<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
(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 the registrant as specified in its charter)
 
<TABLE>
<S>                                                     <C>
                       MICHIGAN                            38-1414122
           (State or other jurisdiction of              (I.R.S. Employer
            incorporation or organization)               Identification
                                                              No.)
 
     1266 E. MAIN STREET, FIFTH FLOOR, STAMFORD,              06902
                     CONNECTICUT                           (Zip Code)
       (Address of principal executive offices)
</TABLE>
 
                                 (203) 358-0294
               Registrant's telephone number, including area code
 
        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
 
    Portions of the Proxy statement for the 1998 Annual Meeting of Shareholders
are incorporated by reference in Part III if filed by June 1, 1998.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                     PART I
 
ITEM 1.  BUSINESS
 
    Gantos is a specialty retailer of a full range of quality, fashionable
women's apparel and accessories at moderate to upper moderate prices. As of
April 24, 1998, Gantos operated 115 stores averaging 7,800 square feet, in 23
states, located primarily in suburban malls in the West, Midwest and Northeast.
The Company does not plan to open any additional stores during 1998. The Company
offers an edited selection of private label and name brand sportswear, career
dresses and suits, social occasion dresses, accessories, outerwear, swimwear
and, in selected stores, shoes. The Company's marketing strategy emphasizes
quality merchandise with assortments from which women can build entire
wardrobes, personal attention and customer service. It is targeted to satisfying
the apparel needs of active, educated, career-orientated, fashion-conscious
women, primarily from 35 to late 50 years of age. The Company's four Bargain
Boutiques located in Illinois and Michigan feature final clearance merchandise,
both from Gantos stores and purchased directly for the boutiques. Gantos, Inc.
is a Michigan corporation incorporated November 10, 1952 as a successor to a
business founded in 1932. Unless otherwise specified, "Gantos" and "Company"
refer to the Registrant and its predecessors, and 1997, 1996 and 1995 refer to
the fiscal years ended January 31, 1998, February 1, 1997, and February 3, 1996,
respectively.
 
RECENT DEVELOPMENTS
 
    RELOCATION
 
    On January 27, 1997, the Company announced plans to relocate its
distribution center, financial and support functions to another facility in
Grand Rapids, Michigan as well as establish a merchandising office in Stamford,
Connecticut. The relocation of the merchandising office is expected to enhance
the Company's ability to do private label product development. These relocations
were completed during the second quarter of 1997. The costs incurred for these
relocations were charged against the reserve for facilities closings during the
period. The total costs incurred were less than the amount accrued and as such a
credit for facilities closings and other was recorded during 1997 for $0.7
million.
 
    CHANGES TO CREDIT AGREEMENT AND INDENTURE
 
    The Fleet facility has certain financial covenants. 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 an adjustment to the interest
rates, beginning in fiscal 1998, based upon financial performance, 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 on inventory is reduced to pre-amendment
levels. The total commitment and term remain the same.
 
    As of February 1, 1998, the Company entered into Amendment No. 4 to the
Fleet facility (the Fourth Amendment). The Fourth Amendment extended the
increase in the loan advance rate on inventory until February 28, 1998.
 
    As of February 27, 1998, the Company entered into Amendment No. 5 to the
Fleet facility (the Fifth Amendment). The Fifth Amendment extended the increase
in the loan advance rate on inventory until March 31, 1998.
 
                                       2
<PAGE>
    As of March 30, 1998, the Company entered into Amendment No. 6 to the Fleet
facility (the Sixth Amendment). The Sixth Amendment extends the increase in the
loan advance rate on inventory until May 2, 1998. Without these amendments the
Company would not have been in compliance with the new liquidity test.
 
    As of April 29, 1998, the Company entered into Amendment No. 7 to the Fleet
Facility (the Seventh Amendment). The Seventh Amendment extends the increase in
the loan advance rate on inventory until January 31, 1999.
 
    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.
 
    The Company's Indenture, under which the Company's 12.75% Notes were issued,
also contains certain financial covenants. In part because of the net loss
reported by the Company 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. As of April 24, 1998, $7.0 million in principal amount of
Notes were outstanding. On December 15, 1997, the Company entered into
Supplemental Indenture No. 1 and an Agreement with the trustee and principal
holder of the Notes, respectively, to waive 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 covenants or liquidity test under the Indenture or the Fleet
facility, unless sales substantially improve. As a result, 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.
 
    MANAGEMENT CHANGES
 
    In March 1997, David Rodgers was appointed Vice President, Management
Information Systems. In April 1997, Tony Barnett resigned as Vice President of
Store Operations, Gordon Tendler resigned as Vice President, General Merchandise
Manager for Sportswear, Coats and Suits and Neal Gottfried joined the Company as
Senior Vice President, Store Operations and Visual Merchandising. In August
1997, David C.
 
                                       3
<PAGE>
Nelson joined the Company as Senior Vice President, Chief Financial Officer and
Treasurer. In December 1997, David Rodgers resigned as Vice President,
Management Information Systems. In April 1998, Kenneth Green resigned as Vice
President, General Counsel, and Secretary.
 
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
 
    The Company's business consists of a single industry segment.
 
MARKETING STRATEGY
 
    The Company's marketing strategy emphasizes quality merchandise, with
assortments from which women can build entire wardrobes, personal attention and
customer service. It is targeted to satisfying the apparel needs of active,
educated, career-oriented, fashion-conscious women, primarily from 35 to late 50
years of age. This strategy is implemented by (i) offering a full range of
current, fashionable quality merchandise at moderate to upper moderate price
levels; (ii) training sales associates in the skills needed to provide a high
level of personal attention and customer service; and (iii) locating its stores
primarily in or near more affluent neighborhoods in regional malls which contain
at least one traditional upscale department store frequented by its target
customers.
 
    Management's research indicates that the typical Gantos customer is a career
woman, residing in a two-income, upper-middle to higher income household, who
has attended college, has sophisticated fashion taste and has high expectations
regarding quality, value, and service.
 
MERCHANDISE
 
    The Company's stores offer a full range of current, quality, fashionable
merchandise at moderate to upper moderate prices. Each store carries an edited
selection of both private label and name brand sportswear (both coordinated
groupings and separate tops and bottoms), career dresses and suits, social
occasion dresses, accessories, outerwear, swimwear and, in selected stores,
shoes. The Company attempts to stock all stores with the same basic merchandise
content; however, certain merchandise is varied among stores depending on
individual store or customer attributes.
 
    During the last quarter of 1996, the Company began the process of
redirecting merchandising and marketing strategies to enhance the position of
Gantos as a fashion brand. The Company plans to achieve this through:
 
    - Emphasis on product design and development to reinforce Gantos as a
      fashion brand by offering more private label product.
 
    - Focus on consistent quality and fit through the addition of a technical
      product management team.
 
    - Development of direct sourcing capabilities to reduce costs and improve
      quality.
 
    - Improved quality and increased frequency of communications with the
      customer through both charge statement inserts and direct mail catalogs.
 
    Each of the Company's stores is designed to be a well-organized and complete
shopping source for its target customers, providing merchandise to outfit them
in casual, work and evening wear, including accessories.
 
                                       4
<PAGE>
    The following table shows the approximate percentage of net sales for major
merchandise classifications (other than shoes) for the past three years:
 
<TABLE>
<CAPTION>
                                                                                        YEARS ENDED
                                                                           -------------------------------------
PRODUCT CLASS                                                                 1997         1996         1995
-------------------------------------------------------------------------     -----        -----        -----
<S>                                                                        <C>          <C>          <C>
Sportswear...............................................................          38%          39%          38%
Dresses..................................................................          40           37           34
Accessories..............................................................          13           15           15
Outerwear................................................................           4            5           10
Swimwear.................................................................           5            4            3
                                                                                  ---          ---          ---
                                                                                  100%         100%         100%
                                                                                  ---          ---          ---
                                                                                  ---          ---          ---
</TABLE>
 
    The percentage of net sales accounted for by each merchandise group is
affected by pricing, consumer trends and the development and introduction of new
fashions. Historical net sales percentages may not be indicative of percentages
in future years.
 
PERSONAL ATTENTION AND CUSTOMER SERVICE
 
    Personal attention is fundamental to the Company's marketing strategy.
Gantos sales and desk staff are trained to provide courteous and knowledgeable
service to each customer from the time the customer enters the store until the
sale is completed, including assisting customers in the coordination of
merchandise, advising customers about the latest fashion trends, and helping
customers make purchases efficiently. The Company motivates its sales associates
through incentives and periodic productivity awards based largely on multiple
item sales and sales volume.
 
SALES TERMS AND CONSUMER CREDIT
 
    The Company accepts cash, checks, third party credit cards and the Gantos
credit card. Management believes that offering the Gantos credit card helps
convey Gantos' image as an upscale specialty retailer, enhances customer loyalty
and provides a large customer list available for targeted advertising promotions
on a monthly basis. In 1997, approximately 37.4% of the Company's sales were
made for cash, 34.3% by third party credit cards and 28.3% by the Gantos credit
card. During 1997, the Company continued to offer its customers, consistent with
industry practice, a 10% discount on purchases if the customer opened a Gantos
charge account as a means of encouraging usage of the Gantos credit card.
 
    A Gantos credit card is offered to customers who qualify for credit based on
the Company's established credit criteria. The minimum monthly payment is the
greater of $15 or 10% of the unpaid balance of its credit accounts. The Company
imposes finance charges at annual rates varying from 18% to 21%, depending upon
state laws. The allowance for doubtful accounts was 3.2% of customer receivables
at 1997 year-end compared with 2.9% at 1996 year-end and 2.5% at 1995 year-end.
The Company's credit card program may be affected by changes in federal and
state consumer credit laws.
 
    Gantos has a liberal return policy, offering merchandise exchanges or
refunds for cash or credit on returned merchandise at its stores within 90 days
from purchase.
 
ADVERTISING AND PROMOTION
 
    Gantos relies largely on mall traffic to generate customer traffic. In
addition, the Company utilizes direct mail advertising. Advertising, primarily
by direct mail, informs customers about fashion trends and emphasizes Gantos'
fashion image. Direct mail advertising varies in size and format, from postcards
and catalogs to inserts and coupons mailed to Gantos credit card customers with
their monthly statements.
 
                                       5
<PAGE>
    Gross advertising expenditures in 1997 and 1996 approximated 1.2% and 0.9%
of net sales, respectively. A part of advertising costs are paid by vendor
contributions. Such vendor contributions are subject to change or cancellation
at each vendor's sole discretion from year to year. The Company experienced a
decrease in vendor participation in 1997 compared to 1996.
 
STORES
 
    The Company's stores are primarily located in enclosed regional malls which
contain at least one traditional upscale department store frequented by the
Company's target customers. A few stores are located in major urban
office-shopping centers which are typically located near at least one such
department store. Store interiors are designed to convey a warm feeling.
Merchandise is attractively arranged by department classifications, rather than
vendor, and is displayed in coordinated groups on fixtures designed to allow the
customer easy access to purchase complete outfits. The merchandise set and
visual display are centrally administered by Gantos management.
 
    Gantos operates four clearance stores (Bargain Boutiques) which are located
in Illinois (Countryside) and Michigan (one each in Grand Rapids, Kalamazoo and
Livonia). The clearance stores feature marked-down merchandise, which either
comes from Gantos stores or is purchased directly for the boutiques.
 
    The following table sets forth information concerning sales per store and
per square foot (sales include shoe sales and exclude license fees from shoe
departments) for stores open in the last three years:
 
<TABLE>
<CAPTION>
                                                                                                    YEAR
                                                                                       -------------------------------
                                                                                         1997       1996       1995
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Average sales per store (in thousands):
  All stores(1)......................................................................  $   1,456  $   1,672  $   1,752
  Stores open at least two years at end of year(2)...................................  $   1,473  $   1,689  $   1,766
 
Average sales per square foot of selling space:
  All stores(1)......................................................................  $     207  $     237  $     248
  Stores open at least two years at end of year(2)...................................  $     208  $     238  $     249
</TABLE>
 
------------------------
 
(1) The number of stores and the selling space are adjusted to reflect the
    number of months during the period that new stores and stores which closed
    were open. These amounts are not adjusted to reflect the seasonal nature of
    the Company's sales or the resulting impact of opening stores in different
    periods during the year. See "Business--Seasonality". Sales include shoe
    sales and do not include shoe license fees.
 
(2) The sales numbers are restated in prior years to reflect the number of
    stores open at the end of fiscal 1997.
 
    Store hours are generally determined by the mall in which the store is
located. Most stores are open seven days and six nights a week, except major
holidays.
 
LEASED DEPARTMENTS
 
    During 1997, a portion of the selling space in 29 midwestern stores was
licensed to an unaffiliated party for the operation of a shoe department. Fees
received by the Company from the shoe department licensee (included in net
sales) were approximately $889,000 in 1997, $874,000 in 1996, and $789,000 in
1995. In January 1998, the shoe department licensee decided to close 6 of the
shoe departments leaving the Company with 23.
 
                                       6
<PAGE>
NUMBER OF STORES AND LOCATION
 
    The following table sets forth information with respect to store openings
and closures since fiscal 1984:
 
<TABLE>
<CAPTION>
                                                                                               NUMBER OF STORES
                                                                            ------------------------------------------------------
                                                                               OPEN AT
                                                                              BEGINNING    OPENED DURING    CLOSED     OPEN AT END
YEAR ENDED                                                                     OF YEAR         YEAR       DURING YEAR    OF YEAR
--------------------------------------------------------------------------  -------------  -------------  -----------  -----------
<S>                                                                         <C>            <C>            <C>          <C>
February 2, 1985..........................................................           39              4             1           42
February 1, 1986..........................................................           42             10             2           50
January 31, 1987..........................................................           50             15             0           65
January 30, 1988..........................................................           65             20             1           84
January 28, 1989..........................................................           84             25             1          108
February 3, 1990..........................................................          108             32             1          139
February 2, 1991..........................................................          139             31             6          164
February 1, 1992..........................................................          164              0             6          158
January 30, 1993..........................................................          158              1             0          159
January 29, 1994..........................................................          159              2            43          118
January 28, 1995..........................................................          118              1             5          114
February 3, 1996..........................................................          114              1             2          113
February 1, 1997..........................................................          113              1             0          114
January 31, 1998..........................................................          114              2             1          115
</TABLE>
 
    In 1997, the Company opened one new store in New Jersey and one new store in
Tennessee. The Company closed one store that was located in Pennsylvania during
1997. The Company does not plan to open any new stores in 1998.
 
    The following table shows the geographic distribution of the Company's
stores by state for the 115 stores open as of April 24, 1998.
 
<TABLE>
<CAPTION>
<S>                                         <C>
California.............................. 4  New Hampshire........................... 2
Colorado................................ 4  New Jersey.............................. 5
Connecticut............................. 2  New York................................ 6
Illinois............................... 11  North Carolina.......................... 2
Indiana................................. 5  Ohio................................... 11
Kansas.................................. 1  Oregon.................................. 1
Kentucky................................ 2  Pennsylvania............................ 9
Maryland................................ 5  Rhode Island............................ 1
Massachusetts........................... 3  Tennessee............................... 5
Michigan............................... 20  Virginia................................ 4
Minnesota............................... 3  Wisconsin............................... 5
Missouri................................ 4
</TABLE>
 
    Capital expenditures for 1997 were incurred primarily to relocate the
corporate offices and distribution center, to open two new stores and to make
various information system enhancements. The Company expects that approximately
$1-2 million will be required for capital expenditures in 1998, principally for
remodeling and refixturing two to three existing stores.
 
DISTRIBUTION, SUPPLIERS AND PURCHASING
 
    The majority of the merchandise purchased by the Company from vendors is
delivered by the vendors to the Company's East coast or West coast
"consolidator". Each consolidator stages the merchandise it receives for
shipment and arranges for delivery to the Company's distribution center in Grand
Rapids, Michigan. Merchandise not shipped through a consolidator is delivered
directly to the distribution center.
 
                                       7
<PAGE>
Merchandise is then inspected, allocated and shipped to the Company's various
stores. The Company generally does not warehouse merchandise, but distributes it
promptly to stores. The Company does warehouse damaged items awaiting return to
vendors and a portion of selected merchandise for later allocation to stores in
which such items are selling more rapidly than in other stores. Shipments are
made to the stores via package delivery service.
 
    All of the products sold by Gantos are purchased directly from
manufacturers. The Company's purchasing strategy is to buy, where possible,
substantial quantities of quality merchandise from selected manufacturers to
whom the Company is an important customer. All purchasing decisions are made
centrally based on detailed merchandising plans. No manufacturer accounted for
more than 10% of the Company's purchases during any of the last three fiscal
years. The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase from any manufacturer. The Company supplements some of
its merchandise lines with private label merchandise.
 
    Management believes that the Company is one of the larger customers (based
on purchase volume) of a number of its suppliers. Gantos works closely with its
suppliers, keeping them informed of selling trends and helping them develop
merchandise lines and production schedules. The Company will continue to require
close working relationships with suppliers to obtain adequate supplies of
quality merchandise on favorable terms. To diminish the risk of not obtaining
satisfactory additional supplies of merchandise, the Company is continually
exploring possible additional resources for merchandise supply, including other
recognized domestic labels, private label merchandise (manufactured domestically
and overseas) and foreign manufacturers. There is no assurance that the Company
will be able to continue to purchase merchandise from preferred vendors in the
quantities and on the terms its desires.
 
INFORMATION AND CONTROL SYSTEMS
 
    The Company's integrated computer information system, which has been
installed and operational since May 1995, provides the Company with financial,
merchandise, inventory, personnel, credit, analytical and other information
concerning its business. This system includes several point-of-sale registers in
each store, which are connected on-line with the Company's corporate computers
via satellite. This network, which allows for in-house processing of most of the
Company's data processing needs, is used to communicate with the stores and
capture all sales transactions, Gantos credit card authorizations, data
collections by corporate computers and third party bankcard authorizations.
 
    The system provides Gantos buyers with timely selling information by vendor,
style, color and size and assists in the distribution to each store of required
merchandise. Planners and buyers use this information to plan and budget
inventory monthly by department and analyze the profitability and turnover of
merchandise as well as local consumer tastes. The system monitors the selling
rate of merchandise by classification. It also calculates markdowns at specified
intervals based upon standards established for each merchandise classification,
which are then reviewed by management.
 
    The system maintains over 1,100,000 customer charge accounts (approximately
203,000 of which are active) and generates monthly customer statements and
financial reporting. The system also provides information to help management
schedule, compensate and evaluate employees.
 
    The Company maintains a comprehensive system of internal controls, one of
which is the taking of a complete physical inventory at least two times per year
to determine actual cost of merchandise sold. Inventory shrinkage, at cost, as a
percentage of net sales was 2.0%, 1.5% and 1.5% in 1997, 1996 and 1995,
respectively. The increase in shrink was primarily the result of decreased sales
and an increase in shrinkage of higher cost items.
 
                                       8
<PAGE>
TRADEMARKS AND SERVICE MARKS
 
    The Company has registered the names "Gantos," "Bargain Boutique" and "Sale
For All Seasons" as service marks and its logo as a trademark with the United
States Patent and Trademark Office. Registration of these service marks is
renewable indefinitely. The Company is not aware of any adverse claims
concerning its names or marks.
 
EMPLOYEES
 
    As of January 31, 1998, the Company had 1,949 employees. This total consists
of 677 full-time employees and 1,272 part-time employees. The full-time
employees consist of 400 salaried employees and 277 hourly employees. Of the
full-time, hourly employees, 139 were salespersons who receive incentives in
addition to their hourly wages. Gantos employs additional part-time personnel as
needed throughout the year.
 
    Management believes that its employees are paid competitively compared to
industry standards. All employees receive discounts on Gantos merchandise, and
most full-time employees are entitled to life insurance, medical, dental and
disability coverage and are eligible to participate in a 401(k) plan and an
Employee Stock Purchase Plan. All Gantos employees are non-union. The Company
considers its relationship with its employees to be good.
 
COMPETITION
 
    The women's retail apparel business is highly competitive, with quality,
price, service and fashion being the principal competitive factors. The
Company's principal competitors include women's apparel specialty stores,
department stores and off-price apparel stores. Many competitors are national or
regional chains which are considerably larger than the Company and have
substantially greater financial and other resources.
 
SEASONALITY
 
    The Company's business is seasonal, with its highest and second highest
sales volumes and net income levels historically being in the Christmas and
spring seasons, respectively. The following tables set forth the Company's net
sales and net income (loss) per fiscal quarter for 1997 and 1996, on an
unaudited basis and including the results of store closings and new store
openings:
 
<TABLE>
<CAPTION>
                                                                                        NET SALES
                                                                        ------------------------------------------
                                                                          FIRST     SECOND      THIRD     FOURTH
YEARS ENDED                                                              QUARTER    QUARTER    QUARTER    QUARTER
----------------------------------------------------------------------  ---------  ---------  ---------  ---------
                                                                                      (IN THOUSANDS)
<S>                                                                     <C>        <C>        <C>        <C>
January 31, 1998......................................................  $  45,564  $  35,816  $  35,478  $  45,108
February 1, 1997......................................................     50,365     41,809     41,716     50,476
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                    NET INCOME (LOSS)
                                                                        ------------------------------------------
                                                                          FIRST     SECOND      THIRD     FOURTH
YEARS ENDED                                                              QUARTER    QUARTER    QUARTER    QUARTER
----------------------------------------------------------------------  ---------  ---------  ---------  ---------
                                                                                      (IN THOUSANDS)
<S>                                                                     <C>        <C>        <C>        <C>
January 31, 1998 (1)..................................................  $   1,455  $  (3,547) $  (3,388) $  (4,314)
February 1, 1997......................................................      2,548     (1,592)      (275)     1,656
</TABLE>
 
------------------------
 
(1) The net loss in the second quarter of 1997 included a credit to the
    provision for facilities closing and other of $703.
 
    Because of the importance of the Christmas season, sales and operating
results for any quarter are not necessarily indicative of results for the year.
The Company's working capital and cash demands are
 
                                       9
<PAGE>
seasonal, increasing in the fall when inventories are being increased for the
Thanksgiving/Christmas seasons.
 
ITEM 2.  PROPERTIES
 
    The Company's stores are located primarily in the West, Midwest and
Northeast portions of the United States. Gantos' regular priced merchandise
stores range in size from 5,000 to 13,000 square feet, with most stores within
the chain ranging from 5,000 to 11,000 square feet. Boutiques range in size from
10,000 to 18,000 square feet. The average size of the Company's stores is
approximately 7,800 square feet, with approximately 91% of this area
representing selling space.
 
    The Company leases all of its stores. Most store leases contain fixed rental
provisions and generally leases contain rental payment provisions based on a
percentage of sales. Most leases also require payment of insurance, real estate
taxes and other charges (such as advertising, maintenance and merchants'
association charges) which are subject to escalation clauses. During 1997, total
store rent under these leases was approximately $15.1 million, of which $20,000
was percentage rent. The Company owns substantially all of the equipment in its
stores.
 
    The following table shows the years in which leases on stores in operation
at April 24, 1998 expire:
 
<TABLE>
<CAPTION>
                                                                            NUMBER OF LEASES
FISCAL YEARS                                                                    EXPIRING
-------------------------------------------------------------------------  -------------------
<S>                                                                        <C>
1998-1999................................................................              26(1)(2)
2000-2001................................................................              52
2002-2003................................................................              28(1)
2004-2005................................................................               2
2006-2007................................................................               5
2008-2009................................................................               2
                                                                                      ---
  Total..................................................................             115
                                                                                      ---
                                                                                      ---
</TABLE>
 
------------------------
 
(1) One of these leases contains an option to renew for five years.
 
(2) One of these leases contains an option to renew for ten years.
 
    Beginning in May 1997, the Company relocated the merchandising portion of
its corporate offices to a 23,000 square foot facility in Stamford, Connecticut.
The Company has a seven year lease with one five year renewal option.
 
    Beginning in July, the Company relocated the remaining corporate
departments, including the distribution center, to a new location in Grand
Rapids, Michigan with 20,000 square feet of office space and 100,000 square feet
of distribution space. The Company has a sixty-four month lease with two five
year renewal options. The Company believes the combined new facilities better
serve its needs and also allow it to further expand to accommodate future
business volume.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    The Company is a party to a number of pending lawsuits and claims which are
ordinary, routine suits and claims incidental to its business. In the opinion of
management, the disposition of these actions will not have a material adverse
effect upon the Company's financial position or results of operations.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
SUPPLEMENTAL ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT
 
    See Item 10 of this Annual Report on Form 10-K.
 
                                       10
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
    The common shares of Gantos, Inc. are traded over-the-counter and are quoted
on The Nasdaq National Market under the symbol GTOS. The Company has received a
notice, however, that unless its stock price is above $1.00 a share for at least
ten consecutive trading days ending on or before May 28, 1998, it will receive a
delisting letter from The Nasdaq Stock Market. In addition the Company received
a separate notice that its stock will be delisted July 21, 1998 unless (a) the
stock meets the $5,000,000 market value of public float requirement on or before
July 17, 1998 or, (b) the Company requests a hearing prior to July 17, 1998.
 
    The table below sets forth the high and low closing sale prices for the
Company's common shares as reported by Nasdaq for 1997 and 1996.
 
<TABLE>
<CAPTION>
                                                                           CLOSING SALE PRICE
                                                                          --------------------
PERIOD                                                                      HIGH        LOW
------------------------------------------------------------------------  ---------  ---------
 
<S>                                                                       <C>        <C>
1997
1st Quarter.............................................................  2 3/4      1 7/8
2nd Quarter.............................................................  3 9/16     1 7/8
3rd Quarter.............................................................  3 7/16     2
4th Quarter.............................................................  2 11/16    7/16
 
1996
1st Quarter.............................................................  3 13/16    2
2nd Quarter.............................................................  7 1/8      3 9/16
3rd Quarter.............................................................  4 5/8      2 7/8
4th Quarter.............................................................  3 15/16    2 1/16
</TABLE>
 
    The number of shareholders of record of the Company's common shares as of
April 24, 1998 was 704.
 
    The Company has never paid cash dividends on its common shares. The Company
expects that for the foreseeable future it will follow a policy of retaining
earnings to finance the development of its business, including for working
capital and to fund capital expenditures. For a description of financial
covenants in the Company's loan agreement that may restrict dividend payments,
see Note 7 of "Notes to Financial Statements".
 
                                       11
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
 
                   5-YEAR SUMMARY AND SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                        1997*        1996       1995**     1994***       1993
                                                      ----------  ----------  ----------  ----------  ----------
                                                                  (THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>         <C>         <C>         <C>         <C>
OPERATING RESULTS
Net sales...........................................  $  161,966  $  184,366  $  192,790  $  197,288  $  229,422
Cost of sales.......................................    (137,237)   (147,022)   (151,912)   (160,434)   (205,899)
Selling, general and administrative expense.........     (38,343)    (37,407)    (40,018)    (40,114)    (47,004)
Finance charge and other revenue....................       4,843       4,732       4,472       5,020       6,660
(Provision) credit for facilities closings and
  other.............................................         703      --             944       1,085     (29,254)
Operating income (loss).............................      (8,068)      4,669       6,276       2,845     (46,075)
Interest expense....................................      (2,341)     (2,332)     (2,278)       (122)     (1,785)
Reorganization items................................      --          --            (279)     (1,764)       (831)
Income (loss) before income taxes, extraordinary
  item and cumulative effect of change in accounting
  method............................................     (10,409)      2,337       3,719         959     (48,691)
Net income (loss) before extraordinary item and
  income tax........................................     (10,409)      2,337       3,719         959     (47,514)
Extraordinary item..................................      --          --          --           1,628      --
Net income (loss) before income taxes...............     (10,409)      2,337       3,719       2,587     (47,514)
(Provision) benefit for income taxes................         615      --          --          --           4,450
Net income (loss)...................................  $   (9,794) $    2,337  $    3,719  $    2,587  $  (43,064)
                                                      ----------  ----------  ----------  ----------  ----------
PER SHARE DATA***
Net income (loss) per share (basic and diluted)
  before extraordinary item.........................  $    (1.30) $     0.31  $     0.55  $     0.36  $   (16.58)
Extraordinary item..................................      --          --          --            0.61      --
Net income (loss) per share (basic and diluted).....  $    (1.30) $     0.31  $     0.55  $     0.97  $   (16.14)
                                                      ----------  ----------  ----------  ----------  ----------
BALANCE SHEET DATA
Total assets........................................  $   65,194  $   65,858  $   68,410  $   95,983  $  125,611
Working capital.....................................  $   34,531  $   29,240  $   23,626  $   53,780  $   82,706
Long-term obligations...............................  $   27,398  $   11,940  $   12,395  $   66,981  $  104,715
Shareholders' equity................................  $   21,680  $   31,295  $   28,763  $    5,181  $    2,594
                                                      ----------  ----------  ----------  ----------  ----------
FINANCIAL RATIOS AND OTHER DATA
Current ratio.......................................         3.1         2.3         1.9         3.3         5.5
Return (loss) on average assets.....................       (14.9)%        3.5%        4.5%        2.3%      (36.0)%
Return (loss) on average shareholders' equity.......       (37.0)%        7.8%       21.9%       66.5%     (178.6)%
Book value per share at year end....................  $     2.87  $     4.14  $     3.80  $     1.94  $     0.98
Number of stores at year end........................         115         114         113         114         118
Weighted Shares Outstanding****.....................       7,550       7,574       6,759       2,665       2,669
</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 1997.
 
  ** Data for 1995 include the results of operations for 53 weeks.
 
 *** The Company closed 46 stores between the fourth quarter of 1993 and the
     second quarter of 1994, and emerged from its chapter 11 bankruptcy
     proceedings (filed on November 12, 1993) on March 31, 1995.
 
**** As part of the Company's Plan of Reorganization, each shareholder of record
     on March 31, 1995 was entitled to receive one common share for every two
     common shares previously held. All stock-related data in the table above
     reflect this stock distribution for all periods presented.
 
                                       12
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
RESULTS OF OPERATIONS
 
    As an aid to understanding the Company's operating results, the following
tables indicate the percentage relationships to net sales of various revenue and
expense items included in the Statements of Income for 1997, 1996 and 1995
(fiscal years ended January 31, 1998, February 1, 1997, and February 3, 1996,
respectively) and the percentage changes in the dollar amounts of those items
for such years.
 
<TABLE>
<CAPTION>
                                                                                                PERCENT CHANGE IN DOLLAR
                                                                  AS A PERCENT OF NET SALES             AMOUNTS
                                                               -------------------------------  ------------------------
                                                                 1997       1996       1995      1996-1997    1995-1996
                                                               ---------  ---------  ---------  -----------  -----------
<S>                                                            <C>        <C>        <C>        <C>          <C>
Net Sales....................................................      100.0%     100.0%     100.0%        (12)%         (4)%
Cost of sales (including buying, distribution and occupancy
  costs).....................................................      (84.7)     (79.7)     (78.8)         (7)          (3)
                                                               ---------  ---------  ---------
  Gross income...............................................       15.3       20.3       21.2         (34)          (9)
Selling, general and administrative expense..................      (23.7)     (20.3)     (20.7)          3           (7)
Finance charge and other revenue.............................        3.0        2.6        2.3           2            6
Credit for facilities closings and other.....................        0.4     --            0.5      --             (100)
                                                               ---------  ---------  ---------
  Operating income (loss)....................................       (5.0)       2.6        3.3        (273)         (26)
Interest expense.............................................       (1.4)      (1.3)      (1.2)     --                2
                                                               ---------  ---------  ---------
Income (loss) before reorganization items and income taxes...       (6.4)       1.3        2.1        (545)         (42)
                                                               ---------  ---------  ---------
Reorganization items:
  Professional fees..........................................     --         --           (0.3)     --             (100)
  Interest earned on accumulating cash from Chapter 11
    proceedings..............................................     --         --            0.1      --             (100)
                                                               ---------  ---------  ---------
                                                                  --         --           (0.2)     --             (100)
                                                               ---------  ---------  ---------
Income (loss) before income taxes............................       (6.4)       1.3        1.9        (545)         (37)
Income taxes.................................................        0.4     --         --          --           --
                                                               ---------  ---------  ---------
Net income (loss)............................................       (6.0)%       1.3%       1.9%       (519)        (37)
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
</TABLE>
 
1997 COMPARED TO 1996
 
    Net sales decreased approximately 12%, or approximately $22.4 million, from
1996 to 1997. The decrease was due primarily to a decrease in net sales for
stores in operation throughout both periods of approximately $23.9 million,
partially offset by a net increase of $1.5 million due to one new store opening
in 1996, two new stores opening in 1997 and one store closing in 1997. The 12.3%
decrease in comparable store sales was comprised of a 15.0% decrease in unit
sales and a 0.5% decrease due to the merchandise mix, partially offset by a 3.2%
increase in average sales dollars per unit. Management expects the negative
comparable store sales trends to continue into the first half of 1998 in part
due to difficulties in getting merchandise from vendors.
 
    Cost of sales decreased approximately $9.8 million from 1996 to 1997. The
decrease is due primarily to reduced sales volume. As a percent of net sales,
cost of sales increased to 84.7% in 1997 from 79.7% in 1996. The increase in
cost of sales, as a percent of net sales, is primarily the result of decreased
sales volume with consistent buying, distribution and occupancy costs, and lower
vendor allowances, partially offset by lower net markdowns and higher markups
for the period compared to a year ago.
 
    Selling, general and administrative (SG&A) expense increased approximately
$936,000 from 1996 to 1997. The increase was primarily due to the moving costs
associated with the relocation of the Company's
 
                                       13
<PAGE>
merchandising operations to Stamford, Connecticut, an increase in maintenance
and dues expense as a result of a rent settlement made to one of the Company's
store landlords, an increase in net advertising expense due to a decrease in
vendor participation in advertising co-op programs and an increase in corporate
salaries as a result of officers hired in 1996 and 1997. These increases were
partially offset by savings from cost control measures of approximately $810,000
at the store and corporate levels during 1997 compared to 1996. As a percent of
net sales, SG&A expense increased from 20.3% to 23.7% primarily as a result of
the lower sales coupled with the expensed increases described above partially
offset by the cost control measures.
 
    Finance charge and other revenue increased $111,000 to 3.0% of net sales
compared to 2.6% of net sales in the prior year. The increase was primarily due
to an increased late fee policy implemented on the Gantos charge card in 1997,
partially offset by a decrease in finance charge income due to a lower average
outstanding balance of Gantos credit card receivables compared to 1996. The
decrease in the receivable balances is primarily due to lower sales and a lower
percentage of total sales on the Gantos charge card from 30.7% in 1996 to 28.3%
in 1997.
 
    During 1997, the Company recorded a credit for facilities closings and other
of $0.7 million. During 1997, the Company completed the relocation of its
corporate offices and distribution center facilities for less than the amounts
accrued.
 
    Interest expense remained flat in 1997 compared to 1996. Decreases in
interest expense due to the completion of loan fee amortization in March 1997
and to payments made on long-term debt in 1996 and 1997 were offset by higher
average revolving credit facility borrowings outstanding during 1997 and higher
interest rates. Revolving credit interest rates are expected to increase in 1998
as a result of recent amendments to the facility and the average amounts
outstanding under the revolving credit facility are expected to be higher in
1998.
 
    The effective tax rate for the year ended January 31, 1998 was 5.9% which is
less than the statutory rate of 35% due to the establishment of valuation
allowances against tax assets related to net operating loss carryforwards due to
the Company's inability to determine that it is more likely than not that these
assets will be realized, partially offset by the reversal of previously recorded
valuation allowances during the year for other deferred tax items.
 
    These factors resulted in a net loss of $9.8 million, or $1.30 per share, in
1997 compared to net income of $2.3 million, or $0.31 per share, in 1996. The
net loss for 1997 includes a credit for facilities closing and other of $0.7
million.
 
1996 COMPARED TO 1995
 
    Net sales decreased approximately 4%, or approximately $8.4 million, from
1995 to 1996. The decrease was due primarily to a decrease in net sales for
stores in operation throughout both periods of approximately $6.3 million and a
decrease of approximately $2.6 million resulting from an additional week of
sales reported in fiscal 1995 as a result of the fifty-three week retail
calendar, partially offset by a net increase of $0.5 million due to one new
store opened in both 1995 and 1996 and two store closings in 1995. The 3.6%
decrease in comparable store sales (excluding the 53rd week of 1995) was
comprised of a 4.3% decrease in average sales dollars per unit due primarily to
a change in the mix of merchandise sold partially offset by a 0.7% increase in
unit sales.
 
    Cost of sales decreased approximately $4.9 million from 1995 to 1996. The
decrease is due primarily to reduced sales. As a percent of net sales, cost of
sales increased to 79.7% in 1996 from 78.8% in 1995. The increase was primarily
due to higher net markdowns taken and increased shrinkage expense, partially
offset by an increase in vendor allowances received, higher markups and lower
net merchandise costs incurred in 1996 compared to 1995.
 
                                       14
<PAGE>
    Selling, general and administrative (SG&A) expense decreased approximately
$2.6 million from 1995 to 1996. The decrease was primarily due to a decrease in
payroll as a result of fewer bonuses paid out in 1996 compared to 1995,
reductions in store payroll due to improved controls at the store level,
decreases in special services and supplies as a result of the elimination of
computer outsourcing fees and increased general cost control measures and lower
depreciation and insurance expense in 1996 compared to 1995. The decrease in
SG&A was partially offset by an increased rent expense in 1996 compared to 1995
due to the expiration of certain rent restructure deals and increased bad debt
expenses, due to the rise in personal bankruptcies in 1996 compared to 1995.
SG&A expense, as a percent of net sales, decreased from 20.7% to 20.3% in 1996
as a result of the decreases described above, partially offset by lower retail
sales.
 
    Finance charge and other revenue, as a percent of sales, increased to 2.6%
this year compared to 2.3% last year. The increase was primarily due to an
increase in late charge fees from a policy that took effect in October 1995,
partially offset by a decrease in average outstanding credit card receivables
during 1996 compared to 1995. The decrease in receivable balances was primarily
the result of faster payment by customers, a decrease in Gantos charge card
sales as a percentage of net sales from 31.1% in 1995 to 30.7% in 1996 and a
decrease in sales.
 
    Interest expense increased approximately $54,000 in 1996 compared to 1995.
The increase was the result of borrowings accruing interest for twelve months in
1996 compared to only ten months in 1995, partially offset by lower average
amounts outstanding during 1996.
 
    The effective income tax rate varies from the statutory rate of 35% due to
the effect of the graduated tax rate and the reversal of valuation allowances
during the year.
 
    These factors resulted in net income of $2.3 million, or $0.31 per share, in
1996 compared to net income of $3.7 million, or $0.55 per share, in 1995. The
net income for 1995 includes a credit of $0.9 million to Facilities Closing and
Other, and a charge of approximately $0.7 million as a result of the early
adoption of SFAS No. 121. As part of the Company's Plan of Reorganization, each
shareholder of record on March 31, 1995 was entitled to receive one common share
for every two common shares previously held. All stock-related data above
reflect this stock distribution for all periods presented.
 
                                       15
<PAGE>
                        LIQUIDITY AND CAPITAL RESOURCES
 
    The Company's principal needs for liquidity are to finance the purchase of
merchandise inventories, support its accounts receivable and fund its capital
expenditure and debt payment obligations and operations. Merchandise purchases
vary on a seasonal basis, peaking in the fall. Accounts receivable also vary on
a seasonal basis, peaking during the holiday season.
 
    Total capital expenditures during 1997, 1996 and 1995 were $4.9, $2.7, and
$6.1 million, respectively. Capital expenditures for 1997 were incurred
primarily to open two new stores, relocate the corporate offices and
distribution center and make various information system enhancements. Capital
expenditures for 1998 are estimated to be $1-2 million. These amounts are
expected to be used primarily to remodel and refixture approximately two to
three existing stores. The actual amount of the Company's capital expenditures
will depend in part on the number of stores remodeled, and on the amount of
construction allowances the Company receives from the landlords of the remodeled
facilities. Capital expenditures for 1998 are expected to be financed primarily
from funds generated from operations and from borrowings under the Fleet
facility.
 
    Net cash used by operating activities was $13.2 million in 1997 compared to
net cash provided by operating activities of $6.1 million in 1996. This
substantial increase in cash used by operations is the result of a net loss (net
of non-cash items) in 1997 compared to a net income (net of non-cash items) in
1996, an increase in cash used for facilities closing and other due to the
completion of the relocation of the corporate facilities, a larger increase in
prepaid expenses, and a larger decrease in accounts payable, both the results of
tightened trade credit requiring partial prepayment for merchandise before it is
received and approximately $2.0 million of cash deposited with certain factors
securing accounts payable, and an increase in merchandise inventory levels in
1997 compared to a decrease in 1996, which is the result of lower sales volume
being only partially offset by reduced purchases resulting in higher ending
inventory levels, and a net increase of one store at the end of 1997 compared to
1996, partially offset by the effects of the tightened trade credit. These
factors are offset somewhat by a larger decrease in accounts receivable due to
lower sales volume and reduced percentage of net sales made using on the Gantos
card and a smaller decrease in accrued expenses and other due to the timing of
payment. The Company expects the accounts receivable balance to be lower in 1998
than 1997 and that trade credit will remain tight through at least the first
half of 1998.
 
    Net cash used by reorganization items during 1995 was approximately $33.1
million. In addition to the reorganization items discussed in "Results of
Operations", the Company used approximately $31.6 million of cash to pay the
remaining liabilities subject to compromise, including secured, unsecured and
administrative claims, and approximately $1.4 million in cash to pay accrued
bankruptcy expenses. Pursuant to the Company's Plan of Reorganization, during
1995, the Company used $31,868,000 of its cash, issued approximately $12,395,000
in original principal amount of six-year notes payable, bearing interest at
12.75% a year, and issued or committed to issue approximately 4,735,000 Common
Shares (valued for this purpose at $4.16 a share), in payment of approximately
$58,255,000 of its liabilities subject to compromise, $5,192,000 in long-term
debt and $514,000 of accrued expenses, including the settlement costs of the
purported class action lawsuit.
 
    Net cash provided by financing activities in 1997 was approximately $15.1
million compared to net cash used of approximately $0.5 million in 1996. The
cash provided by financing activities in 1997 is primarily due to borrowings
under the Fleet facility, partially offset by scheduled payments on the 12.75%
notes (see Note 7 of the financial statements, which is incorporated in this
Item 7 by reference, for a description of the terms of such notes). The Company
expects to make payments on the notes of approximately $3.1 million in 1998. The
use of cash in 1996 was primarily an excess cash flow payment on the notes.
 
    The Company has a borrowing agreement with Fleet Bank N.A. (formerly NatWest
Bank N.A.) expiring March 31, 2000 (the "Fleet Facility"). The Fleet Facility
provides the Company revolving credit
 
                                       16
<PAGE>
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. The Fleet Facility is expected to be used to provide for the
Company's working capital requirements.
 
    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.
 
    The Company has entered into eight amendments to the Fleet facility. Without
the amendments through number 6 the Company would not have been in compliance
with the financial covenants, including the new liquidity test, under the Fleet
Facility. For a description of the most recent amendments, see Recent
Developments in Item 1 of this Report, which information are incorporated in
this Item 7 by reference. For a description of the terms of the Fleet Facility
and the covenants under that facility, see note 7 of the financial statements,
which is incorporated in this Item 7 by reference. As of April 24, 1998, the
Company had $22.0 million in borrowings and $1.2 in letters of credit
outstanding under the facility, and approximately $6.4 million was available for
borrowing under the facility. During 1997, the weighted average interest rate
under this facility was 8.9%.
 
    The Company's Indenture, under which the Company's 12.75% Notes were issued,
contains certain financial covenants. In part because of the net loss reported
by the Company 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 (EBITDA) 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. As of April 24, 1998, $7.0 million in principal amount of
Notes were outstanding. On December 15, 1997, the Company entered into
Supplemental Indenture No. 1 and an Agreement with the trustee and principal
holder of the Notes, respectively, to waive 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 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 with 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 covenants or liquidity test under the Indenture or the Fleet
Facility, unless sales substantially improve. As a result, 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.
 
                                       17
<PAGE>
                                   INFLATION
 
    The Company does not believe that inflation has had a material effect on the
results of operations during the past three years.
 
    Each of the above statements regarding future revenues, expenses or business
plans (including statements regarding the sufficiency of the Company's cash
resources to meet future liquidity needs, future compliance with financial
covenants and alternative courses of action regarding non-compliance) may be a
"forward looking statement" within the meaning of the Securities Exchange Act of
1934. Such statements are subject to important factors and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statement, including the level of support of the Company's trade
creditors and factors, general trends in retail clothing apparel purchasing,
especially during the Christmas season, the Company's ability to amend its
Indenture or refinance the related Notes, the Company's ability to comply with
or amend the Fleet Facility liquidity requirements, both on terms and conditions
acceptable to the Company, the Company's comparable store sales changes, the
Company's ability to obtain merchandise, and the factors set forth in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
 
    The Company has reviewed its Management Information Systems in regards to
becoming year 2000 compliant and has determined that the costs to be incurred
will not have a significant impact to the Company's financial results. The
Company also believes that all work will be completed in a timely manner.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    Not applicable.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The financial statements and other information required by this Item are set
forth in the "Index to Financial Statements" on page 26 of this report.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
    None.
 
                                       18
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Information regarding the directors of the Company will be set forth under
the caption "VOTING SECURITIES AND PRINCIPAL HOLDERS" and under the caption
"ELECTION OF DIRECTORS" in the Company's Proxy Statement in connection with the
1998 Annual Meeting of Shareholders scheduled to be held June 18, 1998, and is
incorporated herein by reference. Information concerning compliance with Section
16(a) of the Securities Exchange Act of 1934 will be set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement in connection with the 1998 Annual Meeting of Shareholders and is
incorporated herein by reference if filed by June 1, 1998.
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The following table sets forth information as of April 24, 1998, regarding
the Company's executive officers:
 
<TABLE>
<CAPTION>
                                                                                                                  EXECUTIVE
NAME                                AGE      POSITIONS WITH THE COMPANY                                         OFFICER SINCE
------------------------------      ---      ----------------------------------------------------------------  ---------------
<S>                             <C>          <C>                                                               <C>
Arlene H. Stern...............          47   President, Chief Executive Officer and a Director                         1996
 
Joseph Giudice................          48   Senior Vice President, Merchandise Planning and Operations                1996
 
Dennis Horstman...............          52   Senior Vice President, Merchandising and Marketing                        1996
 
Neal Gottfried................          55   Senior Vice President, Store Operations and Visual Merchandising          1997
 
David Nelson..................          48   Senior Vice President, Chief Financial Officer and Treasurer              1997
 
Vicki Boudreaux...............          41   Vice President, Planning and Allocation                                   1996
 
Hope Grey.....................          41   Vice President, Technical Product Management                              1996
</TABLE>
 
    Arlene H. Stern has been the Company's President and Chief Executive Officer
since September 8, 1996. From July 8, 1996 to September 8, 1996, Ms. Stern was
the President and Chief Operating Officer for the Company. Ms. Stern served as
Executive Vice President and Chief Operating Officer of Women's Specialty
Retailing Group, Inc., a retail apparel specialty store chain and a division of
U.S. Shoe Corporation, from July 1993 to August 1995. From February 1985 to July
1993, Ms. Stern was the Executive Vice President for Human Resources and
Distribution with P.A. Bergner & Company, a department store chain. Pursuant to
a letter agreement, dated July 8, 1996, Ms. Stern is to be employed as the
Company's President and Chief Executive Officer until July 7, 1999, unless her
employment is terminated earlier pursuant to the letter agreement.
 
    Joseph Giudice has been the Company's Senior Vice President, Merchandise
Planning and Operations since September 16, 1996. From January 1994 to September
1996, Mr. Giudice was Executive Vice President of Operations/Management
Information Systems for Casual Corner Group, Inc., a retail apparel specialty
store chain. Prior to that position, Mr. Giudice was Vice President of
Operations of Foley's Department Store, a division of the May Company, from
March 1990 to January 1994. Pursuant to a letter agreement, dated September 25,
1996, Mr. Giudice is to be employed at will as the Company's Senior Vice
President, Merchandise Planning and Operations.
 
    Dennis Horstman has been the Company's Senior Vice President, Merchandising
and Marketing since December 2, 1996. Prior to joining Gantos, Mr. Horstman was
Senior Vice President/General Merchandise Manager for Petrie Retail, Inc., a
retail apparel specialty store chain, from July 1995 to December 1996. Petrie
Retail, Inc. filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy
 
                                       19
<PAGE>
Code on October 13, 1995. Mr. Horstman was an executive officer of Petrie
Retail, Inc. at the time of the filing. Prior to Petrie, Mr. Horstman was
President of the Petite Sophisticate Division of Women's Specialty Group, a
retail apparel specialty store chain and a division of U.S. Shoe Corporation
from November 1994 to July 1995. From May 1994 to November 1994, Mr. Horstman
was General Merchandise Manager for the Capezio Sportswear Division of Women's
Specialty Group. From 1991 to 1994, Mr. Horstman was Vice President/General
Merchandise Manager for the Wilsons Leather Division of Mellville Corporation, a
retail apparel specialty store. Pursuant to a letter agreement, dated November
11, 1996, Mr. Horstman is to be employed at will as the Company's Senior Vice
President, Merchandising and Marketing.
 
    Neal Gottfried has been the Company's Senior Vice President, Store
Operations and Visual Merchandising since April 14, 1997. From January 1994
until April 1997, Mr. Gottfried was the Vice President of Operations for the
Southern Zone of Casual Corner Group, Inc., a retail apparel specialty store
chain and a division of U.S. Shoe Corporation. From September 1992 until January
1994, Mr. Gottfried was the Executive Vice President for Caren Charles, a retail
apparel specialty store chain and a division of U.S. Shoe Corporation. From May
1987 until September 1992, Mr. Gottfried was the Executive Vice President for
Casual Corner Group, Inc., a retail apparel specialty store chain and a division
of U.S. Shoe Corporation. Pursuant to a letter agreement, dated April 23, 1997,
Mr. Gottfried is to be employed at will as the Company's Senior Vice President,
Store Operations and Visual Merchandising.
 
    David Nelson has been the Company's Senior Vice President, Chief Financial
Officer and Treasurer since August 19, 1997. From July 1994 to August 1997, Mr.
Nelson was an independent financial consultant and advisor to private and public
corporations and financial institutions. From April 1991 to July 1994, Mr.
Nelson was the Vice President of Whitman Heffernan Rhein & Co. Inc., a merchant
banking and advising firm. Pursuant to a letter agreement, dated August 19,
1997, Mr. Nelson is to be employed at will as the Company's Senior Vice
President, Chief Financial Officer and Treasurer.
 
    Vicki Boudreaux has been the Company's Vice President, Planning and
Allocation since September 16, 1996. From April 1996 to September 1996, Ms.
Boudreaux was Vice President--Organizational Management at Casual Corner Group,
Inc., a retail apparel specialty store chain and a division of U.S. Shoe
Corporation, and from April 1995 to April 1996, was Vice President--Quick
Response at Casual Corner Group, Inc. From December 1991 to April 1995, Ms.
Boudreaux was the Director and subsequently Senior Director--Quick Response for
Casual Corner Group, Inc. Pursuant to a letter agreement, dated September 3,
1996, Ms. Boudreaux is to be employed at will as the Company's Vice President,
Planning and Allocation.
 
    Hope Grey has been the Company's Vice President, Technical Product
Management since September 30, 1996. Prior to joining Gantos, Ms. Grey was Vice
President-Quality Assurance for Casual Corner Group, Inc., a retail apparel
specialty store chain and a division of U.S. Shoe Corporation, from November
1990 to May 1996. Pursuant to a letter agreement, dated September 25, 1996, Ms.
Grey is to be employed at will as the Company's Vice President, Technical
Product Management.
 
    Executive officers are elected annually by the Board of Directors and serve
at the pleasure of the Board.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    Information regarding executive compensation will be set forth under the
caption "EXECUTIVE COMPENSATION" in the Company's Proxy Statement in connection
with the 1998 Annual Meeting of Shareholders and, except for the information
under the caption "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION" or "PERFORMANCE GRAPH", is incorporated herein by reference if
filed by June 1, 1998.
 
                                       20
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Information regarding the security ownership of certain beneficial owners
and management will be set forth under the caption "VOTING SECURITIES AND
PRINCIPAL HOLDERS" and "ELECTION OF DIRECTORS" in the Company's Proxy Statement
in connection with the 1998 Annual Meeting of Shareholders and is incorporated
herein by reference if filed by June 1, 1998.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Information regarding certain relationships and related transactions will be
set forth under the caption "CERTAIN TRANSACTIONS" or "EXECUTIVE
COMPENSATION--COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in
the Company's Proxy Statement in connection with the 1998 Annual Meeting of
Shareholders and is incorporated herein by reference if filed by June 1, 1998.
 
                                       21
<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 26 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 26 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.
 
                                       22
<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: April 29, 1998
 
<TABLE>
<S>                                           <C>        <C>
                                              GANTOS, INC.
                                              (Registrant)
 
                                              By:                   /s/ ARLENE H. STERN
                                                         -----------------------------------------
                                                                      Arlene H. Stern
                                                         ITS: PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
           SIGNATURE                        TITLE                    DATE
--------------------------------  --------------------------  -------------------
<C>                               <S>                         <C>
                                  President and Chief
      /s/ ARLENE H. STERN           Executive Officer
--------------------------------    (Principal Executive        April 29, 1998
        Arlene H. Stern             Officer)
 
                                  Senior Vice President,
      /s/ DAVID C. NELSON           Chief Financial Officer
--------------------------------    (Principal Financial        April 29, 1998
        David C. Nelson             Officer)
 
      /s/ JEFFREY C. TUORI
--------------------------------  Controller (Principal         April 29, 1998
        Jeffrey C. Tuori            Accounting Officer)
 
     /s/ L. DOUGLAS GANTOS
--------------------------------  Chairperson of the Board      April 29, 1998
       L. Douglas Gantos
 
   /s/ ELIZABETH M. EVEILLARD
--------------------------------  Director                      April 29, 1998
     Elizabeth M. Eveillard
 
      /s/ FRED K. SCHOMER
--------------------------------  Director                      April 29, 1998
        Fred K. Schomer
 
     /s/ HANNAH H. STRASSER
--------------------------------  Director                      April 29, 1998
       Hannah H. Strasser
 
   /s/ MARY ELIZABETH BURTON
--------------------------------  Director                      April 29, 1998
     Mary Elizabeth Burton
 
       /s/ ERWIN A. MARKS
--------------------------------  Director                      April 29, 1998
         Erwin A. Marks
 
      /s/ S. AMANDA PUTNAM
--------------------------------  Director                      April 29, 1998
        S. Amanda Putnam
</TABLE>
 
                                       23
<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     --
  Net borrowings (repayments) under revolving credit notes payable..................     19,577       (101)      (711)
  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.
 
    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, 1996
                                                     -----------  -----------  -----------  ---------  ------------
<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,
                                                        1996       INCURRED    WRITE-OFFS     OTHER        1996
                                                     -----------  -----------  -----------  ---------  ------------
<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:
 
    For each of the years presented, the effective tax rate is less than the
statutory rate of 35% due to the establishment of valuation allowances against
tax assets related to net operating loss carryforwards due to the Company's
inability to determine that it is more likely than not that these assets will be
realized, partially offset the reversal of previously recorded valuation
allowances during the year for other deferred tax items.
 
    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   $       5,870
Reserve for facility closings.....................       --                   530
Tax credit carryforward...........................          3,520           3,520
Other accrued expenses............................          1,710           1,750
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
<PAGE>
                                 EXHIBIT INDEX
 
    Each Management contract or compensatory plan or arrangement filed as an
exhibit to this Report is identified in the following list with an asterisk
before the exhibit number.
 
<TABLE>
<CAPTION>
 DOCUMENT
  NUMBER                                                  DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
       2.1   Second Amended Joint Plan of Reorganization of Gantos, Inc. and Gantos Stores Inc., incorporated by
               reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated March 7, 1995 and filed
               with the Securities and Exchange Commission on March 22, 1995. A list of the omitted exhibits is
               contained on page vii of the Plan. Gantos, Inc. will supplementally furnish a copy of any omitted
               exhibit to the Securities and Exchange Commission upon request.
 
       2.2   Modifications to the Debtors' Second Amended Joint Plan of Reorganization, incorporated by reference
               to Exhibit 2.2 to the Company's Current Report on Form 8-K, dated March 7, 1995 and filed with the
               Securities and Exchange Commission on March 22, 1995.
 
       2.3   Agreement of Merger, dated as of March 15, 1995, between Gantos Stores, Inc. and Gantos, Inc.,
               incorporated by reference to Exhibit 2.3 to the Company's Annual Report on Form 10-K for the fiscal
               year ended January 28, 1995.
 
      3(i)   Restated Articles of Incorporation, incorporated by reference to Exhibit 4.1 to the Company's Current
               Report on Form 8-K, dated March 7, 1995 and filed with the Securities and Exchange Commission on
               March 22, 1995.
 
     3(ii)   Bylaws, as amended March 16, 1993, incorporated by reference to Exhibit 3.2 to the Company's Annual
               Report on Form 10-K for the fiscal year ended January 30, 1993.
 
       4.1   Long-term debt documents, see Exhibits 10.13 through 10.20 of this Form 10-K.
 
       4.2   Form of Indenture between Gantos, Inc. and Shawmut Bank Connecticut, National Association, as
               Trustee, including forms of notes attached as exhibits, a reasonable itemized table of contents and
               a cross-reference sheet showing the location in the Indenture of the provision inserted pursuant to
               Section 310 through 318(a) inclusive of the Trust Indenture Act of 1939, incorporated by reference
               to Exhibit T3C to the Company's Application for Qualification of Indenture under the Trust
               Indenture Act of 1939 on Form T-3.
 
       4.3   Supplemental Indenture No. 1, dated as of December 15, 1997, to Indenture dated as of April 1, 1995,
               between Gantos, Inc. and State Street Bank and Trust Company (successor to Fleet Bank N.A., which
               was the successor to Shawmut Bank Connecticut, National Association), and Agreement, dated as of
               December 15, 1997, between Elliott Associates, L.P. and Gantos, Inc.
 
      10.1   Lease Agreement between Gantos, Inc. and First Industrial Financing Partnership, L.P., dated as of
               January 28, 1997, incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form
               10-K for the year ended February 1, 1997.
 
      10.2   Lease Agreement between Gantos, Inc. and Soundview Plaza Associates, dated as of January 23, 1997,
               incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year
               ended February 1, 1997.
 
      10.3   Lease Modification Agreement between Gantos, Inc. and Soundview Plaza Associates, dates as of
               February 10, 1997, incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form
               10-K for the year ended February 1, 1997.
 
      10.4   Form of Gantos, Inc. credit card application and agreement, incorporated by reference to Exhibit 10.8
               to the Company's Annual Report on Form 10-K for the year ended February 1, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 DOCUMENT
  NUMBER                                                  DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
      10.5   License Agreement, dated as of October 15, 1982, as amended by amendments one through four, between
               Gantos, Inc. and Sherman and Sons, Inc., incorporated by reference to Exhibit 10.8 to the Company's
               Annual Report on Form 10-K for the year ended January 30, 1988.
 
      10.6   Fifth Amendment, dated as of May 31, 1989, to the License Agreement dated as of October 15, 1982, as
               amended, between Gantos, Inc. and Sherman and Sons, Inc., incorporated by reference to Exhibit
               10.28 to the Company's Annual Report on Form 10-K for the year ended February 3, 1990.
 
      10.7   Sixth Amendment, dated as of June 30, 1992, to the License Agreement dated as of October 15, 1992, as
               amended, between Gantos Stores, Inc. and Sherman and Sons, Inc., incorporated by reference to
               Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 1, 1992.
 
     *10.8   Gantos, Inc. Amended and Restated Stock Option Plan, adopted March 20, 1986, as amended and restated
               March 31, 1995, incorporated by reference to Exhibit 1 to L. Douglas Gantos' Schedule 13D, dated
               March 31, 1995 and filed with the Securities and Exchange Commission on April 10, 1995.
 
     *10.9   Gantos, Inc. 1996 Stock Option Plan, adopted March 19, 1996, incorporated by reference to Exhibit
               10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996.
 
    *10.10   Gantos, Inc. Amended and Restated Director Stock Option Plan, adopted March 17, 1992, as amended and
               restated March 31, 1995, incorporated by reference to Exhibit 10.12 to the Company's Annual Report
               on Form 10-K for the fiscal year ended January 28, 1995.
 
    *10.11   1997 Gantos, Inc. Executive Bonus Plan, adopted May 20, 1997, incorporated by reference to Exhibit
               10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997.
 
    *10.12   Gantos, Inc. Master Severance Plan and Key Employee Retention Bonus Program adopted January 11, 1994
               as amended March 15, 1994, incorporated by reference to Exhibit 10.23 to the Company's Annual
               Report on Form 10-K for the fiscal year ended January 29, 1994.
 
     10.13   Revolving Credit Agreement, dated as of March 10, 1995, among Gantos, Inc., NatWest Bank, N.A.,
               LaSalle National Bank and NatWest Bank, N.A., as agent, incorporated by reference to Exhibit 10.12
               to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995.
 
     10.14   Forms of note, Security Agreement, Security Agreement and Mortgage--Patents and Trademarks, and
               Assignment of Life Insurance Policy as Collateral Security, all in connection with the revolving
               Credit Agreement, dated as of March 10, 1995, among Gantos, Inc., NatWest bank, N.A., LaSalle
               National Bank and NatWest Bank, N.A., as agent, incorporated by reference to Exhibit 10.5 to the
               Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995.
 
     10.15   Amendment No. 1, dated April 25, 1996, to the revolving Credit Agreement dated March 10, 1995, among
               Gantos, Inc., NatWest Bank, N.A. (now known as Fleet Bank, N.A.), LaSalle National Bank and NatWest
               Bank, N.A., as agent, incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
               on Form 10-Q for the quarter ended May 4, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 DOCUMENT
  NUMBER                                                  DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
     10.16   Amendment No. 2 to Credit Agreement, dated March 18, 1997, among Gantos, Inc., Fleet Bank, N.A.
               (formerly known as NatWest Bank, N.A.), LaSalle National Bank and Fleet Bank, N.A. (formerly known
               as NatWest Bank, N.A.), as agent, incorporated by reference to Exhibit 10.20 to the Company's
               Annual Report on Form 10-K for the year ended February 1, 1997.
 
     10.17   Amendment No. 3 to Credit Agreement, and related side letter, both dated October 8, 1997, between
               Gantos, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank N.A.), incorporated by reference
               to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 1,
               1997.
 
     10.18   Amendment No. 4 to Credit Agreement, dated as of February 1, 1998, between Gantos, Inc. and Fleet
               Bank, N.A. (formerly known as NatWest Bank N.A.).
 
     10.19   Amendment No. 5 to Credit Agreement, dated as of February 27, 1998, between Gantos, Inc. and Fleet
               Bank, N.A. (formerly known as NatWest Bank N.A.).
 
     10.20   Amendment No. 6 to Credit Agreement, dated as of March 30, 1998, between Gantos, Inc. and Fleet Bank,
               N.A. (formerly known as NatWest Bank N.A.).
 
    *10.21   Letter of Employment, dated June 20, 1996, between Gantos, Inc. and Arlene H. Stern, incorporated by
               reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
               August 3, 1996.
 
    *10.22   Letter of Employment, dated September 25, 1996, between Gantos, Inc. and Mr. Joseph Giudice,
               incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended November 2, 1996.
 
    *10.23   Letter of Employment, dated November 1, 1996, between Gantos, Inc. and Mr. Dennis Horstman,
               incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended November 2, 1996.
 
    *10.24   Letter of Employment, dated April 23, 1997, between Gantos, Inc. and Mr. Neal Gottfried, incorporated
               by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended
               February 1, 1997.
 
    *10.25   Letter of Employment, dated August 19, 1997, between Gantos, Inc. and Mr. David C. Nelson,
               incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended August 2, 1997.
 
    *10.26   Letter of Employment, dated September 3, 1996, between Gantos, Inc. and Ms. Vicki Boudreaux,
               incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended November 2, 1996.
 
    *10.27   Letter of Employment, dated September 25, 1996, between Gantos, Inc. and Ms. Hope Grey, incorporated
               by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
               November 2, 1996.
 
    *10.28   Letter of Employment, dated March 27, 1995, between Gantos, Inc. and Mr. L. Douglas Gantos,
               Chairperson of the Board, incorporated by reference to Exhibit 10.32 to the Company's Annual Report
               on Form 10-K for the fiscal year ended January 28, 1995.
 
    *10.29   Amendment of Letter of Employment, dated as of March 19, 1996, between Gantos, Inc. and L. Douglas
               Gantos, incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for
               the fiscal year ended February 3, 1996.
 
    *10.30   Severance Agreement, dated as of March 18, 1997, between Gantos, Inc. and Mr. Kenneth Green,
               incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year
               ended February 1, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 DOCUMENT
  NUMBER                                                  DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
     10.31   Letter Agreement, dated as of February 13, 1998, between Gantos, Inc. and PaineWebber Incorporated.
 
      23.1   Consent of independent accountants.
 
      27.1   Financial Data Schedule.
</TABLE>