)
Change in valuation allowance   (34.0)          (34.0)          (34.0)
Reversal of tax reserves          5.9
                               ------          ------          ------
                                  5.9%             - %             - %
                               ------          ------          ------
                               ------          ------          ------
</TABLE>
 
    Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, requires that deferred income taxes be recorded for "temporary
differences" between the basis of assets and liabilities for financial reporting
purposes and such amounts as determined by tax regulations. This method requires
that deferred taxes be recorded based upon currently enacted tax rates.

                                      F-14
<PAGE>
                                  GANTOS INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
   
    Based on the Company's current financial status, realization of the 
Company's deferred tax assets does not meet the "more likely than not" 
criteria under SFAS No. 109 and accordingly a valuation allowance for the 
entire net deferred tax asset amount has been recorded.

    The components of the net deferred tax asset (liability) and the related 
valuation allowance are as follows:

<TABLE>
<CAPTION>
                                                  JANUARY 31,    FEBRUARY 1,
                                                     1998           1997
                                                  -----------    -----------
                                                         (THOUSANDS)
<S>                                               <C>            <C>
NOL carryforward...............................   $     9,580    $     5,670
Reserve for facility closings...................       --                590
Tax credit carryforward........................         3,520          3,520
Other accrued expenses.........................         1,710          1,780
Property and equipment.........................           960            740
Other..........................................           160            280
                                                  -----------    -----------
  Deferred tax assets..........................        15,930         12,690
                                                  -----------    -----------
Inventory......................................          (930)        (1,470)
Prepaid expenses...............................          (680)          (630)
Property taxes.................................          (530)          (530)
                                                  -----------    -----------
  Deferred tax liabilities.....................        (2,140)        (2,630)
                                                  -----------    -----------
Subtotal.......................................        13,790         10,060
Valuation allowance............................       (13,790)       (10,060)
                                                  -----------    -----------
Net deferred tax assets (liabilities)...........   $   --         $   --
                                                  -----------    -----------
                                                  -----------    -----------
</TABLE>

    At January 31, 1998, the Company had net operating loss carryforwards 
available to offset future income for federal income tax reporting purposes 
of approximately $29.3 million, expiring in 2007-2013.

    If the Company experiences a change in ownership within the meaning of 
Section 382 of the Internal Revenue Code, an annual limitation could be 
placed upon the Company's ability to realize the benefits of its net 
operating loss carryforwards.
    

9.  LEASES:
 
    The Company leases store locations, the corporate distribution center and
office building, the corporate merchandising offices, and certain equipment from
third parties. The remaining terms of these leases range from one to thirteen
years. Generally, the store leases contain provisions for additional rentals
based on a percentage of sales. Total rent expense under these leases was
approximately $16.0, $15.9 and $15.4 million in 1997, 1996 and 1995,
respectively, which includes percentage of sales rentals of $0.0, $0.1 and $0.1
million, respectively. Accrued rent expense of $3.9 million at January 31, 1998
and $4.1 million at February 1, 1997 is included in accrued expenses.
 
    Pursuant to the POR, the Company rejected the lease for the distribution
center and office building as of March 31, 1995. As settlement for the
rejection, the Company paid the owner of the distribution center and office
building, a director of the Company, $1.75 million in cash and $1.75 million in
shares of new common stock. Also on the effective date, the owner of the
distribution center and office building deeded in lieu of foreclosure, ownership
of the property to the mortgage holder. The Company then entered into a 10 month
lease that was subsequently extended three times for 6 months each with the
mortgage holder, the last of which expired July 31, 1997, with base annual rent
of $1,030,000 (including real estate taxes).
 
                                      F-15
<PAGE>
                                  GANTOS INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
9.  LEASES: (CONTINUED)
    Beginning in May 1997, the Company relocated its corporate facilities into a
new office/distribution center in Grand Rapids, Michigan and a new merchandising
office in Stamford, Connecticut. Total annual rental expense on these facilities
is approximately $760,000 (excluding real estate taxes).
 
    Estimated future minimum rental payments are as follows:
 
<TABLE>
<CAPTION>
YEAR
---------------------------------------------------------------------------------    LEASES
                                                                                   -----------
                                                                                   (THOUSANDS)
<S>                                                                                <C>
1998.............................................................................   $  16,295
1999.............................................................................      15,053
2000.............................................................................      13,171
2001.............................................................................       9,306
2002.............................................................................       6,083
Thereafter.......................................................................       6,867
                                                                                   -----------
Total minimum lease payments.....................................................   $  66,775
                                                                                   -----------
                                                                                   -----------
</TABLE>
 
10. STOCK OPTION PLANS:
 
    The Company has two stock option plans which provide for the granting of
stock options, restricted stock and stock appreciation rights to officers and
key management employees.
 
    The Gantos, Inc. 1996 Stock Option Plan (the "1996 Plan") was approved by
shareholders on June 20, 1996. The 1996 Plan reserved 1,000,000 common shares
for issuance upon exercise of options or stock appreciation rights or for
restricted stock awards to key employees. The 1996 Plan provides for the
issuance of both incentive options and non-qualified options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended. The incentive
options generally must have an exercise price not less than the fair market
value of the shares on the date on which such option is granted. The non-
qualified options must have an exercise price not less than the par value of the
shares on the date on which such option is granted. Stock options and stock
appreciation rights may be exercised only within ten years of the date of grant.
 
    During 1997, the Company issued options to purchase 256,500 shares under the
1996 Plan at exercise prices ranging from $2.00 to $2.28. These options become
exercisable over a five year period (except for one option to purchase 1,000
shares which was exercisable immediately). The number of shares available for
grant under the 1996 Plan as of January 31, 1998 is 375,000.
 
    The Gantos, Inc. Stock Option Plan (the "1986 Plan") expired March 19, 1996.
During 1995, as part of the POR, the Company issued 200,000 restricted shares to
key management employees which vest in one-third annual installments beginning
March 31, 1996 and were subject to certain restrictions of forfeiture. The
compensation expense related to the awarding of restricted stock is recognized
ratably over the restriction period.
 
    The total number of options that remain outstanding under the 1986 Plan
(including unvested restricted stock) are 386,840 and will be exercisable in
future years in accordance with terms of such options.
 
    In addition, on June 18, 1992, the Company's shareholders approved the
Gantos, Inc. Director Stock Option Plan (the "Director Plan") which provides for
automatic granting of up to an aggregate of 100,000
 
                                      F-16
<PAGE>
                                  GANTOS INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
10. STOCK OPTION PLANS: (CONTINUED)
shares of non-qualified options to certain directors of the Company who are not
officers or employees of the Company. Options granted under the Director Plan
become 100% exercisable on the grant date and expire ten years after the grant
date, or, if earlier, three months after resignation, with certain exceptions.
 
    During 1997, options to purchase 6,000 shares were granted under the
Director Plan at an exercise price equal to the market value of Company's common
shares at the grant date. The number of shares available for grant under the
Director Plan at January 31, 1998 was 46,000.
 
    A summary of activity for the three years ended January 31, 1998 is as
follows:
 
<TABLE>
<CAPTION>
                                                             NUMBER OF        NUMBER OF        TOTAL        RANGE OF
                                                           NON-QUALIFIED     RESTRICTED      NUMBER OF     PRICES PER
                                                              SHARES           SHARES         SHARES         SHARE
                                                          ---------------  ---------------  -----------  --------------
                                                                       (THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>              <C>              <C>          <C>
Outstanding January 28, 1995............................           150           --                150   $ 8.00-53.50
Granted.................................................           634              200            834   $ 3.25-4.16
Exercised...............................................        --               --             --             --
Canceled................................................          (225)             (23)          (248)  $ 4.16-53.50
                                                                 -----              ---          -----   --------------
Outstanding February 3, 1996............................           559              177            736   $ 3.25-4.16
Granted.................................................           612           --                612   $ 3.00-4.69
Exercised...............................................            (2)             (59)           (61)  $    4.16
Canceled................................................          (113)             (34)          (147)  $    4.16
                                                                 -----              ---          -----   --------------
Outstanding February 1, 1997............................         1,056               84          1,140   $ 3.25-4.69
Granted.................................................           263           --                263   $ 2.00-2.28
Exercised...............................................        --                  (42)           (42)  $    4.16
Canceled................................................          (282)             (14)          (296)  $ 2.00-4.16
                                                                 -----              ---          -----   --------------
Outstanding January 31, 1998............................         1,037               28          1,065   $ 2.00-4.69
                                                                 -----              ---          -----   --------------
                                                                 -----              ---          -----   --------------
Exercisable.............................................           393           --                393   $ 3.25-4.69
                                                                 -----              ---          -----   --------------
                                                                 -----              ---          -----   --------------
</TABLE>
 
    The Company has adopted the disclosure provisions of SFAS No.123 "Accounting
for Stock Based Compensation". The standard requires pro forma disclosure of net
earnings and earnings per share as if the Company has accounted for its employee
stock options using a fair value method. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions:
 
<TABLE>
<CAPTION>
                                                                 1997       1996       1995
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>
Risk free interest rate......................................         7%         7%         7%
Dividend Yield...............................................         0%         0%         0%
Volatility...................................................     110.9%      83.9%      83.9%
Average expected term........................................    5 Years    5 Years    5 Years
</TABLE>
 
                                      F-17
<PAGE>
                                  GANTOS INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
10. STOCK OPTION PLANS: (CONTINUED)
    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma results, including the impact of employee stock options after January
28, 1995, are estimated to be:
 
<TABLE>
<CAPTION>
                                                                    1997       1996       1995
                                                                 ----------  ---------  ---------
                                                                        (THOUSANDS, EXCEPT
                                                                         PER SHARE DATA)
<S>                                                              <C>         <C>        <C>
Compensation expense recognized for stock options..............  $      440  $     660  $     546
Net income (loss)..............................................  $  (10,234) $   1,677  $   3,173
Net income (loss) per share (basic and diluted)................  $    (1.36) $    0.22  $    0.47
</TABLE>
 
    Employee stock options outstanding and exercisable under these plans as of
January 31, 1998, were:
 
<TABLE>
<CAPTION>
                                            OUTSTANDING
                       -----------------------------------------------------           EXERCISABLE
                                                         WEIGHTED AVERAGE     ------------------------------
                                    WEIGHTED AVERAGE   REMAINING CONTRACTUAL               WEIGHTED AVERAGE
RANGE OF PRICES          SHARES      EXERCISE PRICE            LIFE             SHARES      EXERCISE PRICE
---------------------  -----------  -----------------  ---------------------  -----------  -----------------
                                                (THOUSANDS, EXCEPT PER SHARE DATA)
<S>                    <C>          <C>                <C>                    <C>          <C>
$2.00-2.99...........         200       $    2.17                  9.3                 7       $    2.39
$3.00-3.99...........         176       $    3.43                  8.4                48       $    3.37
$4.00-4.49...........         311       $    4.16                  7.2               221       $    4.16
$4.50-4.69...........         350       $    4.69                  8.8               117       $    4.69
                                                                    --
                            -----           -----                                    ---           -----
                            1,037                                                    393
                            -----                                                    ---
                            -----                                                    ---
</TABLE>
 
                                      F-18
<PAGE>
                                  GANTOS INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
11. EMPLOYEE STOCK PURCHASE PLAN
 
    On June 20, 1996, the shareholders approved the Gantos, Inc. Employee Stock
Purchase Plan ("ESPP"). The ESPP, as amended August 15, 1996, grants eligible
employees the right to purchase common shares on a quarterly basis at the lower
of 85% of the market price at the beginning or the end of each three month
purchase period. These shares may be authorized but unissued shares, reacquired
shares or shares bought on the open market. The discount is treated as
equivalent to the cost of issuing stock for financial reporting purposes. During
1997, 61,427 shares were issued under the ESPP for $70,771. As of January 31,
1998, there are 120,862 shares reserved for future issuance under the ESPP.
 
QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
 
<TABLE>
<CAPTION>
FISCAL QUARTER                                                            FIRST     SECOND      THIRD     FOURTH
----------------------------------------------------------------------  ---------  ---------  ---------  ---------
                                                                            (THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                     <C>        <C>        <C>        <C>
1997
  Net Sales...........................................................  $  45,564  $  35,816  $  35,478  $  45,108
  Gross Income........................................................     10,348      4,165      5,451      4,765
  Net Income (Loss)...................................................      1,455     (3,547)    (3,388)    (4,314)
  Net Income (Loss) per share (basic and diluted).....................       0.19      (0.47)     (0.45)     (0.57)
 
1996
  Net Sales...........................................................  $  50,365  $  41,809  $  41,716  $  50,476
  Gross Income........................................................     11,753      6,751      8,214     10,626
  Net Income (Loss)...................................................      2,548     (1,592)      (275)     1,656
  Net Income (Loss) per share (basic and diluted).....................       0.34      (0.21)     (0.04)      0.22
</TABLE>
 
    Because the costs incurred in relocating the Company's merchandising
operations, distribution center and other corporate offices in 1997 were less
than the amount accrued, a $.7 million credit for facilities closings and other
was recorded in the second quarter of 1997.
 
                                      F-19
<PAGE>
                                  GANTOS, INC.
 
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
 
                                  (THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                          ADDITIONS
                                                                  --------------------------
                                                   BALANCE AT      CHARGED TO    CHARGED TO
                                                  BEGINNING OF      COSTS AND       OTHER                  BALANCE AT END
DESCRIPTION                                          PERIOD         EXPENSES      ACCOUNTS    DEDUCTIONS      OF PERIOD
-----------------------------------------------  ---------------  -------------  -----------  -----------  ---------------
<S>                                              <C>              <C>            <C>          <C>          <C>
Allowance for doubtful accounts:
  1997.........................................     $     636       $   1,320     $  --        $   1,365      $     591
                                                        -----          ------    -----------  -----------         -----
                                                        -----          ------    -----------  -----------         -----
  1996.........................................     $     572       $   1,226     $  --        $   1,162      $     636
                                                        -----          ------    -----------  -----------         -----
                                                        -----          ------    -----------  -----------         -----
  1995.........................................     $     600       $     884     $  --        $     912      $     572
                                                        -----          ------    -----------  -----------         -----
                                                        -----          ------    -----------  -----------         -----
</TABLE>
 
                                      F-20