<PAGE>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                ----------------
                                    FORM 10-K

[X]  Annual Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the fiscal year ended October 31, 2001

                                       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 0-24026
                            MAXWELL SHOE COMPANY INC.
             (Exact name of registrant as specified in its charter)


                Delaware                                       04-2599205
     (State or other jurisdiction of                         (IRS Employer
      incorporation or organization)                      Identification Number)

            101 Sprague Street
               P.O. Box 37
           Readville (Boston), MA                                 02137
   (Address of principal executive offices)                     (Zip code)


                                 (617) 364-5090
                 (Registrant's telephone number, including area code)

            Securities Registered Pursuant to Section 12(b) of the Act:

                                                           Name of Each Exchange
        Title of Each Class:                               on Which Registered:
        -------------------                               ----------------------
               None                                                 None

           Securities Registered Pursuant to Section 12(g) of the Act:
                              Class A Common Stock,
                            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. [X]

         The aggregate market value of the Class A Common Stock of the
registrant held by non-affiliates of the registrant on January 22, 2002 based on
the closing price of the Class A Common Stock on the NASDAQ National Market
System on such date was $136,237,449.

         The number of shares of the registrant's Class A Common Stock
outstanding at January 22, 2002 was 8,974,799 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the proxy statement for the registrant's 2002 Annual
Stockholders Meeting are incorporated by reference into Part III herein.

================================================================================

<PAGE>



                            MAXWELL SHOE COMPANY INC.
                       INDEX TO ANNUAL REPORT ON FORM 10-K

                   For The Fiscal Year Ended October 31, 2001
<TABLE>
<CAPTION>

Caption                                                                                                     Page
                                                                                                            ----
<S>           <C>                                                                                           <C>

PART I
------
Item 1.       Business .....................................................................................  2
Item 2.       Properties ................................................................................... 14
Item 3.       Legal Proceedings ............................................................................ 14
Item 4.       Submission of Matters to a Vote of Security Holders .......................................... 14

PART II
-------
Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters ........................ 15
Item 6.       Selected Financial Data ...................................................................... 16
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of
                 Operations ................................................................................ 17
Item 8.       Consolidated Financial Statements and Supplementary Data ..................................... 20
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial
                 Disclosure ................................................................................ 37

PART III
--------
Item 10.      Directors and Executive Officers of the Registrant ........................................... 37
Item 11.      Executive Compensation ....................................................................... 37
Item 12.      Security Ownership of Certain Beneficial Owners and Management ............................... 37
Item 13.      Certain Relationships and Related Transactions ............................................... 37

PART IV
-------
Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................. 38
</TABLE>




                                        1

<PAGE>

                                     PART I

Item I.    Business

General

     All references herein to the "Company" mean Maxwell Shoe Company Inc., a
Delaware corporation, and its predecessors and its consolidated subsidiaries,
unless the context otherwise requires. The Company's fiscal year ends on
October 31; all references herein to a fiscal year mean the twelve-month period
ended on October 31 of the particular year.

     The Company designs, develops and markets casual and dress footwear for
women and children under multiple brand names, each of which is targeted to a
distinct segment of the footwear market. The Company offers casual and dress
footwear for women in the moderately priced market segment under the Mootsies
Tootsies(R) brand name, in the upper moderately priced market segment under the
Sam & Libby(R) and Dockers(R) Khakis Footwear For Women brand names and in the
better market segment under the Anne Klein 2(R) and A Line Anne Klein(TM) brand
names. The Company also sells moderately priced and upper moderately priced
children's footwear under both the Mootsies Tootsies(R) and Sam & Libby(R) brand
names. The Company designs and develops private label footwear for selected
retailers under the retailers' own brand names. The Company has licensed the
J.G. Hook(R) trademark to source and develop private label products for
retailers who require brand identification. In October 2000, the Company
acquired all the trademarks of joan and david helpern, incorporated and JOAN
HELPERN DESIGNS, INC. (Joan & David(R)) and now sells contemporary footwear for
women in the bridge segment under the Joan and David brand name. In addition,
the Company sold footwear closeouts that it had purchased at discounts from
other manufacturers. This footwear closeout business was terminated in fiscal
1999.

     Since 1987, when the Company first focused on its branded footwear strategy
and, except for fiscal 1999 as noted below, the Company has increased net sales
every year and consistently maintained profitability. In fiscal 1999, the
Company's net sales decreased 9.4% as compared to fiscal 1998 while net income
increased 42.1%. This was largely a result of the sale of the Jones New York
license to the Jones Apparel Group, Inc. and Jones Investment Co. (hereinafter
collectively "Jones"). The Company's financial success has been largely a result
of its ability to design, develop and market footwear with contemporary styles
at affordable prices. Retail prices for the Company's footwear generally range
from $20 to $70 for the Mootsies Tootsies(R), Dockers(R) Khakis Footwear For
Women and Sam & Libby(R) brand offerings, from $45 to $95 for the A Line Anne
Klein(TM) and Anne Klein 2(R) product lines and $180 and higher for Joan &
David(R) footwear. The Company began shipping Joan & David(R) footwear in the
fourth quarter of fiscal 2001. In the first fiscal quarter of 2002, the Company
opened the Joan & David(R) Outlet store, an approximately 2,200 square foot
store located in Wrentham, Massachusetts in the Wrentham Premium Outlet Mall.
Substantially all of the Company's products are manufactured overseas by
independent factories selected by the Company and its overseas agents. The
Company sells its footwear primarily to department stores and specialty stores
in the United States as well as through national catalog retailers and cable
television consumer shopping channels.

     In November 2001 the Company signed an exclusive licensing agreement with
Global Retail Inc. to begin the development of freestanding retail stores
throughout Europe and Asia for Joan & David(R) sportswear and accessory items as
well as the roll-out of Joan & David(R) in-store shops in upscale department
stores. Global Retail Inc., which is based in Hong Kong, is a widely-recognized
retail development and global manufacturing organization led by Chairman,
Jeffrey Fang. Global Retail has over 300 retail stores worldwide. Under the
agreement, Global Retail will design, source, manufacture and market a full
array of Joan & David(R) sportswear including knitwear, wovens, outerwear and
dresses all incorporating high-end European design elements. The Company's Joan
& David(R) footwear will be prominently featured throughout the stores
complementing the new offerings. The stores and in-store shops are scheduled to
begin opening for the Fall 2002 season.

     In July 1993, the Company entered into a license agreement (the "Jones
License Agreement") with Jones under which the Company had the exclusive right
to use the Jones New York and Jones New York Sport names in connection with the
development, manufacturing and marketing of women's footwear (other than
performance athletic shoes and bedroom slippers). The Jones License Agreement
covered the United States (including its

                                        2

<PAGE>

territories) and Canada. The Company had a number of options to extend the Jones
License Agreement through December 2017, subject to the Company meeting certain
minimum net sales amounts. On July 9, 1999 the Company sold and assigned its
rights, title and interest as licensee to manufacture and sell footwear and open
sales orders and purchase orders bearing Jones New York and Jones New York Sport
trademarks under the Jones License Agreement to Jones for $25 million cash. The
Company shipped the last of its Jones New York footwear in January 2000.

     The Company's strategy is to leverage its existing competitive strengths,
including but not limited to its strong manufacturing relationships and focused
brand management and to increase profitably its share of the women's and
children's footwear markets by further strengthening its existing footwear
brands and its private label business and expanding its brand portfolio through
a combination of acquisition, licensing and development of additional brands in
the future.

     Through advertising, promotion and packaging, the Company has built
consumer and retail recognition for the Mootsies Tootsies(R) and Mootsies
Kids(R) brand names, and management believes that Mootsies Tootsies(R) is
currently one of the largest selling brands in the moderately priced segment of
the women's casual and dress footwear industry. The Company continued its brand
expansion through the acquisition of the Sam & Libby(R) worldwide trademarks and
tradenames in 1996. The Company has re-positioned the Sam & Libby(R) brand from
its prior focus on the junior women's market segment to the updated,
career-oriented women market segment. In late 1998, the Company licensed the
Dockers(R) Khakis Footwear For Women footwear brand name for women, in order to
increase its brand offerings in the upper moderate and better industry segments.
In 1999, the Company sold its Jones New York footwear license to Jones which had
served the better footwear retail segment. In 1999, in order to service the
better women's footwear segment at retail, the Company licensed the Anne Klein
2(R) and A Line Anne Klein(TM) footwear brands. The Company acquired the Joan &
David(R) worldwide trademarks and tradenames in October 2000. The Joan &
David(R) brand has served the bridge/designer zone for more than 25 years. The
Company shipped the first Joan & David(R) footwear for the Fall 2001 footwear
season. The Company believes that there is a growing demand among retailers for
footwear to market on a first cost basis with brand names. The Company licensed
the J. G. Hook(R) name in 1997 to sell as a first cost product for retailers who
require brand identification.

     Maxwell Shoe Company competes primarily in the women's casual and dress
footwear market, which emphasizes contemporary fashion, quality and value. The
Company believes that there has been a shift in the "moderate" segment of the
women's casual and dress footwear market toward value priced footwear. The
Company has positioned its Mootsies Tootsies(R) line to take advantage of this
shift by offering value priced footwear that reflects current fashion trends.
The Sam & Libby(R) brand is directed to appeal to the fashion forward customers
in the upper moderate price range. The Company's Dockers(R) Khakis Footwear For
Women competes in the upper moderate and better industry segments. The Company
believes that the better and bridge segments of this market has not been as
affected by this shift due to a continuing interest in higher quality and brand
name products, such as the Company's Anne Klein 2(R), A Line Anne Klein(TM) and
Joan & David(R) brands.

     The Company, originally a closeout footwear business founded in 1949, was
incorporated as Maxwell Shoe Company Inc. in Massachusetts in 1976. During the
late 1980s, the Company shifted its focus to designing, developing and marketing
full lines of branded women's footwear. In order to implement this new strategy,
the Company hired experienced senior management to strengthen its organizational
infrastructure, developed cost-efficient product sourcing, implemented an
advertising program and improved internal systems. In March 1994, Maxwell Shoe
Company Inc. became a Delaware incorporated company.

Business Strategy

     The Company's strategy is to leverage its existing competitive strengths,
to increase profitably its share of the women's and children's footwear markets
by further developing its existing footwear brands and its private label
business and expanding its brand portfolio through a combination of acquisition,
licensing and development of additional brands in the future.

                                        3

<PAGE>

     Competitive Strengths. The Company has developed certain core operating
strengths which have been significant sources of growth to date and which
management believes will help the Company achieve further growth in the future.
Such operating strengths include:

     o   Portfolio of Established Brands. Through advertising and promotion, the
         Company has built consumer and retail recognition for its Mootsies
         Tootsies(R)and Mootsies Kids(R)brand names and has established Mootsies
         Tootsies(R)as one of the largest selling brands in the moderately
         priced segment of the women's casual and dress footwear industry. The
         Company continued its brand expansion through the acquisition of the
         Sam & Libby(R) worldwide trademarks and tradenames in 1996. For several
         years, the Company offered its Jones New York and Jones New York Sport
         footwear lines in the better priced segments. This license was sold in
         July 1999 to Jones. Effective July 1999, the Company licensed the Anne
         Klein 2(R) and A Line Anne Klein(TM) brands for women's footwear to
         compete in the better retail segment. The Company licensed the
         Dockers(R) Khakis Footwear For Women brand in order to increase its
         brand offering in the upper moderate and better price segments. The
         Company has also licensed the J. G. Hook(R) name to sell as a first
         cost product for those first cost retailers that require brand
         identification. The acquisition of the Joan & David(R) trademarks
         allows the Company to compete in the bridge retail segment. The Company
         continues to seek licensing or acquisition opportunities in order to
         expand its current portfolio of brands.

     o   Strong Manufacturing Relationships. The Company believes that one of
         the contributing elements of its growth has been its strong
         relationships with overseas buying agents and manufacturers capable of
         meeting the Company's requirements for quality and price in a timely
         fashion. The Company's increased use of China-based manufacturing
         facilities has resulted in lower manufacturing costs while continuing
         to meet the Company's high quality standards. Universal Max Trading,
         the Company's principal buying agent in The Peoples Republic of China
         ("China"), has agreed to exclusively source and monitor product
         manufacturing for the Company in China. Universal Max Trading uses a
         dedicated manufacturing facility that recently opened a tanning
         facility in China which will further improve the Company's product
         development and sourcing capabilities. The Company continues to seek to
         develop other exclusive relationships with buying agents whose access
         to numerous manufacturing facilities will enable the Company to
         maximize its sourcing flexibility.

     o   Emphasis on High Volume Moderate Through Better Segments of the
         Footwear Market. The Company believes that its strategy of focusing on
         the high volume moderate through better segments of the women's and
         children's footwear markets and of providing value-priced products
         reduces the risks associated with changing fashion trends. The Company
         also attempts to reduce the risks of changing fashion trends and
         product acceptance through reducing manufacturing lead times and
         increasing inventory turns at its distribution center. The Company
         believes that this approach mitigates the risks of carrying obsolete
         inventory and poor retail sell-through.

     o   Comprehensive Customer Relationships. The Company supports its
         customers by maintaining an in-stock inventory position for selected
         styles in order to minimize the time necessary to fill customers'
         orders. In addition, the Company provides its customers with electronic
         data interchange (EDI) capability (see "--Distribution"), co-op
         advertising, point of sale displays and assistance in evaluating which
         products are likely to appeal to their retail customers. Management
         believes that the Company has earned a strong reputation among its
         customers by consistently providing quality products at attractive
         prices. In return, the Company's customers provide certain information
         to the Company on current retail selling trends, which helps the
         Company identify and interpret fashion trends.

         Growth Strategy. By leveraging the above competitive strengths, the
Company has pursued and will continue to pursue growth through various
initiatives, including, but not limited to, the following:

         Growing the Company's Existing Brands. Management seeks to increase
         sales of the Company's products under each of the Company's existing
         brands by: (i) offering a broader assortment of products and styles
         under such brand names, (ii) further penetrating the Company's existing
         retail channels through increased display area and additional stores,
         (iii) developing new retail channel

                                        4

<PAGE>

      relationships appropriate to the Company's product offerings, (iv)
      increasing the use of advertising to strengthen brand awareness
      among retailers and consumers, and (v) opening retail outlet
      stores for some of the Company's brands.

o     Increasing the Company's Private Label Business. The Company
      entered the private label footwear market in order to leverage its
      offshore manufacturing experience and existing infrastructure by
      providing selected retailers with private label products for sale
      under their own house brands. This business enables the Company to
      sell products to new customers as well as strengthen the Company's
      relationship with certain of its existing customers. The Company
      believes that there is a growing demand among retailers for
      footwear to market under their own brand names, and the Company
      licensed the J. G. Hook(R) name to sell as a first cost product
      for retailers who require brand identification.

o     Adding Brands to the Company's Portfolio. Management believes that the
      footwear industry segments in which the Company operates remain highly
      fragmented, although consolidation has been accelerating recently as fewer
      companies control more brands and retailers generally purchase footwear
      merchandise from a reduced number of manufacturers. The Company intends to
      continue capitalizing on this ongoing consolidation by expanding its
      existing brand portfolio which will appeal to different market segments
      of the footwear industry. Management believes that creating, acquiring or
      licensing additional brands will enable the Company to increase its sales
      by satisfying the needs of a broader range of customers. The Company
      intends to sell these new brands through the Company's existing customers
      as well as new customers, which the Company seeks to develop. The
      acquisition of the Sam & Libby(R) and Joan & David(R) brands and the
      licensing of the Anne Klein 2(R) and A Line Anne Klein(TM) and Dockers
      (R) Khakis Footwear For Women brands represent the Company's most recent
      efforts to expand into new market segments. The Company intends to
      continue to explore entering other market segments through acquisition or
      licensing of additional brands. The Company believes that it is well
      positioned to continue pursuing this strategy due to its relatively strong
      and unencumbered balance sheet.

Product Lines

     The Company's products consist of nine lines of brand name footwear as well
as private label footwear for selected retailers for sale under their own house
brands. Each of the branded product lines is targeted to appeal to a different
market segment of the footwear industry. The characteristics of the product
lines sold by the Company are summarized in the following table:
<TABLE>
<CAPTION>
                                                                                        General Retail
                                                                                         Price  Range
                                                                                         ------------
                                            Style               Industry Segment          Shoes        Boots
                                            -----               ----------------          -----        -----
<S>                                       <C>                         <C>                  <C>          <C>
Mootsies Tootsies(R) ................   Contemporary                Moderate             $25-$40      $35-$55
Mootsies Kids(R) ....................   Contemporary                Moderate             $20-$25      $30-$40
Sam & Libby(R)and Just Libby(R) .....      Updated               Upper Moderate          $35-$50      $45-$70
Sam & Libby(R)Kids ..................      Updated               Upper Moderate          $25-$45      $35-$55
Dockers(R)Khaki .....................       Casual             Upper Moderate-Better      $40-$65         -
A Line Anne Klein(TM) ...............   Contemporary                 Better              $45-$79      $79-$95
Anne Klein 2(R) .....................   Contemporary                 Better              $45-$79      $79-$95
Joan & David(R) .....................   Contemporary                 Bridge              $180 +      $250-$300
J. G. Hook(R)Private Label ..........        All                 Budget-Moderate         $12-$20      $25-$30
</TABLE>

Mootsies Tootsies(R)

     The Mootsies Tootsies(R) brand line provides consumers with a wide
selection of footwear with contemporary styles and quality at affordable prices
primarily targeted at women ages 18 to 34. The line includes approximately 30
new styles each spring and fall season, as well as a number of core styles that
are updated




                                               5

<PAGE>
periodically based on fashion trends. The line principally consists of casual
shoes, dress shoes, boots and sandals. Styles are available in a wide variety of
colors and materials, including leather, sueded leather and fabric. All footwear
in the line is designed to have soft construction for comfort.

     Mootsies Kids(R)

     The Mootsies Kids(R) brand line is targeted at girls in the misses market
(ages 8 to 12) who desire contemporary footwear. The line consists of
approximately 20 new styles each spring and fall that, in many cases, represent
a miniature version of the Mootsies Tootsies(R) line. The children's line is
focused on casual shoes, party shoes, boots and sandals.

     Sam & Libby(R) and Just Libby(R)

     The Sam & Libby(R) line is updated casual and dress footwear targeted at
female fashion customers, ages 21 to 35, and contains approximately 30 styles
per season, consisting of casual shoes, dress shoes, boots and sandals. The
acquisition of the Sam & Libby(R) brand with its trademarks registered in over
20 countries will bolster the Company's efforts to develop and grow
internationally, although the Company's expansion to overseas markets will be a
long-term effort. A wholly owned subsidiary of the Company has granted to SLJ
Retail LLC ("SLJ Retail") a license to sell Sam & Libby(R) and Just Libby(R)
women's footwear products. See "--License Agreements--SLJ Retail."

     Sam & Libby(R) Kids

     The Sam & Libby(R) Kids line is geared toward girls ages 8 to 14 and is
targeted towards the updated and more fashion-conscious girl. The line will have
approximately 20 styles each season often similar to the Sam & Libby(R) women's
styles. The children's line is focused on dress shoes, casual shoes, casual
athletic shoes, boots and sandals.

     Dockers(R) Khaki Footwear For Women

     The Dockers(R) Khakis Footwear For Women line targets women between the
ages of 25-34 and has been designed to provide women with a new choice in
stylish, comfortable casual footwear. The footwear line will complement the
Dockers(R) Khakis Footwear For Women apparel products and are specifically
designed to be worn with Khakis, complimenting a wide variety of versatile
looks.

     Anne Klein 2(R) and A Line Anne Klein(TM)

     The Anne Klein 2(R) and A Line Anne Klein(TM) footwear lines focus on
contemporary, quality footwear targeted at career-oriented women 30 years and
older. The lines capitalize on the name recognition and reputation enjoyed by
the Anne Klein apparel line produced by the Company's licensor and the footwear
is designed to complement the Anne Klein apparel. The Company's Anne Klein 2(R)
and A Line Anne Klein(TM) footwear lines consist of approximately 25 styles per
season with all leather uppers and soles.

     Joan & David(R)

     Prior to the Company's ownership, the Joan & David(R) footwear collection
for the last 25 years has focused on selling the high-end "designer" footwear
segment. The new Joan & David(R) line focuses on the much larger bridge market,
one that the Company believes is significantly larger than the designer market.
The line attempts to capitalize on the esteem, recognition and reputation of the
brand developed over the past 25 years. The product line targets young women
(median age in upper 30s) with high family income well above the national
median. The line consists of 30 styles that are contemporary, stylish and
tasteful.





                                       6

<PAGE>

    J. G. Hook(R) and Private Label Products

     In response to the growing demand among retailers for footwear to market
under their own brand names, the Company designs and sources private label
women's and children's footwear for selected retailers. The Company's private
label business has minimal overhead and capital requirements primarily because
the Company utilizes its existing branded product styles (thereby incurring no
additional product development costs) and because the Company does not incur any
costs related to purchasing, importing, shipping or warehousing of inventory,
all of which costs are borne by the retailer. The Company has licensed the J. G.
Hook(R) name to sell as a first cost product for retailers who require brand
identification.

     The following table sets forth the percentage of the Company's net sales
generated by each of its major product categories for the periods indicated:
<TABLE>
<CAPTION>
                                                     Year Ended October 31
                                                     ---------------------
            Category                                1999     2000     2001
            --------                                ----     ----     ----
            <S>                                     <C>       <C>      <C>
            Women's .............................   87.6%    90.5%    92.5%
            Children's ..........................   12.3       9.5      7.5
            Other ...............................    0.1      0.0      0.0
                                                   ------   ------    -----
            Total ...............................  100.0%   100.0%   100.0%
                                                   ======   ======   ======
</TABLE>

Closeout Business

     The Company sold certain product styles that it purchased at volume
discounts from other footwear manufacturers. These products, which were
typically either slow moving or factory seconds, were sold to discount
retailers. At times, the Company held closeout products in inventory until the
next fashion season. The Company terminated this business in fiscal 1999.

Retail Joint Venture

     In April 1997, the Company completed a transaction to operate Sam &
Libby(R) women's footwear stores through SLJ Retail. Initially, the Company and
the Butler Group LLC, a wholly owned subsidiary of General Electric Capital
Corporation, owned 49% and 51% of SLJ Retail, respectively. Subsequently, the
Company and the Butler Group LLC owned less than 1% and more than 99% of SLJ
Retail, respectively. Effective January 19, 1999, the Company was no longer the
managing member of SLJ Retail. In May 2001, SLJ Retail was sold to Shoebilee,
Inc. In December 2001, Shoebilee, Inc. and SLJ Retail filed for protection under
the United States' bankruptcy laws.

Design and Product Development

     The Company seeks to identify fashion trends and to translate such trends
into contemporary footwear that appeal to its target market segments'
requirements for style, quality, fit and price. Management believes that its
philosophy of marketing contemporary styles to a broad audience rather than
"fashion forward" styles reduces the risks associated with changing fashion
trends.

     Each branded product line has its own design team, including design staff,
sales staff and a brand manager in an effort to design footwear that appeals to
the characteristics of that line's market segment. The designers research and
confirm market trends by: (i) traveling extensively to fashion markets in the
United States and Europe, (ii) attending trade shows, (iii) subscribing to
fashion and color information services and (iv) commissioning market studies. In
addition, product development efforts benefit from interaction with retailers,
who provide information on current retail selling trends, and the Company's
buying agents, who provide information on industry trends. The designers for the
Anne Klein 2(R) and A Line Anne Klein(TM) footwear lines also




                                       7

<PAGE>

meet regularly with The Anne Klein Company to exchange product and fashion
concepts. The designer for Dockers(R) Khakis Footwear For Women line meets
regularly with the Dockers Company to exchange product and fashion concepts. See
"--License Agreements-- Anne Klein 2(R) and A Line Anne Klein(TM)." Each line
initially consists of between 100 and 200 prototypes each season from which the
design team selects the styles that it believes will satisfy the target market
segment's requirements for style, quality, fit and price. Each line is further
refined following presentations at industry shows.

Marketing and Customer Support

     Each branded product line has its own sales organization, including a
divisional executive who oversees all aspects of selling the line and works with
a network of independent sales representatives located throughout the United
States. Certain of the independent sales representatives sell only the Company's
brands, and the rest of the independent sales representatives sell brands that
do not compete directly with the Company's brands. The Company develops spring
and fall product lines for each of its brands. Each line is first introduced at
industry trade shows prior to on-site sales visits by the independent sales
representatives and the Company's divisional head responsible for the line. In
addition, the Company maintains showrooms in New York and Boston where buyers
view products and place orders. While the Company's products are distributed
primarily in the United States, the Company also sells to independent wholesale
distributors in Canada.

     In fiscal 2001, the Company sold products to approximately 1,100 accounts
with over 7,000 retail locations. The Mootsies Tootsies(R) retailers, which
market moderately priced apparel merchandise, include J. C. Penney, Kohl's and
DSW. The A Line Anne Klein(TM) and Anne Klein 2(R) footwear is distributed to
those retailers who typically market merchandise at higher retail price points,
including Federated (Macy's), May Co. (Lord & Taylor) and Saks' Stores
(Parisian). The Sam & Libby(R) footwear lines are distributed to retailers such
as Federated, May Co., Bon Ton and Nordstrom. Dockers(R) Khakis Footwear For
Women distributes footwear to Sears and department stores such as Kohl's. Joan &
David(R) distributes footwear to Nordstrom's, Macy's, Bloomingdale's and Lord &
Taylor. The retail industry has periodically experienced consolidation, and any
future consolidation may result in loss of customers of the Company and lower
profit margins on the Company's footwear. The Company also markets its branded
products through national catalog retailers such as Spiegel, Nordstrom and
Chadwicks of Boston and through home shopping clubs such as QVC.

     The Company's largest customer, The TJX Companies ("TJX"), the successor
entity from the combination of Marshall's and T. J. Maxx, accounted for 9% and
11.2% of the Company's net sales in fiscal 2000 and fiscal 2001, respectively.
The Company's top three customers (TJX, Federated and May Co.) accounted for 25%
of net sales for fiscal 2000. In fiscal 2001 the top three customers (TJX, May
Co. and DSW) accounted for 29.5% of net sales. While the Company seeks to build
long-term customer relationships, revenues from any particular customer can
fluctuate from period to period due to such customer's purchasing patterns. In
addition, the Company believes that although purchasing decisions have generally
been made independently by each department store customer, there is a trend
among department store customers toward more centralized purchasing decisions.
The retail industry has also periodically experienced consolidation, and any
future consolidation may result in loss of customers of the Company and lower
profit margins on the Company's footwear. In the future, the Company's wholesale
customers may consolidate, undergo restructuring or reorganizations, or realign
their affiliations, any of which could decrease the number of stores that carry
the Company's products or increase the ownership concentration within the retail
industry. Any termination or significant disruption of the Company's
relationships with one or more of the Company's major customers could have a
material adverse effect on the Company's financial condition or results of
operations. See Note 1 of "Notes to Consolidated Financial Statements."

     The Company believes that its reputation for quality products and
relationships with retailers will also be useful during the introduction of new
brands that it may develop or acquire to fill other niches in the women's
footwear market.

     The Company supports its customers through a variety of programs, including
its in-stock inventory position for selected styles, the availability of EDI,
co-op advertising and point of sale displays. In addition, the



                                        8

<PAGE>

Company assists its customers in evaluating which products are more likely to
appeal to their retail customers. Customers may return defective products in
quantities of more than six pairs for full credit. Customer allowances are based
on the Company's ability to meet the particular customer's objectives and
specifications.

Advertising and Promotion

     The Company works closely with its retailers in promoting its brands
through its own and cooperative national consumer print advertising, in-store
merchandising, point of sale promotions, in-store events, distinctive packaging
and active solicitation of fashion editorial space.

     Print advertisements for Mootsies Tootsies(R) are designed to build brand
awareness, rather than market a particular footwear product, by linking the
brand to a consumer's lifestyle. The advertisements run in fashion/lifestyle
publications such as Glamour as well as in general interest publications such as
Oprah. Utilizing the print media, the Company seeks to reach a large percentage
of its target audience, women ages 18 to 34, with a number of advertisements
each selling season. Advertising for Anne Klein 2(R) and A Line Anne Klein(TM)
is largely executed through department store co-op programs. Additionally, the
Company participates in image advertising through The Anne Klein Company. Major
campaigns by The Anne Klein Company are planned via direct consumer media such
as Vogue, Elle and W magazines to support the Anne Klein brands.

     Print advertisements for Sam & Libby(R) and Dockers(R) Khakis Footwear For
Women are designed to build brand awareness by creating a lifestyle viewpoint
that appeals to the modern consumer. The advertisements will appear in fashion
publications such as Glamour, Cosmopolitan and InStyle.

     The print advertising program for the Joan & David(R) collection is
appearing in national advertisements and will consist of consumer ads focused on
upscale publications (i.e., New York Times, Vogue, Town & Country).

     The Company also participates with its retail customers in cooperative
advertising programs intended to take the brand awareness created by the
national print advertising and channel it to local retailers where consumers can
buy the Company's brands. This includes local advertising on radio, television,
and newspaper as well as Company participation in major catalogs for retailers
such as Spiegel. The Company's co-op efforts are intended to maximize
advertising resources by having its retailers share in the cost of promoting the
Company's brands. Also the Company believes that co-op advertising encourages
the retailer to merchandise the brands properly and sell them aggressively on
the sales floor.

     The Company uses brand point-of-sale advertising to further promote its
products in the store. Point-of-sale techniques used by the Company include
point-of-sale displays, counter cards, banners and other visual in store
merchandising displays. These materials mirror the look and feel of the national
print advertising in order to reinforce brand image at the point-of-sale.
Management believes these efforts stimulate impulse sales and repeat purchases.

Manufacturing

     Mootsies Tootsies(R), Mootsies Kids(R), Sam & Libby(R) and Dockers(R)
Khakis Footwear For Women are manufactured primarily in China and Brazil because
of the ability of the suppliers in these countries to manufacture quality
products at affordable prices. The A Line Anne Klein(TM) and Anne Klein 2(R)
footwear brand is primarily manufactured in China and also manufactured in Spain
and Italy because Spanish and Italian suppliers can meet the Company's quality
requirements and their reputation for quality footwear is consistent with the A
Line Anne Klein(TM) and Anne Klein 2(R) image. The Joan & David(R) collection is
primarily manufactured in Italy where fine craftsmanship and innovative footwear
can be sourced.

     The Company does not have long-term contracts with any of the factories
that produce its footwear. The Company relies on its relationships with buying
agents who are responsible for securing raw materials, selecting manufacturers,
monitoring the manufacturing process, inspecting finished goods and coordinating
shipments to the Company. These agents work regularly with numerous factories
with the capacity to meet the Company's product



                                        9

<PAGE>

specifications for quality, fit, volume and price. By using buying agents rather
than manufacturing products itself, the Company is able to maximize production
flexibility while avoiding significant capital expenditures, materials and
work-in-process inventory and costs of managing a production work force. To
date, the Company has not encountered significant delivery or quality problems.
The Company works with buying agents with access to numerous manufacturing
facilities in order to maximize the Company's sourcing flexibility. The Company
believes it has built strong relationships with its agents and manufacturing
facilities over time and through volume of business. Management believes that
its buying agents do not represent other direct competitor branded footwear
lines, and Universal Max Trading, the Company's principal buying agent in China,
has agreed to act exclusively for the Company in China. The Company pays its
buying agents a percentage of the order price of products shipped to the
Company. The Company manufactures none of its products and does not own any
manufacturing facilities or equipment.

     Prior to the start of production, the Company submits specifications for
products to the buying agent, who then provides a confirmation sample of each
style for inspection by the Company. During production, the Company makes
periodic reviews of products at the factory in addition to inspections conducted
by the buying agent. The Company also inspects products upon receipt at its
warehouse.

     The Company maintains an in-stock position for selected styles of its
footwear in order to minimize purchasing costs and the time necessary to fill
customer orders. In order to maintain an in-stock position, the Company places
orders for selected footwear with its manufacturers prior to the time the
Company has received customers' orders for such footwear. In order to reduce the
risk of overstocking, the Company assesses demand for its products by soliciting
input from its customers and monitoring retail sell-through throughout the
selling season.

     The Company believes that its ability to satisfy customer order demands is
enhanced by designing its products to use common elements in raw materials,
lasts and dyes. Whenever possible, the Company seeks to use factories that have
previously produced the Company's footwear because the Company believes that
this enhances continuity and quality while holding down production costs.

     The Company protects itself against currency fluctuations by purchasing
products in U.S. dollars from China and Brazil. In order to minimize volatility
in the price of products from Spain and Italy, the Company generally buys
forward exchange contracts for Euro dollars in connection with the placement of
orders for products.

Distribution

     Following manufacture, the Company's products are packaged in retail boxes
bearing bar codes and shipped to the Company's warehouse facility in Brockton,
Massachusetts. When an order is received, it is filled in the warehouse and
shipped to the customer by whatever means the customer requests, which is
usually by common carrier.

     The Company has an electronic data interchange system to which some of the
Company's larger customers are linked. This system allows these customers to
automatically place orders with the Company, thereby eliminating the time
involved in transmitting and inputting orders. The Company is working to add
more of its customers to the system and to expand system capability to include
direct billing, payment and shipping information.

Restrictions on Imports

     The Company's operations are subject to compliance with relevant laws and
regulations enforced by the United States Customs Service and to the customary
risks of doing business abroad, including fluctuation in the value of
currencies, increases in customs duties and related fees resulting from position
changes by the United States Customs Service, import controls and trade barriers
(including the unilateral imposition of import quotas), restrictions on the
transfer of funds, work stoppages and, in certain parts of the world, political
instability causing



                                       10

<PAGE>

disruption of trade. These factors have not had a material adverse
impact upon the Company's operations to date. Imports into the United States are
also affected by the cost of transportation, the imposition of import duties and
increased competition from greater production demands abroad. The United States
or the countries in which the Company's products are manufactured may, from time
to time, impose new quotas, duties, tariffs or other restrictions, or adjust
presently prevailing quotas, duty or tariff levels, which could affect the
Company's operations and its ability to import products at current or increased
levels. The Company cannot predict the likelihood or frequency of any such
events occurring.

         The Company's use of common elements in raw materials, lasts and dyes
give the Company the flexibility to duplicate sourcing in various countries in
order to reduce the risk that the Company may not be able to obtain products
from a particular country.

         The Company's imported products are subject to United States customs
duties and, in the ordinary course of its business, the Company may, from time
to time, be subject to claims for duties and other charges. United States
customs duties currently range from 6% to 37.5% on the principal products
currently imported by the Company. Because the Company has had no disputes with
the United States Customs Service in the past, the Company is allowed to and
does submit its footwear products to United States customs officials for
pre-classification and customs duties rates determination prior to importation
of such footwear products from abroad.

         For fiscal 2001, approximately 91% of the Company's footwear was
imported from China. After a serious dispute with the United States Trade
Representative ("USTR") over the protection of intellectual property rights in
China, including the threat by USTR to impose trade sanctions, the Chinese
government agreed to meet its enforcement obligations. That agreement is now
being monitored by USTR and the failure of China to comply with its obligations
could result in trade sanctions in the future, including the imposition of
retaliatory tariffs that might affect the Company's imports of footwear from
China. From time to time there have been other trade disputes with China,
involving such things as market access, textile quotas, automotive industry
policies and agricultural products. These and other such matters could also
present problems in the future that might lead to trade sanctions affecting the
Company's imports of footwear.

Backlog

         At October 31, 1999, 2000 and 2001, the Company had unfilled customer
orders of $60.1 million, $72.3 million and $78.6 million, respectively. The
backlog as of October 31, 2001 represents an increase of 8.7% over fiscal year
end 2000. The backlog at a particular time is affected by a number of factors,
including seasonality and the scheduling of manufacturing and shipment of
products. Orders generally may be canceled by customers without financial
penalty. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments to
customers. The Company expects that substantially all of its backlog as of
October 31, 2001 will be filled during the first six months of fiscal 2002.

License Agreements

     Anne Klein 2(R) and A Line Anne Klein(TM)

         Effective in July 1999, the Company entered into a license agreement
(the "Anne Klein Agreement") with Kasper A.S.L., Ltd., B.D.S., Inc. and Lion
Licensing, Ltd. under which the Company has the exclusive right to use the Anne
Klein 2(R)and A Line Anne Klein(TM) names in connection with the manufacture,
advertising, promotion, distribution and sale of footwear for women. The Anne
Klein agreement covers the United States, Canada and Puerto Rico and expires on
December 31, 2002. The Company may extend the term of the license for two (2)
additional five (5) year terms ending December 31, 2007 and 2012, upon meeting
certain terms and conditions. The Company will pay Kasper A.S.L., Ltd. a royalty
on all net sales and is responsible for a guaranteed minimum royalty payment
during each year of the agreement. The licensor can terminate the agreement for
a variety of reasons, including but not limited to default in performing any of
the terms of the agreement and bankruptcy of the licensee.



                                       11

<PAGE>

     Dockers(R) Khakis Footwear For Women

         In November 1998, the Company entered into a license agreement (the
"Dockers(R) Khakis Footwear For Women Agreement") with Levi Strauss Co. under
which the Company has the exclusive right to use the Dockers(R) Khakis Footwear
For Women name in connection with the development, manufacturing and marketing
of footwear for women. The Dockers(R) Khakis Footwear For Women License
Agreement covers the United States (including its territories and possessions)
and expires on January 31, 2002. The Company is in the process of negotiating a
new multi-year license agreement which it expects to complete within 30 days of
the date of this Report. Under the current terms of the license agreement, the
Company may renew the license for one (1) additional four (4) year term ending
December 31, 2005, upon meeting certain terms and conditions. The Company is
obligated to pay Levi Strauss Co. a royalty on all net sales and is responsible
for a guaranteed minimum royalty payment during each year of the agreement. The
licensor can terminate the agreement for a variety of reasons, including but not
limited to default in performing any of the terms of the agreement and
bankruptcy of the licensee.

     J. G. Hook(R)

         In April 1997, the Company entered into a license agreement (the "J. G.
Hook(R)License Agreement ") with J. G. Hook(R), Inc. pursuant to which the
Company received the right to design, develop and market women's and children's
shoes under the J. G. Hook(R)and Hook Sport brand names in exchange for payment
of royalties based on net sales of products marketed under such brand names. The
J. G. Hook(R)License Agreement was for an initial 18-month period ending
September 30, 1998, with two one-year extension options. In September 1998, the
Company exercised its first one-year option and renewed the agreement through
September 1999. The Company later exercised its second one-year option and
renewed the agreement through September 2000. In May 2000 the Company extended
the license until December 2003. The J. G. Hook(R)License Agreement is subject
to early termination for various specified reasons, including any failure by the
Company to meet its royalty obligations there under. The Company plans to use
the J. G. Hook(R)label to sell footwear on a first cost basis.

         The aggregate minimum royalty payments for all license agreements are
$914, $2,439 and $100 for December 31, 2001, 2002 and 2003, respectively.

     Jones New York

         In July 1993, the Company entered into the Jones License Agreement with
Jones under which the Company had the exclusive right to use the Jones New York
and Jones New York Sport names in connection with the development, manufacturing
and marketing of women's footwear (other than performance athletic shoes and
bedroom slippers). The Jones License Agreement covered the United States
(including its territories) and Canada. The Company had three, five-year options
to extend the Jones License Agreement options through December 2017, subject to
the Company meeting certain minimum net sales amounts. On July 9, 1999 the
Company sold and assigned its rights, title and interest as licensee to
manufacture and sell women's footwear bearing Jones New York and Jones New York
Sport trademarks under the Jones License Agreement to Jones for $25 million
cash.

     SLJ Retail

         In April 1997, the Company entered into a retail license agreement (the
"SLJ Retail Sam & Libby(R) License Agreement") with SLJ Retail pursuant to which
the Company granted to SLJ Retail a license, throughout the United States and
such other locations outside the United States in which the Company or its
affiliates may from time to time sell Sam & Libby(R) and Just Libby(R) women's
footwear products, to use the Sam & Libby(R) and Just Libby(R) trademarks in
connection with the manufacturing, advertising, merchandising, promotion and
retail sale of women's footwear merchandise bearing such trademarks in enclosed
regional mall store locations; provided however, that such license does not
extend to products to which Inter-Pacific Corporation ("IPC") has the exclusive
rights. Under the SLJ Retail Sam & Libby(R) License Agreement, SLJ Retail does
not have to pay any royalty to the Company in consideration of the license
granted and the services to be performed by the Company under such agreement.
The term of the SLJ Retail Sam & Libby(R) License Agreement expires on May 14,
2021, subject to

         12

<PAGE>

     Dockers(R) Khakis Footwear For Women

         In November 1998, the Company entered into a license agreement (the
"Dockers(R) Khakis Footwear For Women Agreement") with Levi Strauss Co. under
which the Company has the exclusive right to use the Dockers(R) Khakis Footwear
For Women name in connection with the development, manufacturing and marketing
of footwear for women. The Dockers(R) Khakis Footwear For Women License
Agreement covers the United States (including its territories and possessions)
and expires on January 31, 2002. The Company is in the process of negotiating a
new multi-year license agreement which it expects to complete within 30 days of
the date of this Report. Under the current terms of the license agreement, the
Company may renew the license for one (1) additional four (4) year term ending
December 31, 2005, upon meeting certain terms and conditions. The Company is
obligated to pay Levi Strauss Co. a royalty on all net sales and is responsible
for a guaranteed minimum royalty payment during each year of the agreement. The
licensor can terminate the agreement for a variety of reasons, including but not
limited to default in performing any of the terms of the agreement and
bankruptcy of the licensee.

     J. G. Hook(R)

         In April 1997, the Company entered into a license agreement (the "J. G.
Hook(R) License Agreement ") with J. G. Hook(R), Inc. pursuant to which the
Company received the right to design, develop and market women's and children's
shoes under the J. G. Hook(R)and Hook Sport brand names in exchange for payment
of royalties based on net sales of products marketed under such brand names. The
J. G. Hook(R) License Agreement was for an initial 18-month period ending
September 30, 1998, with two one-year extension options. In September 1998, the
Company exercised its first one-year option and renewed the agreement through
September 1999. The Company later exercised its second one-year option and
renewed the agreement through September 2000. In May 2000 the Company extended
the license until December 2003. The J. G. Hook(R) License Agreement is subject
to early termination for various specified reasons, including any failure by the
Company to meet its royalty obligations there under. The Company plans to use
the J. G. Hook(R) label to sell footwear on a first cost basis.

         The aggregate minimum royalty payments for all license agreements are
$914, $2,439 and $100 for December 31, 2001, 2002 and 2003, respectively.

     Jones New York

         In July 1993, the Company entered into the Jones License Agreement with
Jones under which the Company had the exclusive right to use the Jones New York
and Jones New York Sport names in connection with the development, manufacturing
and marketing of women's footwear (other than performance athletic shoes and
bedroom slippers). The Jones License Agreement covered the United States
(including its territories) and Canada. The Company had three, five-year options
to extend the Jones License Agreement options through December 2017, subject to
the Company meeting certain minimum net sales amounts. On July 9, 1999 the
Company sold and assigned its rights, title and interest as licensee to
manufacture and sell women's footwear bearing Jones New York and Jones New York
Sport trademarks under the Jones License Agreement to Jones for $25 million
cash.

     SLJ Retail

         In April 1997, the Company entered into a retail license agreement (the
"SLJ Retail Sam & Libby(R) License Agreement") with SLJ Retail pursuant to which
the Company granted to SLJ Retail a license, throughout the United States and
such other locations outside the United States in which the Company or its
affiliates may from time to time sell Sam & Libby(R) and Just Libby(R) women's
footwear products, to use the Sam & Libby(R) and Just Libby(R) trademarks in
connection with the manufacturing, advertising, merchandising, promotion and
retail sale of women's footwear merchandise bearing such trademarks in enclosed
regional mall store locations; provided however, that such license does not
extend to products to which Inter-Pacific Corporation ("IPC") has the exclusive
rights. Under the SLJ Retail Sam & Libby(R) License Agreement, SLJ Retail does
not have to pay any royalty to the Company in consideration of the license
granted and the services to be performed by the Company under such agreement.
The term of the SLJ Retail Sam & Libby(R) License Agreement expires on May 14,
2021, subject to

                                       12

<PAGE>

earlier termination upon the occurrence of certain specified events. In May 2001
SLJ was acquired by Shoebilee, Inc. In December 2001 SLJ Retail and Shoebilee,
Inc. filed for protection under the United States' bankruptcy laws.

     Inter-Pacific Corporation

         In January 1997, the Company entered into a license agreement with IPC,
a 40-year-old California-based seller and distributor of men's, women's and
children's footwear. IPC has the exclusive rights to design, manufacture and
distribute Sam & Libby(R) beachwear type footwear (E.V.A. sandals, jellies, aqua
socks and injected molded slides) for men, women and children for an initial
period from January 1997 to May 2000. IPC may also design and manufacture
women's slippers bearing the Sam & Libby(R) trademark. For the use of the Sam &
Libby(R) trademark, IPC will pay the Company royalties at a rate based on sales
volume, subject to payment of minimum royalties of $396,000 over the initial
term of the agreement. IPC has exercised its option to extend the license
agreement until May 2003. Minimum royalties for this period, June 2000 until
May 2003, are $651,000.

     Global Retail Inc.

         In November 2001 the Company signed an exclusive multi-year licensing
agreement with Global Retail Inc. to begin the development of freestanding
retail stores throughout Europe and Asia for Joan & David(R) sportswear and
accessory items as well as the roll-out of Joan & David(R) in-store shops in
upscale department stores. Global Retail Inc., which is based in Hong Kong, is a
widely recognized retail development and global manufacturing organization led
by Chairman, Jeffrey Fang. Global Retail has over 300 retail stores worldwide.
Under the agreement, Global Retail will design, source, manufacture and market a
full array of Joan & David(R) sportswear including knitwear, wovens, outerwear
and dresses all incorporating high-end European design elements. The Company's
Joan & David(R) footwear will be prominently featured throughout the stores
complementing the new offerings. The stores and in-store shops are scheduled to
begin opening for the Fall 2002 season.

Trademarks

         Mootsies Tootsies(R) and Mootsies Kids(R) are registered trademarks of
the Company (or its affiliates). In addition, these trademarks have been
registered in Canada, Japan and Taiwan and trademark registration applications
are pending in several other countries. The Company's United States trademark
registration for Mootsies Tootsies(R) expires in 2010 and the registration for
Mootsies Kids(R) expires in 2003, although both are renewable.

         Sam & Libby(R), Just Libby(R), New Nineties(R) and Jeff & Kristi(R) are
registered trademarks of the Company (or its affiliates). These trademarks were
acquired by the Company in August 1996 from Sam & Libby(R), Inc. and are
registered trademarks in the United States (see Note 1 of "Notes to Consolidated
Financial Statements"). In addition, the Sam & Libby(R) and Just Libby(R)
trademarks are registered in over 20 countries worldwide. The Company's United
States trademark registration of Sam & Libby(R) expires in 2011 and the
registration of Just Libby(R) expires in 2005, although both are renewable. In
January 1997, the Company entered into a license agreement with IPC to license
the Sam & Libby(R) trademarks for slippers and E.V.A. sandals, pursuant to which
the Company will receive certain royalties and other revenues.

         Dockers(R) Khakis Footwear For Women is a registered trademark of the
Levi Strauss Co. in the United States. Under the Dockers(R) Khakis Footwear For
Women Agreement, Levi Strauss Co. has the sole right to defend against any
infringement of this trademark.

         Anne Klein 2(R) and A Line Anne Klein(TM) are registered trademarks of
Kasper A.S.L., Ltd., or its wholly owned affiliates, in the United States. Under
the Anne Klein License Agreement, Kasper A.S.L., Ltd. has the sole right to
defend against any infringement of these trademarks.

         Joan & David(R), David & Joan(R), Joan Helpern Signature(R), JD
Device(R) and Joan & David Too(R) are registered trademarks of the Company (or
its affiliates). These trademarks were acquired in October 2000 from

                                       13

<PAGE>

JOAN HELPERN DESIGNS, INC. and are registered trademarks in the United States
and over 30 countries worldwide. The Company's United States trademarks for Joan
& David(R), David & Joan(R), Joan Helpern Signature(R), JD Device(R) and Joan &
David Too(R) registration expire between 2003 and 2009, and are all renewable.

Competition

         The women's and kids' fashion footwear markets are highly competitive.
In fact, due to the consolidation of the industry as a result of the Jones New
York acquisition of Nine West, the Company is in an industry with a dominant
competitor in Jones New York. The Company's products compete against other
branded footwear and, in the case of Mootsies Tootsies(R), against private label
footwear sold by many large retailers, including some of the Company's
customers. Many of the Company's competitors have substantially greater
financial, distribution and marketing resources, as well as greater brand
awareness than the Company. In addition, the general availability of offshore
manufacturing capacity allows easy access by new market entrants. The Company
believes its ability to compete successfully is based on its ability to design,
develop and market value priced footwear that reflects current fashion trends.

Employees

         At October 31, 2001, the Company employed 147 people, including
officers, administrative, selling and warehouse personnel. None of the Company's
employees are represented by a union. The Company considers its relationship
with its employees to be good.

Item 2.  Properties

         The Company's headquarters, which includes approximately 20,000 square
feet of office space and 120,000 square feet of warehouse space, is located in
Boston, Massachusetts, approximately 49,000 square feet of which was leased to
an unaffiliated third party. This facility was leased by the Company under a
lease that expired on December 31, 2001. As of January 1, 2002, the Company's
new lease is for approximately 80,000 square feet of office and warehouse space
at the same location. The lease expires on December 31, 2011. The Company also
leases a 215,000 square feet warehouse in Brockton, Massachusetts. This lease
expires in 2007, subject to two five-year options. In September 2001, the
Company leased an additional 173,000 square feet of warehouse space adjacent to
its existing Brockton space, approximately 120,000 square feet of which is
subleased to an unaffiliated third party. This lease expires on September 30,
2003. The Company also leases a 7,000 square foot showroom in New York City
under a lease that expires in 2003. In November 2001, the Company leased
approximately 2,200 square feet of retail space in the Wrentham Premium Outlet
Mall, Wrentham, Massachusetts. The lease expires in 2006. The Company believes
that these facilities are adequate for its current needs and that it will be
able to obtain additional space at a reasonable cost if required in the future.

Item 3.  Legal Proceedings

         The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company does not believe it is
presently a party to litigation that will have a material adverse effect on its
business operations.

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

         None.


                                       14

<PAGE>

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

         The Class A Common Stock is traded on the Nasdaq National Market System
("Nasdaq") under the symbol MAXS. The following table sets forth for the fiscal
periods indicated the range of high and low sale prices of the Class A Common
Stock as reported by Nasdaq:
<TABLE>
<CAPTION>

                         2000                  January 31,      April 30,       July 31,      October 31,
                         ----                  -----------      ---------       --------      -----------
           <S>                                  <C>            <C>             <C>            <C>
           Low................................... $ 7.81         $ 7.81          $ 7.38         $10.38
           High.................................. $ 9.00         $ 9.75          $11.13         $12.50
</TABLE>

<TABLE>
<CAPTION>

                         2001                   January 31      April 30        July 31       October 31
                         ----                   ----------      --------        -------       ----------
           <S>                                  <C>            <C>             <C>           <C>
           Low................................... $10.25         $12.63          $14.90         $12.81
           High.................................. $13.50         $16.50          $18.00         $17.73

</TABLE>


         The number of stockholders of record of the Class A Common Stock on
October 31, 2001 was 26. However, based on available information, the Company
believes that the total number of Class A Common stockholders, including
beneficial stockholders, is approximately 1,300.

Dividend Policy

         The Company currently intends to retain any earnings for development of
its business. Accordingly, the Company does not intend to pay cash dividends on
its Common Stock in the foreseeable future. Any determination to pay cash
dividends on the Common Stock in the future will be at the sole discretion of
the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.

                                       15

<PAGE>

Item 6.  Selected Financial Data

         The following selected financial data are derived from audited
financial statements of the Company. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Conditions
and Results of Operations."
<TABLE>
<CAPTION>

                                                                          Year Ended October 31,
                                                         ------------------------------------------------------------
                                                           1997        1998        1999        2000         2001
                                                           ----        ----        ----        ----         ----
                                                                      (In thousands, except per share data)
<S>                                                      <C>         <C>           <C>         <C>          <C>
Statement of Income Data:
Net sales .............................................. $ 134,211   $ 165,921     $150,320    $158,205     $182,237
Cost of sales ..........................................    98,230     121,032      113,820     116,991      131,584
                                                         ---------  ----------    ---------   ----------    ---------
Gross profit ...........................................    35,981      44,889       36,500      41,214      50,653
Selling, general and administrative
   expenses ............................................    20,982      25,122       25,745      27,725      32,568
                                                         ---------  ----------    ---------    ---------    ---------
Operating income .......................................    14,999      19,767       10,755      13,489      18,085
Interest income, net ...................................       (22)       (413)     (1,447)      (3,039)     (2,027)
Amortization of trademark ..............................       367         367          367         367         457
Other (income) expense, net(1) .........................        90         (76)    (19,588)        (310)       (127)
                                                         ---------  -----------   ---------    ---------     --------
Income before income taxes .............................    14,564      19,889       31,423      16,471       19,782
Income taxes ...........................................     5,534       6,624       12,569       6,589        7,502
                                                         ---------  -----------   ---------    ---------    ---------
Net income ............................................. $   9,030  $   13,265     $ 18,854    $  9,882     $ 12,280
                                                         =========  ==========    =========    =========    =========
Earnings per share
   Basic ............................................... $    1.19  $     1.61     $   2.14    $   1.12     $   1.39
                                                         =========  ===========    ========    =========    =========
   Diluted ............................................. $    1.06  $     1.44     $   1.99    $   1.04     $   1.26
                                                         =========  -----------    --------    ---------    ---------
Shares used to compute earnings per share
   Basic ...............................................     7,588       8,222        8,796       8,796        8,823
                                                         =========  ===========    ========    =========    =========
   Diluted .............................................     8,537       9,226        9,466       9,468        9,710
                                                         =========  ===========    ========    =========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                 October 31,
                                                         ------------------------------------------------------------
                                                            1997        1998        1999         2000        2001
                                                            ----        ----        ----         ----        ----
<S>                                                           <C>        <C>         <C>          <C>         <C>
Balance Sheet Data:
Working capital ........................................    $44,441     $69,802   $  87,220    $  87,468    $103,942
Total assets ...........................................     60,179      91,005     108,764      119,435     135,787
Total debt (including current maturities) ..............        469         345         219          102           0
Total stockholders' equity .............................    $50,635     $79,309   $  98,326     $108,197    $121,673
</TABLE>
     (1) Fiscal 1999 includes a gain of $19,500 from the sale of the Jones New
York license in July 1999.




                                       16

<PAGE>
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     "Forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995 ("the Act"), include certain written and oral
statements made, or incorporated by reference, by the Company or its
representatives in this report, other reports, filings with the Securities and
Exchange Commission ("the S.E.C."), press releases, conferences, or otherwise.
Such forward-looking statements include, without limitation, any statement that
may predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "plan," "project," "will be," "will continue," "will
likely result," or any variations of such words with similar meaning. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Investors should carefully review the risk
factors set forth in other reports or documents the Company files with the
S.E.C., including Forms 10-Q, 10-K and 8-K.

     Some of the other risks and uncertainties that should be considered
include, but are not limited to, the following: international, national and
local general economic and market conditions; the inability to source the
Company's products because of adverse political or economic factors or the
imposition of trade or duty restrictions; changing consumer preferences;
changing fashion trends; intense competition among other footwear brands;
demographic changes; risk of the Company's licensors of trademarks or other
intellectual property rights filing bankruptcy and potentially rejecting license
agreements to which the Company is a party; popularity of particular designs and
products; seasonal and geographic demand for the Company's products;
fluctuations and difficulty in forecasting operating results, including, without
limitation, the ability of the Company to continue, manage or forecast its
growth and inventories; risk of unavailability or price increase in raw
materials needed to make the Company's products; new product development and
commercialization; the ability to secure and protect trademarks; performance and
reliability of products; customer service; adverse publicity; the loss of
significant customers or suppliers; dependence on distributors, buying agents
and independent contractors; increased cost of freight and transportation to
meet delivery deadlines; changes in business strategy or development plans;
general risks of doing business outside the United States; including without
limitation, import duties, tariffs, quotas and political and economic
instability; changes in government regulations; liability and other claims
asserted against the Company; the ability to attract and retain qualified
personnel; the risk of the Company's customers filing bankruptcy and other
factors referenced or incorporated by reference in this report and other
reports.

     The Company operates in a very competitive and rapidly changing
environment. New risk factors can arise and it is not possible for management to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements.

     Investors should also be aware that while the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that the
Company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report.

     Furthermore, the Company has a policy against issuing or confirming
financial forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not the responsibility of the Company.

     The Company undertakes no obligation to release publicly the results of any
revisions to these forward looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Results of Operations

         The following table sets forth net sales by product line or category of
business:
                                       17

<PAGE>
<TABLE>
<CAPTION>
                                                                      Year Ended October 31,
                                                  ------------------------------------------------------------
                                                         1999                 2000                  2001
                                                  ---------------        --------------        ---------------
                                                                 (In millions--except percentages)
<S>                                                <C>       <C>         <C>       <C>         <C>      <C>
Mootsies Tootsies(R) ............................  $68.8     45.8%       $ 72.6    45.9%       $63.9    35.1%
A Line Anne Klein(TM)/Anne Klein 2(R) ...........      -        -          26.8    16.9         49.5    27.2
Sam & Libby(R) ..................................   21.0     14.0          25.5    16.1         23.3    12.8
Dockers(R) Khakis Footwear For Women ............    2.4      1.6          10.3     6.5         16.5     9.1
Joan & David(R) .................................      -        -             -       -          1.9     1.0
Jones New York Footwear .........................   33.5     22.2           1.0     0.6            -       -
Private Label Footwear ..........................   21.9     14.6          22.0    13.9         27.1    14.8
Closeout ........................................    2.7      1.8             -       -            -       -
                                                 ---------  -------      -------- -------    --------  -------
                                                   $150.3   100.0%       $158.2   100.0%      $182.2   100.0%
                                                 ========   =======      =======  =======    ========  =======
</TABLE>

   Fiscal 2001 Compared to Fiscal 2000

     Net sales were $182.2 million in fiscal 2001 compared to $158.2 million in
fiscal 2000, an increase of 15.2%. This increase was due primarily to the
increased net sales of Anne Klein 2(R) of 84.7%, Dockers(R) Khaki Footwear for
Women of 60.2%, and private label of 23.2%. These increases have been achieved
notwithstanding the challenging retail market in which the Company's customers
operate. No assurances can be given these trends will continue. The increase in
Anne Klein 2(R) and Dockers(R) net sales were offset by a decrease in sales of
Mootsies Tootsies(R) of 12.0% and Sam & Libby(R) of 8.6%.

     Gross profit was $50.7 million in fiscal 2001 compared to $41.2 million in
fiscal 2000, an increase of 22.9%. The gross profit improvement was a result of
the increased net sales as well as an increase in gross profit as a percentage
of net sales of 27.8% in fiscal 2001 compared to 26.1% in 2000 due to improved
sell through at retail.

     Selling, general and administrative expenses were $32.6 million in fiscal
2001 as compared to $27.7 million in fiscal 2000, an increase of 17.5%. As a
percentage of net sales, selling, general and administrative expenses increased
to 17.9% in fiscal 2001 as compared to 17.5% in fiscal 2000. This increase was
due to advertising expense and commission expense which was attributable to the
increased volume and the start up costs associated with the launch of Joan &
David(R).

     Other income was $1.7 million for fiscal 2001 compared to other income of
$3.0 million for fiscal 2000. In fiscal 2001 and fiscal 2000, other income
primarily consisted of interest income from cash equivalents. The decrease was
attributable to lower interest rates.

     The provision for income taxes was 37.9% in fiscal 2001 and 40% in fiscal
2000. The change in rate for fiscal 2001 was a result of the investment by the
Company in tax free financial instruments and stock option compensation.

   Fiscal 2000 Compared to Fiscal 1999

     Net sales were $158.2 million in fiscal 2000 compared to $150.3 million in
fiscal 1999, an increase of 5.2%. This increase was due primarily to net sales
improvement in all lines of footwear in fiscal 2000. These increases more than
offset the reduced Jones New York footwear net sales and the Company's
terminating its closeout segment of footwear sales. In July 1999, the Company
sold the Jones New York footwear license to Jones Apparel, Inc. The Jones New
York footwear net sales in fiscal 2000 were the final inventory liquidation
transactions.

     Gross profit was $41.2 million in fiscal 2000 compared to $36.5 million in
fiscal 1999, an increase of 12.9%. The gross profit improvement was a result of
the increased net sales as well as an increase in gross profit

                                       18

<PAGE>

as a percentage of net sales, 26.1% in fiscal 2000 as compared to 24.3% in 1999.
Gross profit in fiscal 1999 was affected by a significant portion of Jones New
York net sales shipped at liquidation prices, which generally approximated cost.

     Selling, general and administrative expenses were $27.7 million in fiscal
2000 as compared to $25.7 million in fiscal 1999, an increase of 7.7%. As a
percentage of net sales, selling, general and administrative expenses increased
to 17.5% in fiscal 2000 as compared to 17.1% in fiscal 1999. This increase was
due to higher depreciation expense, advertising expense and commission expense
which was attributable to the increased volume.

     Other income was $3.0 million for fiscal 2000 compared to other income of
$20.7 million for fiscal 1999. In fiscal 2000, other income primarily consisted
of interest income from cash equivalents. In fiscal 1999, other income included
$19.5 million from the sale of the Jones New York license ($25.0 million less
expenses of $5.5 million), interest income from cash equivalents of $1.5 million
and royalty income of $.3 million was offset by amortization expense relating to
the acquisition of the Sam & Libby(R) trademark of $.4 million and donations of
footwear of $.2 million. Interest expense in fiscal 2000 was incurred for
capital leases. The Company had no short-term borrowings in fiscal 2000.

     The provision for income taxes was 40% of pre-tax income in both fiscal
1999 and 2000.

Liquidity and Capital Resources

     The Company has relied primarily upon internally generated cash flows from
operations and borrowings under its credit facility to finance its operations
and expansion. Cash provided by operating activities totaled approximately $13.6
million in fiscal 1999, $8.9 million in fiscal 2000 and $10.1 million in fiscal
2001. At October 31, 2001, working capital was $103.9 million as compared to
$87.5 million at October 31, 2000. Working capital may vary from time to time as
a result of seasonal requirements, the timing of early factory shipments and the
Company's in-stock position, which requires increased inventories, and the
timing of accounts receivable collections. Capital expenditures were $0.8
million for the year ended October 31, 2001.

     The Company currently has a $35.0 million discretionary demand credit
facility bearing interest at either FleetBoston's base rate or Adjusted
Eurodollar Rate plus one percent (1.0%), renewable annually under certain
conditions. The credit agreement provides the bank will both advance funds
directly to the Company and issue letters of credit on behalf of the Company. As
of October 31, 2001, there were no outstanding borrowings, $13.5 million was
outstanding under letters of credit and $21.5 million was available for future
borrowings.

     The Company from time to time enters into forward exchange contracts in
anticipation of future purchases of inventory denominated in foreign currency,
principally the Euro. At October 31, 2001, forward exchange contracts totaling
$2.0 million were outstanding with settlement dates ranging from November 1,
2001 through February 28, 2002. As of October 31, 2001, future inventory
purchases required sufficient foreign currency to meet such commitments.

     The Company anticipates that it will be able to satisfy its cash
requirements for fiscal 2002 primarily with cash flow from operations,
supplemented, if needed, by borrowings under its demand credit facility.

Effects Of Inflation

     The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's revenues or
profitability.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

                                       19

<PAGE>

     The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this item. The Company's cash is held in checking
accounts or highly liquid investments with original maturities of three months
or less.

Item 8.  Consolidated Financial Statements and Supplementary Data

     The Consolidated Financial Statements required in response to this section
are submitted as part of Item 14(a) of this Report.

                                       20

<PAGE>

                          REPORT OF ERNST & YOUNG LLP,

                              INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Maxwell Shoe Company Inc.

We have audited the accompanying consolidated balance sheets of Maxwell Shoe
Company Inc. as of October 31, 2000 and 2001, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended October 31, 2001. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Maxwell Shoe
Company Inc. at October 31, 2000 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 2001, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                ERNST & YOUNG LLP

Boston, Massachusetts
December 17, 2001




                                       21

<PAGE>

                            MAXWELL SHOE COMPANY INC.

                           CONSOLIDATED BALANCE SHEETS
                   (In Thousands -- except per share amounts)
<TABLE>
<CAPTION>
                                                                                            October 31,

                                                                                 -----------------------------------
                                     ASSETS                                          2000                 2001
                                                                                 --------------       --------------
<S>                                                                                  <C>                   <C>
Current assets:
    Cash and cash equivalents .................................................  $     48,074         $     58,256
    Accounts receivable, trade (net of allowance for doubtful accounts and
       discounts of $625 in 2000 and $1,326 in 2001) ..........................        34,244               37,392
    Inventory, net ............................................................        12,036               18,289
    Prepaid expenses ..........................................................           536                  642
    Prepaid income taxes ......................................................         1,478                    -
    Deferred income taxes .....................................................           798                1,538
                                                                                 --------------       --------------
Total current assets ..........................................................        97,166              116,117
Property and equipment, net ...................................................         6,605                5,115
Trademarks, net ...............................................................        15,479               14,462
Other assets ..................................................................           185                   93
                                                                                 --------------       --------------
                                                                                 $    119,435         $    135,787
                                                                                 ==============       ==============
</TABLE>

<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                     <C>                  <C>
Current liabilities:
    Accounts payable ..........................................................  $      1,863         $      1,354
    Accrued expenses ..........................................................         7,254                7,378
    Accrued income taxes ......................................................             -                3,443
    Deferred income taxes .....................................................           479                    -
    Current portion of capital lease obligations ..............................           102                    -
                                                                                 --------------       --------------
Total current liabilities .....................................................         9,698               12,175
Long-term deferred income taxes ...............................................         1,540                1,939
Stockholders' equity:

    Class A common stock, par value $.01, 20,000 shares authorized,
       8,797 shares outstanding in 2000, 8,929 shares outstanding in 2001 .....            88                   89
    Additional paid-in capital ................................................        43,112               45,381
    Deferred compensation .....................................................          (251)              (1,325)
    Retained earnings .........................................................        65,248               77,528
                                                                                 --------------       --------------
Total stockholders' equity ....................................................       108,197              121,673
                                                                                 --------------       --------------
                                                                                 $    119,435         $    135,787
                                                                                 ==============       ==============
</TABLE>








                             See accompanying notes.

                                       22

<PAGE>

                            MAXWELL SHOE COMPANY INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                   (In Thousands -- except per share amounts)
<TABLE>
<CAPTION>

                                                                              Year Ended October 31,
                                                                  ------------------------------------------------
                                                                      1999             2000              2001
                                                                  -------------     ------------     -------------
<S>                                                                   <C>                <C>               <C>
Net sales .....................................................   $   150,320       $  158,205       $   182,237
Cost of sales .................................................       113,820          116,991           131,584
                                                                  -------------     ------------     -------------
Gross profit ..................................................        36,500           41,214            50,653
Operating expenses:
     Selling ..................................................         9,905           11,584            14,200
     General and administrative ...............................        15,840           16,141            18,368
                                                                  -------------     ------------     -------------
                                                                       25,745           27,725            32,568
                                                                  -------------     ------------     -------------
Operating income ..............................................        10,755           13,489            18,085
Other expenses (income)
     Interest income, net .....................................        (1,447)          (3,039)           (2,027)
     Amortization of trademarks ...............................           367              367               457
     Other, net ...............................................       (19,588)            (310)             (127)
                                                                  -------------     ------------     -------------
                                                                      (20,668)          (2,982)           (1,697)
                                                                  -------------     ------------     -------------
Income before income taxes ....................................        31,423           16,471            19,782
Income taxes ..................................................        12,569            6,589             7,502
                                                                  -------------     ------------     -------------
Net income ....................................................   $    18,854       $    9,882       $    12,280
                                                                  =============     ============     =============
Earnings per share:
     Basic ....................................................         $2.14            $1.12             $1.39
     Diluted ..................................................         $1.99            $1.04             $1.26
Shares used to compute earnings per share:

     Basic ....................................................         8,796            8,796             8,823
     Diluted ..................................................         9,466            9,468             9,710
</TABLE>





                            See accompanying notes.



                                       23

<PAGE>

                            MAXWELL SHOE COMPANY INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                                                 Year Ended October 31,
                                                                                 ----------------------
                                                                           1999           2000           2001
                                                                          ------         ------         ------
<S>                                                                         <C>              <C>          <C>
Operating activities:
Net income ..........................................................  $    18,854    $     9,882    $    12,280
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization .................................         2,017          2,496          2,584
     Deferred income taxes .........................................           530            176           (820)
     Doubtful accounts provision ...................................         1,496            150            796
     Gain on sale of Jones license .................................       (19,500)             -              -
     Deferred compensation .........................................            62             70            361
     Loss on sale of equipment .....................................             -              -            181
     Changes in operating assets and liabilities:
          Accounts receivable ......................................         2,906         (2,341)        (3,944)
          Inventory ................................................        10,101           (709)        (6,253)
          Prepaid expenses .........................................          (305)           199           (106)
          Prepaid income taxes .....................................         1,177         (2,173)         1,478
          Other assets .............................................             -           (173)            92
          Accounts payable .........................................          (645)        (1,316)          (509)
          Accrued expenses .........................................        (3,092)         2,603            124
          Income taxes payable .....................................             -              -          3,799
                                                                       -------------  -------------  -------------
Net cash provided by operating activities ..........................         13,601          8,864         10,063

Investing activities:

Release of restricted cash .........................................              -         25,000              -
Purchases of property and equipment ................................        (3,316)          (837)          (818)
Purchase of Joan & David(R)trademark and inventory .................              -        (17,421)             -
Proceeds from sale of Joan & David(R)inventory .....................              -          3,675              -
Adjustments to purchase price of Joan & David(R)trademarks .........              -              -            560
                                                                       -------------  -------------  -------------
Net cash (used) provided by investing activities ...................        (3,316)        10,417           (258)

Financing activities:
Proceeds from exercise of stock options ............................            11              9            479
Payments on capital lease obligation ...............................          (126)          (117)          (102)
                                                                       -------------  -------------  -------------
Net cash provided (used) by financing activities ...................          (115)          (108)           377
                                                                       -------------  -------------  -------------
Net increase in cash and cash equivalents ..........................        10,170         19,173         10,182
Cash and cash equivalents at beginning of year .....................        18,731         28,901         48,074
                                                                       -------------  -------------  -------------
Cash and cash equivalents at end of year ...........................   $    28,901    $    48,074    $    58,256
                                                                       =============  =============  =============

Supplemental Disclosure of Cash Flow Information:
Proceeds from sale of Jones New York license
   (classified as restricted cash) .................................   $    25,000    $         -    $         -
                                                                       =============  =============  =============
Interest paid ......................................................   $        26    $        25    $        66
                                                                       =============  =============  =============
Income taxes paid ..................................................   $    10,697    $     8,652    $     3,045
                                                                       =============  =============  =============
</TABLE>


                            See accompanying notes.

                                       24

<PAGE>

                            MAXWELL SHOE COMPANY INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                      Class A
                                                    Common Stock
                                                 -----------------
                                                 Number              Additional      Deferred
                                                   of                 Paid-In        Compen-      Retained
                                                 Shares     Amount     Capital        sation      Earnings     Total
                                               ---------  --------- -----------    ----------  -----------   ---------
<S>                                               <C>        <C>          <C>          <C>          <C>          <C>

Balance at October 31, 1998 ..................    8,794    $    88     $43,015    $     (306)      $36,512    $79,309
   Options exercised .........................        2          -          11                                     11
   Net income for 1999 .......................                                                      18,854     18,854
   Amortization of deferred compensation .....                                            62                       62
                                               ----------------------------------------------- ------------------------
Balance at October 31, 1999 ..................    8,796         88      43,026          (244)       55,366     98,236
   Options exercised .........................        1          -           9                                      9
   Net income for 2000 .......................                                                       9,882      9,882
   Options granted ...........................                              77           (77)                       -
   Amortization of deferred compensation .....                                            70                       70
                                               ----------------------------------------------- -----------------------
Balance at October 31, 2000 ..................    8,797         88      43,112          (251)       65,248    108,197
   Options exercised .........................      132          1         478                                    479
   Net income for 2001 .......................                                                      12,280     12,280
   Options granted ...........................                           1,435        (1,435)
   Amortization of deferred compensation .....                                           361                      361
   Tax benefit from options exercised ........                             356                                    356
                                               ----------------------------------- ----------- -----------------------

Balance at October 31, 2001 ..................    8,929     $    89    $45,381       $(1,325)      $77,528   $121,673
                                                =========  ==========  ========      ========      =======   ========
</TABLE>




                            See accompanying notes.

                                       25

<PAGE>

                           MAXWELL SHOE COMPANY INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in Thousands--except per share amounts)


                                October 31, 2001

1.       Summary of Significant Accounting Policies

    Principles of Consolidation

         The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

    Concentration of Credit Risk

         The Company sells footwear for women and children to retailers located
throughout the United States and Canada. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses in most recent years have generally been within or
below management's expectations, although during fiscal 1999 and 2001 credit
losses exceeded management expectations as a large and several medium sized
retailers declared bankruptcy. In fiscal years 1999 to 2001, one customer
accounted for approximately 13%, 9% and 11.2%, respectively, of net sales. At
October 31, 2001, one customer accounted for 15.9% of trade receivables
outstanding.

    Use of Estimates

         The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

    Recognition of Revenue

         Sales are recognized upon shipment of products.

    Cash and Cash Equivalents

         Cash, checking accounts and all highly liquid investments with original
maturities of three months or less are deemed to be cash and cash equivalents.

    Inventory

         Inventory, which consists only of finished goods, is valued at the
lower of cost or market, using the first-in, first-out method.





                                       26

<PAGE>

                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)



    Impairment of Long Lived Assets

         If facts and circumstances indicate that the Company's long-lived
assets might be impaired, the estimated future undiscounted cash flows
associated with the long-lived asset would be compared to its carrying amount to
determine if a write down to fair value is necessary. If a write-down is
required, the amount is determined by estimation of the present value of net
discounted cash flows in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

    Non Current Assets

         Property and equipment are stated at cost. Depreciation is provided
using both straight line and accelerated methods over the estimated useful lives
of these assets or the lease term, if shorter. The estimated useful lives of
these assets are as follows:

<TABLE>
<CAPTION>
                    Asset                                               Useful Life
                    --------                                           -------------
                     <S>                                                    <C>
                    Furniture and fixtures ............................   5 Years
                    Warehouse equipment ...............................   7 Years
                    Leasehold improvements ............................   7 Years
                    Computer equipment ................................   5 Years
</TABLE>



         In August 1996, the Company acquired the rights to the Sam & Libby(R)
trademark and certain related trademarks and tradenames for $5.5 million in
cash. The trademarks and tradenames are being amortized on a straight-line basis
over 15 years, their estimated useful lives. Amortization began in 1997 when
sale of product with the trademark names commenced. Accumulated amortization at
October 31, 1999, 2000 and 2001 was $1,100. $1,467 and $1,833, respectively.

         In October 2000, the Company completed its acquisition of certain
assets of joan and david incorporated and JOAN HELPERN DESIGNS, INC. The Company
acquired all the rights to the Joan & David(R) trademark and tradenames and all
related inventory for $16.8 million in cash. Upon acquisition, the Company
immediately sold all inventory to a liquidator. The total acquisition price less
proceeds from the sale of the inventory was approximately $11.0 million and has
been recorded as the value of the trademarks and tradenames. The Company began
to amortize the trademark and tradenames over a 30-year period in the fourth
quarter of 2001 when sales under the Joan & David(R) brand began. Accumulated
amortization at October 31, 2002 was $91.

    Operating Expenses

         General and administrative expenses include the cost of warehousing and
shipping operations.

    Advertising Expenses

         Advertising costs are expensed as incurred. Advertising expense
(including cooperative advertising with retailers) amounted to $3,095, $4,063
and $5,394 for the years ended October 31, 1999, 2000 and 2001, respectively.




                                       27

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 (Dollars in Thousands--except per share amounts)

    Income Taxes

         The Company utilizes the liability method for accounting for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Deferred tax assets may be reduced
by a valuation allowance to reflect the uncertainty associated with their
ultimate realization.

    Earnings Per Share

         Basic earnings per share are computed based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share includes the effects of applying the treasury stock method to outstanding
stock options.

    Forward Exchange Contracts

         The Company uses forward exchange contracts to manage its foreign
currency exposure. Forward exchange contracts are marked to market at each
reporting period, with resulting gains and losses recognized in other income and
expense.

    Stock Based Compensation

         The Company grants stock options for a fixed number of shares to
employees, generally with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and, accordingly, recognizes no compensation
expense for the stock option grants when the exercise price equals the fair
value of the shares at the date of grant.

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." These provisions require the Company to disclose pro forma net
income and earnings per share amounts as if compensation related to grants of
stock options were recognized based on the fair value of such options (see
Note 5).

    Segment Reporting

         All of the Company's efforts are devoted to selling footwear that are
managed and reported in one segment. The Company is located in the U.S. and
derives substantially all of its revenues from sales in the U.S.

    Recent Accounting Pronouncements

         During the first quarter of fiscal 2001, the Company adopted the
Financial Accounting Standards Board SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133) which provides for the




                                       28

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)




recognition and measurement of derivatives and hedging activities. The adoption
of the FAS 133 did not have a significant impact on the Company's financial
statements.

         On October 20, 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 144). FAS 144 supersedes FAS
121, however it retains the fundamental provision of that statement related to
the recognition and measurement of the impairment of long-lived assets to be
"held and used." In addition, the Statement provides additional guidance on
estimating cash flows when performing a recoverability test, requiring that a
long-lived asset to be disposed of other than by sale be classified as an asset
"held for sale" until it is disposed of, and establishes more restrictive
criteria to classify an asset as "held for sale." The Statement is effective for
the Company in fiscal 2002. The Company has not yet determined the impact this
standard will have on its operating results and financial position.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
standards, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.

         The Company will apply the new standards on accounting for goodwill and
other intangible assets beginning in the first quarter of fiscal 2002. During
fiscal 2002, the Company will perform the required impairment tests of goodwill
and indefinite lived intangible assets. The Company has not yet completed its
assessment of what the effect of these rules will be on its earnings and
financial position. However, it is expected that fiscal 2002 trademark
amortization expense will be reduced by approximately $734.

2.   Property and Equipment

         Property and equipment consists of the following:
<TABLE>
<CAPTION>

                                                                                     2000       2001
                                                                                    ------      ------
            <S>                                                                     <C>         <C>
            Warehouse equipment..................................................... $4,434      $4,524
            Furniture and fixtures..................................................    876         980
            Leasehold improvements..................................................    985       1,091
            Computer equipment......................................................  6,586       6,696
                                                                                    -------     -------
                                                                                     12,881      13,291
            Less accumulated depreciation...........................................  6,276       8,176
                                                                                   --------    --------
            Property and equipment, net............................................. $6,605      $5,115
</TABLE>

         At October 31, 2000 and 2001, property and equipment included assets
recorded under capital leases of $1,047. Accumulated amortization of such assets
was $996 and $1,047 at October 31, 2000 and 2001, respectively. Depreciation
expense, including amortization of assets recorded under capital leases, for the
years ended October 31, 1999, 2000 and 2001 amounted to $1,650, $2,129 and
$2,127, respectively.

3.  Bank Borrowings

         The Company currently has a $35.0 million discretionary demand credit
facility bearing interest at either FleetBoston's base rate or Adjusted
Eurodollar Rate plus one percent (1.0%), renewable annually under certain
conditions. The credit agreement provides that the bank will both advance funds
directly to the Company and






                                       29

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


issue letters of credit on behalf of the Company. As of October 31, 2001, there
were no outstanding borrowings, $13.5 million was outstanding under letters of
credit and $21.5 million was available for future borrowings.

4.  Accrued Expenses

         Accrued expenses consist of the following at October 31:
<TABLE>
<CAPTION>

                                                                                              2000          2001
                                                                                             -------       -------
      <S>                                                                                    <C>           <C>
            Inventory purchases............................................................. $1,803        $1,867
            Compensation....................................................................  1,960         1,983
            Employee benefit plan contribution..............................................    486           532
            Advertising.....................................................................    865         1,040
            Other...........................................................................  2,140         1,956
                                                                                             -------       -------
                                                                                             $7,254        $7,378
                                                                                             =======       =======
</TABLE>



5.  Stockholders' Equity

     Preferred Stock

         The Company's Charter authorizes the issuance of 1,000,000 shares of
preferred stock. The Company's Charter provides that the Board of Directors of
the Company may authorize the issuance of one or more series of preferred stock
having such rights, including voting, conversion and redemption rights, and such
preferences, including dividend and liquidation preferences, as the Board may
determine without any further action by the stockholders of the Company. There
are no shares of preferred stock currently outstanding.

    Stock Options

         Under the 1994 Stock Incentive Plan (the Plan), the Board of Directors
has reserved 750,000 shares of Class A Common Stock for issuance upon exercise
of options or grants of other awards under the Plan. On June 1, 1998, the Plan
was amended to increase the number of shares by 300,000 of Class A Common Stock
for issuance upon exercise of options or grants of other awards under the Plan.
Except for options granted to non-employee directors, which vest immediately,
options generally vest annually over a four-year period.

         In April 2000, the Company granted 10,000 options to a certain employee
to purchase stock at $1.00 per share. Based on the market price of the Company
stock on the date of grant, the Company recorded deferred compensation expense
of $77, which will be recognized ratably over the vesting period of five years.

         In August 2000, the Company's Board of Directors approved an amendment
to the Company's 1994 Stock Incentive Plan, which included an increase in the
maximum common shares issuable under the plan from 1,050,000 shares to 1,650,000
shares. At the April 13, 2001 Annual Meeting of Stockholders, the Company
stockholders approved an amendment to the Company's 1994 Stock Incentive Plan to
increase the maximum common shares issuable under the Plan and approved grants
of options to certain employees of the Company. Options were granted for the
purchase of 302,107 shares of the Company's common stock at $10.50 per share.
Based on the market price of the Company's stock on the date of shareholder
approval ($15.25 per share), the Company recorded deferred compensation expense
of $1,435, which will be recognized ratably over the vesting period of four
years.







                                       30

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


         Presented below is a summary of the status of the stock option plan and
related transactions:
<TABLE>
<CAPTION>


                                                                    Year ended October 31,
                                             ---------------------------------------------------------------------
                                                     1999                    2000                    2001
                                             --------------------    --------------------   ----------------------
                                                         Weighted                Weighted                 Weighted
                                                         Average                 Average                  Average
                                              Shares      Price        Shares     Price       Shares       Price
                                            ----------  -----------  ----------  ---------  -----------  ---------
<S>                                            <C>          <C>         <C>        <C>         <C>        <C>
Options outstanding at beginning of year..... 682,300       $8.46       866,400    $ 8.58       942,543     $ 8.60
Granted...................................... 200,000       $8.80        77,893    $ 8.82       322,107     $10.80
Exercised....................................  (1,700)      $6.50        (1,500)   $ 5.00       (61,700)    $ 6.06
Canceled..................................... (14,200)      $6.08          (250)   $10.38             -
                                              --------               ----------              -----------
Options outstanding at end of year........... 866,400       $8.58       942,543    $ 8.60      1,202,950    $ 9.32
                                              =======                   =======              ===========
Options exercisable at end of year........... 516,531                   609,251                  730,416
                                              =======                   =======              ===========
</TABLE>


         The following table summarizes information about stock options
outstanding under the stock option plan at October 31, 2001:

<TABLE>
<CAPTION>

                                                            Options Outstanding             Options Exercisable
                                                     -----------------------------------    ----------------------
                                                                 Weighted-
                                                                 Average        Weighted-                Weighted-
                                                                 Remaining      Average                  Average
                                                                 Contractual    Exercise                 Exercise
         Range of Exercise Price                      Shares     Life(Years)     Price        Shares      Price
         -----------------------                    -----------   ---------    ---------    ----------  ---------
<S>                                                  <C>          <C>            <C>           <C>         <C>
              $1.00....................................  40,000      7.3        $ 1.00          9,900     $ 1.00
              $5.00 - $6.50............................ 318,300      4.7        $ 6.03        318,300     $ 6.03
              $7.75 - $10.50........................... 709,650      7.4        $ 9.78        300,350     $ 9.47
              $17.00 - $17.50.......................... 135,000      6.9        $17.11        101,866     $16.99
                                                     ----------                               -------

                                                      1,202,950      6.6        $ 9.32        730,416     $ 8.88
                                                      =========                               =======
</TABLE>

         At October 31, 2001 there were 447,050 shares available for future
grants under stock option plans.

         In 1994, in consideration for the termination of a deferred
compensation agreement, the Board of Directors approved a non-transferable stock
option grant to the CEO for the purchase of 888,412 shares of Class A Common
Stock at an exercise price of $1.50 per share. The grant was outside of the
Company's stock option plan, and the stock options were immediately exercisable.
In connection with the April 1998 public stock offering, the CEO exercised a
portion of these options to purchase 300,000 shares of common stock. At
October 31, 2001, 518,112 shares remained exercisable pursuant to the CEO's 1994
stock option grant. During 2001, options for an additional 70,300 shares were
exercised.

         Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) utilizes the fair value method of
accounting for employee stock options. Under this method, compensation expense
for stock-based compensation plans is measured at the grant date based on the
fair value of the award and is recognized over the service period. In accordance
with SFAS 123, the Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
(APB 25) and related interpretations in accounting for its employee stock
options. Under APB 25, no compensation expense is recognized as long as the
exercise price equals the market price of the underlying stock on the date of
grant.






                                       31

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


         Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee stock options and other
stock-based compensation granted subsequent to October 31, 1995 under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rates ranging from
4.83% to 6.89%; dividend yield of 0%; volatility factor of the expected market
price of the Company's common stock of 55.8%, 48.0%, and 34.2% for 1999, 2000
and 2001; and a weighted average expected life of 5.0 years for options granted
in 1999, 2000 and 2001. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options' vesting
period.

<TABLE>
<CAPTION>
                                                                                  Year ended October 31,
                                                                                  ----------------------
                                                                                 1999         2000          2001
                                                                                -------     --------      -------
              <S>                                                                 <C>          <C>           <C>
          Pro forma:
             Net income ...................................................    $18,268       $9,415       $11,654
             Earnings per share:
               Basic ......................................................      $2.08        $1.07         $1.32
               Diluted ....................................................      $1.93        $0.99         $1.20

          Options granted whose exercise price equals
              market price on grant date
               Weighted average fair value of options granted .............      $4.81        $4.77         $5.93
               Weighted average exercise price ............................      $8.80        $9.97        $15.25

          Options granted whose exercise price is less than
             market price on grant date
               Weighted average fair value of options granted .............          -        $7.91         $8.03
               Weighted average exercise price ............................          -        $1.00        $10.50
</TABLE>

         During the initial phase-in period, the effects of applying SFAS 123
for recognizing pro forma compensation expense may not be representative of the
effects on pro forma net income or loss for future years because the options
granted by the Company vest over several years and additional awards may be made
in future years.

    Stockholder Rights Plan

         In November 1998, the Company adopted a Stockholder Rights Plan, under
which each outstanding share of the Company's Class A common stock carries one
Common Stock Purchase Right. The rights may only become exercisable under
certain circumstances involving acquisition of the Company's common stock by a
person or group of persons without the prior written consent of the Company's
board. Depending on the circumstances, if the rights become exercisable, the
holder of rights may be entitled to purchase shares of the Company's Class A
common stock or shares of common stock of the acquiring person at discounted
prices. The rights will expire on November 2, 2008 unless they are earlier
exercised, redeemed or exchanged.

6.  Income Taxes

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of October 31
were as follows:






                                       32

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 (Dollars in Thousands--except per share amounts)

<TABLE>
<CAPTION>
                                                                                                2000          2001
                                                                                               -------      -------
           <S>                                                                                <C>           <C>
            Deferred tax assets
                 Stock option compensation ...............................................      $1,854       $1,632
                 Inventory reserve .......................................................         324          437
                 Allowance for doubtful accounts .........................................         250          530
                 Inventory capitalization ................................................         224          323
                 Unearned compensation ...................................................         103          248
                                                                                                -------     -------
                                                                                                 2,755        3,170
            Valuation allowances for deferred tax assets .................................      (1,854)     (1,632)
                                                                                                ------      -------
            Total deferred tax assets ....................................................         901        1,538
            Deferred tax liabilities:

                 Trademark ...............................................................       1,540         1443
                 Property and equipment ..................................................         582          496
                                                                                                 ------       -----
            Total deferred tax liabilities ...............................................       2,122        1,939
                                                                                                ------       -------
            Net deferred tax liabilities .................................................     $(1,221)       $(401)
                                                                                               ========       ======
</TABLE>

         SFAS 109 requires a Company to recognize a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. In connection with the stock option compensation discussed in
Note 5, the Company recorded a valuation allowance in 1994 for the related
deferred tax asset. The stock option compensation is deductible for tax
purposes upon exercise of the option. During 2001, a portion of the options
were exercised and a proportionate share of the valuation allowance was reduced
resulting in a tax benefit of $222, which is included in the income tax
provision. Furthermore, for tax purposes, the Company recognized additional
compensation expense for the difference between the market price at the date of
grant and the market price at the date of exercise. This additional tax benefit
of $356 for 2001 has been recorded as a reduction of current taxes payable and
an increase in additional paid-in-capital.

         Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
                                                                         1999           2000          2001
                                                                        -------      --------       -------
         <S>                                                         <C>             <C>            <C>
         Current:
                 Federal .......................................      $   9,720      $   5,180      $ 6,719
                 State .........................................          2,319          1,233        1,603
                                                                     -----------    -----------    ---------
         Total current .........................................         12,039          6,413        8,322
         Deferred:
                 Federal .......................................            418            142         (663)
                 State .........................................            112             34         (157)
                                                                     -----------    -----------    ----------
         Total deferred ........................................            530            176         (820)
                                                                     -----------    -----------     ---------
                                                                      $  12,569      $   6,589      $ 7,502
                                                                     ===========    ===========    ==========
</TABLE>


                                       33

<PAGE>

                            MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


         The reconciliation of income tax computed at the U.S. federal statutory
tax rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
                                                                                    1999       2000      2001
                                                                                   -------    ------   -------
<S>                                                                                 <C>        <C>       <C>
            U.S. statutory rate ................................................      35%        35%       35%
                 State income taxes, net of federal tax benefit ................       5          5         5
                 Stock option compensation .....................................       -          -        (1)
                 Tax free interest .............................................       -          -        (1)
                                                                                   -------    -------   -------
            Effective tax rate .................................................       40%        40%       38%
                                                                                   =======     ======   ========
</TABLE>

7. Profit-Sharing Plan

         The Company has a contributory 401(k) profit-sharing plan covering
substantially all employees. Employees may contribute up to 15% of their pre-tax
salary subject to statutory limitations. The plan requires the Company to match
100% of employee contributions up to 2% of total employee compensation. The plan
also allows for additional discretionary Company contributions. Total plan
expense amounted to $504, $459 and $532 for fiscal years 1999, 2000 and 2001,
respectively.

8. Commitments

         The Company leases equipment and office and warehouse space under
long-term non-cancelable operating leases which expire at various dates through
January 31, 2011. These leases require the Company to pay the real estate taxes
on the real property.

         At October 31, 2001, future minimum payments under such leases were as
follows:

            2002 ...............................   2,394
            2003 ...............................   2,269
            2004 ...............................   1,763
            2005 ...............................     925
            2006 ...............................     927
            Later years ........................   1,707
                                                   -----
            Total minimum lease payments .......  $9,985
                                                  ======

         In September 2001, the Company entered into an agreement to sublease
approximately 120,000 square feet of its Brockton facility to an unaffiliated
third party. The contract term expires in September 2003. Future minimum lease
payments to be received in fiscal 2002 and 2003 are $570 and $427, respectively.

         Rent expense for the years ended October 31, 1999, 2000 and 2001 was
$859, $1,024 and $1,487, respectively.

         The Company is a licensee under three agreements which allow for the
manufacture and sale of various items of footwear. The agreements require the
payment of royalties on qualified product sales and generally guarantee minimum
royalty payments regardless of sales volume. The aggregate minimum royalty
payments for all license agreements are $914, $2,439 and $100 for December 31,
2001, 2002 and 2003, respectively.

                                       34

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


         In April 1997, the Company entered into a license agreement with J. G.
Hook(R), Inc. (the Hook agreement). In May 2000, the Company entered into a new
license agreement with J. G. Hook(R) with an initial expiration date of December
2003, under similar terms to the original agreement, with three one-year
options.

         On November 13, 1998, the Company entered into a license agreement with
Levi Strauss Co., which allows for the manufacture and sale of a full range of
women's casual footwear under the Dockers(R) Khakis Footwear For Women brand
name. The agreement requires the payment of royalties on qualified sales and
guarantees minimum royalty payments. The initial term ends December 31, 2001.
There is one four-year option to renew through December 31, 2005, subject to
satisfying certain conditions.

         Effective July 1999, the Company entered into a license agreement with
Kasper A.S.L., Ltd., which allows for the manufacture and sale of women's
footwear under the Anne Klein 2(R) and A Line Anne Klein(TM) brands. The
agreement requires the payment of royalties. In addition, the agreement requires
payments into an advertising fund. The minimum payment for 2001 was $300, and
thereafter, the minimum is calculated as a percentage of royalties paid. The
initial term of the license agreement expires December 31, 2002. The Company has
two five-year options, subject to satisfying certain conditions.

         On July 9, 1999, the Company completed a transaction under which the
Company sold its license to manufacture and distribute Jones New York footwear.
In consideration of the sale of the license and certain other assets, the
Company received a cash payment of $25.0 million. In connection with the license
sale, the Company recorded $5.5 million for expenses related to the transaction,
including inventory liquidation. On January 5, 2000, the Company received the
$25 million in proceeds from the sale of the Jones License on an unrestricted
basis, together with approximately $660 in net interest on the funds.

         In January 1997, the Company entered into a license agreement with
Inter-Pacific Corporation (IPC), which provides IPC with the exclusive rights to
design, manufacture and distribute Sam & Libby(R) beachwear type footwear for an
initial term of January 1997 to May 2000. For the use of the Sam & Libby(R)
trademark, IPC paid the Company royalties based on qualified product sales
subject to payment of minimum royalties of $396 over the initial term of the
agreement. IPC has exercised its option to extend the license agreement until
May 2003. Minimum royalties for this period, June 2000 until May 2003, are $651.

                                       35

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)




9.  Earnings Per Share

         The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>

                                                                               1999         2000         2001
                                                                               ----         ----         ----
             <S>                                                               <C>            <C>          <C>
            Numerator:
                  Net income.................................................. $18,854       $9,882      $12,280
                                                                               =======       ======      =======

            Denominator (shares in thousands):
                 Denominator for basic earnings per share
                    Weighted average shares..................................... 8,796        8,796        8,823
                 Denominator for diluted earnings per share
                    Dilutive stock options......................................   670          672          887
                                                                                 -----        -----        -----
                      Adjusted weighted average shares and assumed
                        conversions............................................. 9,466        9,468        9,710
                                                                                 =====        =====        =====


            Earnings per share
                  Basic......................................................... $2.14        $1.12        $1.39
                                                                                 =====        =====        =====
                  Diluted....................................................... $1.99        $1.04        $1.26
                                                                                 =====        =====        =====
</TABLE>

         Options for 147,133, 69,758 and 17,042 shares for the years 1999, 2000
and 2001, respectively, were excluded from the calculation of diluted earnings
per share as the effect would have been anti-dilutive.

10.  Supplementary Quarterly Financial Data (Unaudited)

         The following is a summary of unaudited quarterly results for the
fiscal years ended October 31, 2000 and October 31, 2001.
<TABLE>
<CAPTION>

                                                                               Quarter Ended
                                                                               --------------
                                                         January 31,      April 30,       July 31,      October 31,
                                                        ------------     ----------      ---------     -------------
          <S>                                           <C>              <C>             <C>            <C>
          Fiscal 2000
               Net sales.................................. $29,156         $43,176          39,588         $46,285
               Gross profit...............................   7,031          11,797          10,966          11,420
               Net income.................................   1,020           2,569           3,152           3,141
               Earnings per share
                  Basic................................. $    0.12       $    0.29       $    0.36       $    0.36
                                                         =========       =========       =========       =========
                  Diluted............................... $    0.11       $    0.27       $    0.33       $    0.33
                                                         =========       =========       =========       =========

          Fiscal 2001
               Net sales.................................. $35,502         $48,655         $44,906         $53,174
               Gross profit...............................   9,588          14,035          12,338          14,692
               Net income.................................   1,768           3,449           3,399           3,664
               Earnings per share
                  Basic................................. $    0.20       $    0.39       $    0.39       $    0.41
                                                         =========       =========       =========       =========
                  Diluted............................... $    0.18       $    0.35       $    0.34       $    0.38
                                                         =========       =========       =========       =========
</TABLE>
                                       36

<PAGE>
                           MAXWELL SHOE COMPANY INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                (Dollars in Thousands--except per share amounts)


Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

     None.


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held April 18, 2002.
The Company's proxy statement will be filed with the Securities and Exchange
Commission within 120 days after October 31, 2001 and is incorporated herein by
reference.

Item 11. Executive Compensation

     The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held April 18, 2002.
The Company's proxy statement will be filed with the Securities and Exchange
Commission within 120 days after October 31, 2001 and is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held April 18, 2002.
The Company's proxy statement will be filed with the Securities and Exchange
Commission within 120 days after October 31, 2001 and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

     The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held April 18, 2002.
The Company's proxy statement will be filed with the Securities and Exchange
Commission within 120 days after October 31, 2001 and is incorporated herein by
reference.

                                       37

<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) (1)  Financial Statements:

     The following financial statements of the Company are included in response
to Item 8 of this report.
<TABLE>
<CAPTION>

                                                                                                   Page Reference

                                                                                                      Form 10-K
                                                                                                      ---------
         <S>                                                                                              <C>
         Report of Ernst & Young LLP Independent Auditors................................................ 21
         Consolidated Balance Sheets as of October 31, 2000 and 2001..................................... 22
         Consolidated Statements of Income for each of the three years in the period ended
              October 31, 2001........................................................................... 23
         Consolidated Statements of Cash Flows for each of the three years in the period ended
              October 31, 2001........................................................................... 24
         Consolidated Statements of Changes in Stockholders' Equity for each of the three years
              in the period ended October 31, 2001....................................................... 25
         Notes to Consolidated Financial Statements...................................................... 26
</TABLE>

      (a) (2)  Financial Statements:
<TABLE>
<CAPTION>

         <S>                                                                                             <C>
         Schedule II -- Valuation and qualifying accounts for the years
              ended October 31, 1999, 2000 and 2001..................................................... 44

         Schedules other than those listed above have been omitted since they
              are either not required, not applicable, or the information is
              otherwise included.
</TABLE>

     (b) Reports on Form 8-K

         There were no reports on Form 8-K filed during the fourth quarter of
fiscal 2001.

     (c) Exhibits
<TABLE>
<CAPTION>

              <S>       <C>
              3.1       Certificate  of  Incorporation  of Maxwell Shoe Company Inc.  (incorporated  by reference to
                        exhibit 3.1 to the registrant's Form S-1 Registration Statement No. 33-74768)

              3.2       Bylaws of Maxwell Shoe Company  Inc., as amended  (incorporated  by reference to exhibit 3.2
                        to the registrant's Form S-1 Registration Statement No. 33-74768)

              4.1       Specimen  Maxwell Shoe  Company  Inc.  Class A Common  Stock  Certificate  (incorporated  by
                        reference  to  exhibit  4.1  to the  registrant's  Form  10-K  for  the  fiscal  year  ended
                        October 31, 1994)

              4.2       Specimen  Maxwell Shoe  Company  Inc.  Class B Common  Stock  Certificate  (incorporated  by
                        reference  to  exhibit  4.2  to the  registrant's  Form  10-K  for  the  fiscal  year  ended
                        October 31, 1994)

              4.3       Rights  Agreement  dated as of  November 2, 1998  between  Maxwell  Shoe  Company  Inc.  and
                        BankBoston,  N.A.,  as Rights  Agent  (incorporated  by  reference  to  Exhibit  99.1 to the
                        registrant's Form 8-K filed on November 12, 1998)

              4.4       Amendment  No. 1 to Rights  Agreement  dated  December 6, 2001 between  Maxwell Shoe Company
                        Inc. and EquiServe Trust Company, N.A.

              10.1      Amended 1994 Stock Incentive Plan (incorporated by reference to exhibit 4.1 to the registrant's
                        Form S-8 Registration Statement No. 333-54244 )
</TABLE>

                                       38

<PAGE>

<TABLE>
<CAPTION>
              <S>       <C>
              10.2.1    Form of Employee  Nonqualified Stock Option Agreement pursuant to 1994 Stock Incentive Plan (incorporated by
                        reference to exhibit 10.2.1 to the registrant's Form S-1 Registration Statement No. 33-74768)

              10.2.2    Form of Employee  Incentive Stock Option  Agreement  pursuant to 1994 Stock Incentive Plan  (incorporated by
                        reference to exhibit 10.2.2 to the registrant's Form S-1 Registration Statement No 33-74768)

              10.2.3    Form of Nonemployee  Director Stock Option Agreement  pursuant to 1994 Stock Incentive Plan (incorporated by
                        reference to exhibit 10.2.3 to the registrant's Form S-1 Registration Statement No. 33-74768)

              10.3      Form of Restricted  Stock  Agreement  pursuant to 1994 Stock  Incentive Plan  (incorporated  by reference to
                        exhibit 10.3 to the registrant's Form S-1 Registration Statement No. 33-74768)

              10.4      Form of Indemnity  Agreement  between  Maxwell Shoe Company  Inc. and each of its  directors  and  executive
                        officers  (incorporated by reference to exhibit 10.4 to the registrant's Form S-1 Registration Statement No.
                        33-74768)

              10.5      Form of Tax Indemnification Agreement between Maxwell Shoe Company Inc. and each of Maxwell V. Blum, Eleanor
                        S. Blum,  Betty Ann Blum and Marjorie Blum  (incorporated  by reference to exhibit 10.5 to the  registrant's
                        Form S-1 Registration Statement No. 33-74768)

              10.6      Lease dated as of March 26, 2001 by and between Highland Sprague  Associates,  L.P., as lessor,  and Maxwell
                        Shoe Company Inc., as lessee.

              10.7      Agreement of Lease dated as of July 12, 1985,  between Solow Management,  lessor to 4 West 58th Street,  New
                        York, New York, and Joan & David(R)USA, Inc., as lessee.

              10.8      Demand Credit  Facility  Agreement dated September 2, 1998 between Maxwell Shoe Company Inc. and BankBoston,
                        N.A.  (incorporated  by reference to exhibit  10.9 to the  registrant's  Form 10-K for the fiscal year ended
                        October 31, 1998 as filed on January 21, 1999)

              10.9      Form of Registration Rights Agreement between Maxwell Shoe Company Inc. on the one hand and Maxwell V. Blum,
                        Betty A. Blum,  Marjorie Blum,  Mark J. Cocozza,  and Joseph Aborn,  as trustee of the Eleanor S. Blum Trust
                        (incorporated  by  reference  to exhibit  10.13 to the  registrant's  Form S-1  Registration  Statement  No.
                        33-74768)

              10.10     Agreement dated as of April 8, 1999 between Maxwell Shoe Company Inc. and Richard J. Bakos  (incorporated by
                        referenced to exhibit 99.3 to registrant's Form 8-K filed on June 14, 1999)

              10.11     Stock Option and  Registration  Rights  Agreement  dated as of January 26, 1994 between Maxwell Shoe Company
                        Inc.and  Mark J.  Cocozza  (incorporated  by  reference  to  exhibit  10.15  to the  registrant's  Form  S-1
                        Registration Statement No. 33-74768)

              10.12     Lease Agreement dated June 16, 1997 between John H. Finley, III as trustee of Brockton Oak Real Estate Trust
                        and Maxwell Shoe Company Inc.  (incorporated by reference to exhibit 10.33 to the registrant's Form 10-K for
                        the fiscal year ended October 31, 1997)

              10.13     Trademark  Sublicense  Agreement dated as of April 14, 1997 by and between Maxwell Shoe Company Inc. and SLJ
                        Retail LLC (incorporated by reference to exhibit 10.9 to the registrant's Form 8-K filed on May 5, 1997)

              10.14     Consulting  Agreement  dated as of April 27, 1998  between  Maxwell  Shoe  Company  Inc. and Maxwell V. Blum
                        (incorporated  by reference to exhibit  10.37 to the  registrant's  Form S-2/A  Registration  Statement  No.
                        33-48199)

              10.15     Amendment to Consulting Agreement dated as of June 24, 1999 between Maxwell Shoe Company Inc. and Maxwell V.
                        Blum  (incorporated  by reference to exhibit 10.33 to the  registrant's  Form 10-K for the fiscal year ended
                        October 31, 1999)
</TABLE>


                                       39

<PAGE>


<TABLE>
<CAPTION>

              <S>           <C>
              10.16      Asset Purchase  Agreement  dated as of October 12, 2000 by and among Joan and David Helpern,
                         Incorporated  and JOAN HELPERN DESIGNS,  INC.  (collectively,  the sellers)and  Maxwell Shoe
                         Company Inc.  (incorporated  by reference to exhibit 2.1 to  registrant's  Form 8-K filed on
                         November 13, 2000).

              10.17      Employment  Agreement  dated as of August 30, 2000  between  Maxwell  Shoe Company Inc. and
                         Mark J.  Cocozza  (incorporated  by reference to exhibit  10.35 to  registrant's  Form 10-K
                         filed on January 29, 2001)

              10.18      Employment  Agreement  dated as of August 30, 2000  between  Maxwell  Shoe Company Inc. and
                         James J. Tinagero  (incorporated  by reference to exhibit 10.36 to  registrant's  Form 10-K
                         filed on January 29, 2001)

              10.19      Loan  Modification  Agreement  dated April 30, 2001  between  Maxwell Shoe Company Inc. and
                         Fleet National Bank.

              10.20      Amendment to Change of Control  Severance  Agreement  dated April 3, 2001  between  Maxwell
                         Shoe  Company  Inc. and Richard J. Bakos  (incorporated  by  reference to exhibit  10.37 to
                         registrant's Form 10-Q filed on June 11, 2001)

              10.21      Agreement  dated as of July 9, 1999 between ANNE KLEIN, A division of Kasper A.S.L.,  Ltd.,
                         B.D.S., Inc., Lion Licensing, Ltd. and Maxwell Shoe Company Inc. (portions of the exhibit
                         have been omitted pursuant to a request for confidential treatment).

              21         Subsidiaries of Maxwell Shoe Company Inc.

              23         Consent of Ernst & Young LLP, Independent Auditors

</TABLE>




                                       40

<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.

                                           MAXWELL SHOE COMPANY INC.


                                         By        /s/ Mark J. Cocozza
                                           -------------------------------------
                                                       Mark J. Cocozza,
                                            Chairman and Chief Executive Officer
                                                      January 25, 2002

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

             /s/ MARK J. COCOZZA
 ---------------------------------------------           Chairman of the Board and                January 25, 2002
               Mark J. Cocozza                            Chief Executive Officer
                                                       (Principal Executive Officer)

            /s/ JAMES J. TINAGERO
 ---------------------------------------------    Executive Vice President, Chief Operating       January 25, 2002
              James J. Tinagero                            Officer and Director
                                                        (Principal Operating Officer)

             /s/ RICHARD J. BAKOS
 ---------------------------------------------           Vice President Finance and               January 25, 2002
               Richard J. Bakos                           Chief Financial Officer
                                                       (Principal Financial Officer)

              /s/MAXWELL V. BLUM                                 Director                         January 25, 2002
----------------------------------------------
               Maxwell V. Blum

             /s/ STEPHEN A. FINE                                 Director                         January 25, 2002
 ---------------------------------------------
               Stephen A. Fine

            /s/MALCOLM L. SHERMAN                                Director                         January 25, 2002
 ---------------------------------------------
              Malcolm L. Sherman

            /s/ ANTHONY J. TIBERII                               Director                         January 25, 2002
 ---------------------------------------------
              Anthony J. Tiberii
</TABLE>

         41

<PAGE>
<TABLE>
<CAPTION>

                                              MAXWELL SHOE COMPANY INC.

                                   SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                                   (In Thousands)

                                                         Balance at     Charged to                      Balance at
                                                        Beginning of     Costs and                        End of
                     Description                           Period        Expenses        Deductions/1/    Period
                    -------------                      --------------   -----------     ---------------  ----------


<S>                                                          <C>          <C>              <C>             <C>
Year ended October 31, 1999
        Allowance for doubtful accounts.................... $581          $1,496          $1,292           $785
Year ended October 31, 2000
        Allowance for doubtful accounts.................... $785           $150            $310            $625
Year ended October 31, 2001
     Allowance for doubtful accounts....................... $625           $796            $95            $1,326
</TABLE>

--------------
/1/ Uncollectible accounts written off, net of recoveries.





                                       42