<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               _________________
                                        
                                  FORM 10-Q/A
                                        
(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended September 30, 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 0-23669


                              SHOE PAVILION, INC.
             (Exact name of Registrant as Specified in its Charter)

                  Delaware                                     94-3289691
(State or Other Jurisdiction of Incorporation                 (IRS Employer
              or Organization)                            Identification Number)
                                        
              3200-F Regatta Boulevard, Richmond, California 94804
             (Address of principal executive offices)   (Zip Code)

                                 (510) 970-9775
              (Registrant's telephone number, including area code)

  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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

      Common Stock outstanding as of November 6, 1998 was 6,800,000 shares
<PAGE>
 
                                     PART I

                             FINANCIAL INFORMATION

Item 1.  Financial Statements.

  The following financial statements and related financial information are filed
as part of this report:

                               Shoe Pavilion, Inc.
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

(In thousands, except share data)                                        September 30     December 31     September 30
                                                                                 1998            1997             1997
                                                                         ------------     -----------     ------------ 
                                                                            (Restated)
                                                                              (Note 3)
<S>                                                                              <C>             <C>              <C> 
                ASSETS
Current assets
     Cash                                                                     $   676         $   395          $   251
     Inventories                                                               27,223          19,795           20,219
     Prepaid expenses and other                                                   371              73              297
                                                                         ------------     -----------     ------------ 
            Total current assets                                               28,270          20,263           20,767

Property and equipment, net                                                     3,116           2,075            2,017
Other assets                                                                      627             308               56
                                                                         ------------     -----------     ------------ 
            Total assets                                                      $32,013         $22,646          $22,840
                                                                         ============     ===========     ============ 

               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Accounts payable                                                         $ 6,982         $ 5,921          $ 7,573
     Accrued expenses                                                             995             843            1,029
     Line of credit                                                             6,800           7,387            7,087
     Current portion of long-term obligations                                      21              68               74
                                                                         ------------     -----------     ------------ 
            Total current liabilities                                          14,798          14,219           15,763

Deferred rent                                                                   1,002             896              861
Long-term obligations, less current portion                                        69             203              123
                                                                         ------------     -----------     ------------ 
            Total liabilities                                                  15,869          15,318           16,747
                                                                         ------------     -----------     ------------ 

Stockholders' equity
      Common stock- $.001 par value: 15,000,000 shares authorized;
      issued and outstanding; 6,800,000, 4,500,000, 4,500,000                       7               4                4
      Preferred stock- $.001 par value; 1,000,000 shares authorized;
      no shares issued or outstanding                                               -               -                -
      Additional paid-in capital                                               13,968             812              812
      Retained earnings                                                         2,169           6,512            5,277
                                                                         ------------     -----------     ------------ 
            Total stockholders' equity                                         16,144           7,328            6,093
                                                                         ------------     -----------     ------------ 
            Total liabilities and stockholders' equity                        $32,013         $22,646          $22,840
                                                                         ============     ===========     ============ 
</TABLE>

See notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
                               Shoe Pavilion, Inc.
                   Condensed Consolidated Statements of Income
                                   (Unaudited)
<TABLE>
<CAPTION>

(In thousands, except per share and number of stores)
                                                                  Three Months Ended        Nine Months Ended
                                                                     September 30             September 30
                                                                  ------------------        -----------------
                                                                    1998       1997         1998         1997
                                                                                         (Restated)
                                                                                          (Note 3)

<S>                                                                  <C>       <C>            <C>         <C>    
Net sales                                                            $14,638   $11,856        $39,476     $32,185
Cost of sales and related occupancy expenses                           9,258     7,807         25,491      20,678
                                                                     -------   -------        -------     -------
         Gross profit                                                  5,380     4,049         13,985      11,507
Selling, general and administrative expenses                           3,980     3,350         10,617       8,769
                                                                     -------   -------        -------     -------
         Income from operations                                        1,400       699          3,368       2,738
Interest and other, net                                                  100        99            268         339
                                                                     -------   -------        -------     -------
Income before taxes                                                    1,300       600          3,100       2,399
Income taxes                                                             500        42            592         169
                                                                     -------   -------        -------     -------
Net Income                                                           $   800   $   558        $ 2,508     $ 2,230
                                                                     =======   =======        =======     =======

Earnings per share:
Basic                                                                  $0.12     $0.12          $0.40       $0.50
Diluted                                                                $0.12     $0.12          $0.39       $0.50

Weighted average shares outstanding:
Basic                                                                  6,800     4,500          6,345       4,500
Diluted                                                                6,803     4,500          6,365       4,500

PRO FORMA
  Historical income before taxes on income                                        $600         $3,100      $2,399
  Pro forma provision for income taxes                                             226          1,194         905
                                                                               -------        -------     -------
  Pro forma net income                                                            $374         $1,906      $1,494
                                                                               =======        =======     =======

Pro forma earnings per share
Basic                                                                                           $0.29
Diluted                                                                                         $0.29

Pro forma weighted average shares outstanding
Basic                                                                                           6,597
Diluted                                                                                         6,617

Stores Open at end of period                                                                       62          56
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                               Shoe Pavilion, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

              (In thousands)
 
                                                                                Nine Months Ended
                                                                                   September 30
                                                                                -----------------
                                                                                    1998   1997
                                                                                (Restated)
                                                                                 (Note 3)
<S>                                                                               <C>      <C>   
              Operating activities:
              Net income                                                          $2,508   $2,230
              Adjustments to reconcile net income to net cash
                used by operating activities
                Depreciation                                                         566      442
                Deferred taxes                                                      (485)       -
                Effect of changes in:
                   Inventories                                                    (7,428)  (6,733)
                   Prepaid expenses and other current assets                        (298)     (42)
                   Accounts payable                                                1,061    1,878
                   Accrued expenses                                                  152      256
                   Other assets                                                      166     (229)
                   Deferred rent                                                     106      424
                                                                                  ------   ------
                      Net cash used by operating activities                       (3,652)  (1,774)
               
              Investing activities-
                 Purchase of property and equipment, net                          (1,607)  (1,083)

              Financing activities:
                Net proceeds from initial public offering                         14,107        -
                Borrowings (repayments) on line of credit                           (587)   3,687
                Principal payments on capital leases                                (180)     (77)
                Distributions paid to stockholder                                 (7,800)    (704)
                                                                                  ------   ------
                      Net cash provided by financing activities                    5,540    2,906
                                                                                  ------   ------
              NET INCREASE IN CASH                                                   281       49
              CASH, BEGINNING OF PERIOD                                              395      202
                                                                                  ------   ------
              CASH, END OF PERIOD                                                 $  676   $  251
                                                                                  ======   ======
</TABLE>

              See notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                         Notes to Financial Statements


1.  Basis of Presentation

General - The accompanying unaudited condensed consolidated financial statements
have been prepared from the records of the Company without audit, and in the
opinion of management, include all adjustments necessary to present fairly the
financial position at September 30, 1998 and 1997 and the interim results of
operations for the three and nine months then ended and cash flows for the nine
months then ended. The balance sheet as of December 31, 1997, presented
herein, has been derived from the audited financial statements of the Company
for the year then ended.

Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the year ended December 31, 1997,
included in the Company's prospectus dated February 23, 1998.  Certain
information and disclosures normally included in notes to financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted for purposes of the condensed consolidated interim
financial statements.  The condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements,
including the notes thereto, for the year ended December 31, 1997.

The results of operations for the three-month and nine-month periods presented
herein are not necessarily indicative of the results to be expected for the full
year.

Fixed Assets - As of September 30, 1998, the fixed assets include approximately
$600,000 in costs related to the implementation of the Company's new management
information systems.

Public Offering - On February 27, 1998, the Company sold 2,300,000 shares of its
common stock for net proceeds of  $14,106,862.  In connection with the offering,
the Company terminated its status as an S corporation and recorded deferred
taxes of $485,000.

New Accounting Pronouncement - The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income during the
quarter ended March 31, 1998.  SFAS 130 requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources.  As the Company has no changes in net assets from
nonowner sources, comprehensive income and net income are the same.

In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities, which
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP requires entities to expense as incurred all start-up and
preopening costs that are not otherwise captializable as long-lived assets. The
SOP will be effective for fiscal years beginning after December 15, 1998. The
Company's adoption of the new accounting standard will involve the recognition
of the cumulative effect of the change in accounting principle required by the
SOP as a one-time charge against earnings, net of any related income tax effect,
retroactive to the beginning of the fiscal year of adoption. The Company has not
completed the process of assessing the impact of this statement.

Reclassification - The 1997 financial statements have been reclassified to
conform to the 1998 presentation.

2.  Pro Forma Information

The objective of the pro forma information is to show what the significant
effects on the historical information might have been had the Company not been
treated as an S Corporation for tax purposes prior to the February 23, 1998, the
effective date of the Company's initial public offering.

                                       5
<PAGE>
 
Income Taxes - The pro forma information presented on the condensed consolidated
statements of income reflects a provision for income taxes at an effective rate
of 38.5% for the nine months ended September 30, 1998 and 37.7% for the quarter
and nine months ended September 30, 1997.

Pro Forma Net Income Per Share - Pro forma basic net income per share is based
on the weighted average number of shares of common stock outstanding during the
period plus the estimated number of shares offered by the Company (1,271,722
shares) which were necessary to fund the $7,800,000 distribution paid to the
Company's stockholder upon termination of the Company's status as an S
Corporation.  Pro forma diluted net income per share is calculated using the
number of shares used in the basic calculation plus the dilutive effect of stock
options outstanding during the period.

3. Restatement

Subsequent to the issuance of the Company's condensed consolidated financial
statements for the nine months and quarter ended September 30, 1998, the Company
determined that the effect of recording the $485,000 deferred tax asset on
February 23, 1998 resulting from the termination of the Company's status as an S
corporation should have been recorded as a deduction to tax expense rather than
directly to additional paid-in capital. As a result, additional paid-in capital,
retained earnings, income taxes and net income have been restated from amounts
previously reported as follows:

<TABLE> 
<CAPTION> 

(In thousands)                                          As Previously     As
                                                          Reported     Restated
                                                        -------------  --------
<S>                                                         <C>        <C>   
At September 30, 1998:
  Additional paid-in capital                                $14,453    $13,968
  Retained Earnings                                           1,684      2,169

For the nine months ended September 30, 1998:
  Income taxes                                                1,077        592
  Net income                                                $ 2,023    $ 2,508
</TABLE> 


                                       6
<PAGE>
 
                                   SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 17th day of March 1999.

                              SHOE PAVILION, INC., as Registrant

                              By /s/ Dmitry Beinus
                              -------------------- 
                              Dmitry Beinus
                              Chairman and Chief Executive Officer

                              By /s/ Gary A. Schwartz
                              ------------------------
                              Gary A. Schwartz
                              Vice President and Chief Financial Officer

                                       7
<PAGE>
 
                              INDEX TO EXHIBITS

Exhibit Number    Description
--------------    -----------

27.1              Financial Data Schedule