<PAGE>
 
================================================================================

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

(Mark One)
[X]  Annual Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the fiscal year ended October 31, 1997

                                       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
               PO Box 37
         Hyde Park (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 15, 1998 based on
the closing price of the Class A Common Stock on the NASDAQ National Market
System on such date was $11.00.

          The number of shares of the registrant's Class A Common Stock
outstanding at January 15, 1998 was 2,525,000 shares. The number of shares of
the registrant's Class B Common Stock outstanding at January 15, 1998 was
5,063,317 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the proxy statement for the registrant's 1998 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, 1997


<TABLE>
<CAPTION>
 
 
           Caption                                                          Page
                                                                            ----
<S>        <C>                                                              <C>
 
PART I
------
 
Item 1.    Business....................................................       3
Item 2.    Properties..................................................      15
Item 3.    Legal Proceedings...........................................      15
Item 4.    Submission of Matters to a Vote of Security Holders.........      15
 
PART II
-------
Item 5.    Market for Registrant's Common Equity and Related 
             Stockholder Matters.......................................      16
Item 6.    Selected Financial Data.....................................      17
Item 7.    Management's Discussion and Analysis of Financial Condition 
             and Results of Operations.................................      18
Item 8.    Financial Statements and Supplementary Data.................      20
Item 9.    Changes in and Disagreements with Accountants on Accounting 
             and Financial Disclosure..................................      36
 
PART III
--------
Item 10.   Directors and Executive Officers of the Registrant..........      36
Item 11.   Executive Compensation......................................      36
Item 12.   Security Ownership of Certain Beneficial Owners and 
             Management................................................      36
Item 13.   Certain Relationships and Related Transactions..............      36
                                                                                
PART IV                                                                         
-------                                                                         
Item 14.   Exhibits, Financial Statement Schedules, and Reports on 
             Form 8-K..................................................      37
 
</TABLE>

                                       2
<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 the 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 brand name and in the upper moderately priced market segment under the
Sam & Libby brand name. The Company also sells moderately priced and upper
moderately priced children's footwear under both those brand names. The Company
manufactures and markets better women's footwear under the Jones New York and
Jones New York Sport brand names pursuant to an exclusive license agreement. The
Company also designs and develops private label footwear for selected retailers
under the retailers' own brand names. The Company has also licensed the J.G.
Hook tradename to source and develop private label products for retailers who
require brand identification. In addition, the Company sells footwear close-outs
which it purchases at discounts from other manufacturers.

     Since 1987, when sales under the Mootsies Tootsies brand first became
significant, the Company has consistently increased net sales and maintained
profitability. In fiscal 1997, the Company's net sales and net profits increased
28.7% and 52.5%, respectively, as compared to fiscal 1996. 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 and Sam & Libby brand offerings and from $40 to $90 for the Jones New
York Sport and Jones New York product lines. Substantially all of the Company's
products are manufactured overseas by independent factories selected by the
Company together with 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.

     The Company's strategy is to leverage its existing competitive strengths,
including but not limited to its strong manufacturing relationships and its
portfolio of established brands, to profitably increase 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
acquisition or licensing arrangements of additional brands in the future.

     Through advertising, promotion and packaging, the Company has built
consumer and retail recognition for the Mootsies Tootsies and Mootsies Kids
brand names, and management believes that Mootsies Tootsies is currently one of
the largest selling brands in the moderately priced segment of the women's
casual and dress footwear industry. In 1994 and 1995, the Company expanded its
branded product portfolio through the introduction of the Jones New York and
Jones New York Sport footwear brands. Both product lines intend to capitalize on
the strong brand name recognition and reputation for style, quality and value
enjoyed by Jones New York in the better segments of the women's apparel
industry. The Company continued its brand expansion through the acquisition of
the Sam & Libby worldwide trademarks and tradenames in 1996 which will allow the
Company to develop and grow internationally. The Company is in the process of
re-positioning the Sam & Libby brand from its recent focus on the junior women's
market segment to the late 20's, career-oriented women market segment, and
management believes that sales under the Sam & Libby lines should increase
significantly in the future upon completion of this brand re-positioning and the
introduction of additional products under such brand name. 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 name in 1997 to
sell as a first cost product for retailers who require brand identification.


                                       3
<PAGE>
 
     The 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 line to take advantage of this shift by
offering value priced footwear which reflects current fashion trends. The Sam &
Libby brand is directed to appeal to the fashion forward customers in the upper
moderate price range and has been less affected by this shift. The Company
believes that the better segment of this market has also not been as affected by
this shift due to a continuing interest in higher quality and brand name
products. The Company aims to satisfy these consumers through its Jones New York
and Jones New York Sport footwear lines, which enjoy a strong brand name
recognition and reputation for style, quality and value due to the success of
Jones New York in the better segments of the women's apparel industry.

     The Company's original business was founded by Mr. Maxwell Blum in 1949 as
a sole proprietorship that was incorporated in Massachusetts in 1976 as Maxwell
Shoe Co., Inc. In March 1994, the Company changed its state of incorporation
from Massachusetts to Delaware.

Business Strategy

     The Company's strategy is to leverage its existing competitive strengths to
profitably increase 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 acquisition or licensing of additional
brands in the future.

     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:

     .  Portfolio of Established Brands. Through advertising, promotion and
        packaging, the Company has built consumer and retail recognition for its
        Mootsies Tootsies and Mootsies Kids brand names and has established
        Mootsies Tootsies as one of the largest selling brands in the moderately
        priced segment of the women's casual and dress footwear industry. The
        Company offers its Jones New York and Jones New York Sport footwear
        lines with the intention of capitalizing on the strong brand name
        recognition and reputation for style, quality and value enjoyed by Jones
        New York in the better segments of the women's apparel industry. The
        Company continued its brand expansion through the acquisition of the Sam
        & Libby worldwide trademarks and tradenames in 1996 which will allow the
        Company to develop and grow internationally. The Company has also
        licensed the J.G. Hook name to sell as a first cost product for
        retailers who require brand identification. The Company continues to
        seek licensing or acquisition opportunities in order to expand its
        current portfolio of brands.

     .  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.
        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 has recently opened a dedicated manufacturing facility in
        China which will further improve the Company's product development and
        sourcing capabilities.

        In recent years, an increasing percentage of the Company's products are
        being manufactured in China, resulting in approximately 83% of the
        Company's fiscal 1997 products being sourced from China. The Company's
        increased manufacturing concentration in China has resulted in lower
        manufacturing costs to the Company while maintaining the Company's
        quality standards. See "Restrictions on Imports." The Company continues
        to seek to develop relationships with other buying agents with access to
        numerous manufacturing facilities in order to maximize the Company's
        sourcing flexibility.

     .  Emphasis on High Volume Segments of the Footwear Market. The Company
        believes that its emphasis on the high volume segments of the women's
        and children's footwear markets and its

                                       4
<PAGE>
 
        offerings of value-priced products in contemporary styles appealing to a
        broad audience, rather than "fashion forward" styles, reduce the risks
        associated with changing fashion trends. The Company also attempts to
        reduce the risks of changing fashion trends and product acceptance
        through market research and development and testing of a broad range of
        styles prior to placing orders with its manufacturers. The Company
        believes that its emphasis on appealing to a broad audience and its
        extensive market research and product testing minimize the risks of
        carrying excessive obsolete inventory and poor retail sell-through.

      . 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
        because of the Company's reputation among its customers for consistently
        providing quality products, the Company enjoys a strong relationship
        with its customers. 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 offering an increased assortment of products marketed under
        such brandnames, through further penetration of the Company's existing
        retail channels and through the development of new retail relationships.
        With respect to Mootsies Tootsies, the Company seeks to expand the
        appeal of such brand to a broader group of retail customers interested
        in quality footwear at affordable prices primarily through a broader
        range of styles and using innovative packaging and advertising.
        Management believes that the value priced segment of the footwear
        industry served by the Mootsies Tootsies brand presents continued growth
        opportunities for the Company in the future. The Company also seeks to
        increase sales of its Jones New York and Jones New York Sport footwear
        by continuing to capitalize on the strong brand recognition and
        reputation for quality and style enjoyed by Jones New York women's
        apparel. The Company entered the upper moderately priced women's and
        children's footwear markets through its introduction of the Sam & Libby
        footwear lines in 1997. The Company is in the process of re-positioning
        the Sam & Libby brand from its recent focus on the junior women's market
        segment to the late 20's, career-oriented women market segment.
        Management believes that sales under the Sam & Libby lines should
        increase significantly in the future upon completion of this brand re-
        positioning and the introduction of additional products under such brand
        name. The Company also seeks to increase its sales in the children's
        footwear market by leveraging its brand recognition developed in the
        women's footwear market, as well as by developing more styles catering
        to such market segment and expanding the customer base.

     .  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 strengthening 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 on a first cost
        basis with brand names. The Company has licensed the J.G. Hook name to
        sell as a first cost product for retailers who require brand
        identification.

     .  Capitalizing on Consolidating Footwear Industry. 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

                                       5
<PAGE>
 
        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 new brands or the
        acquisition of 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 and licensing of the Sam & Libby and Jones New York
        brands, respectively, 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. However, the Jones License Agreement prohibits the
        Company from manufacturing, selling, distributing or promoting
        merchandise that would compete both as to style and price with the Jones
        New York and Jones New York Sport footwear lines. Hence, the Company is
        restricted from expanding its brand portfolio and acquiring new product
        lines in the Jones New York and Jones New York Sport women's footwear
        market segments while this license is in effect. The Company believes
        that it is well positioned to continue pursuing this strategy due to its
        relatively strong and unencumbered balance sheet.

     .  Benefiting from Retail Joint Venture. The Company will manage SLJ Retail
        LLC ("SLJ Retail"), a joint venture between the Company and the Butler
        Group, Inc. ("Butler"), a wholly owned subsidiary of General Electric
        Capital Corporation, and plans to operate 130 stores in fiscal 1998.
        Management believes that the presence of SLJ Retail's stores with the
        Sam & Libby or Jones New York branded concepts will broaden acceptance
        of, and increase the awareness of, these Company brands among retail
        consumers, and also has the potential to increase the Company's sales to
        its wholesale customers. The Company will also continue to pursue other
        available retail opportunities, including establishing outlets, if such
        retail ventures are not pursued within SLJ Retail, subject to SLJ
        Retail's right of first refusal to add on any such retail opportunity.


Product Lines

     The Company's products consist of six 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........................   Contemporary       Moderate      $25-$40  $35-$55
Mootsies Kids............................   Contemporary       Moderate      $20-$25  $30-$40
Sam & Libby and Just Libby...............     Updated       Upper Moderate   $35-$50  $45-$70
Sam & Libby Kids.........................     Updated       Upper Moderate   $25-$45  $35-$55
Jones New York...........................   Contemporary        Better       $65-$90
Jones New York Sport.....................  Classic Casual       Better       $40-$75  $60-$85
J.G. Hook Private Label..................       All        Budget-Moderate   $12-$20  $25-$30
</TABLE>


  Mootsies Tootsies

     The Mootsies Tootsies 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
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 Tootsies
footwear accounted for a majority of the Company's total sales during fiscal
1997.

                                       6
<PAGE>
 
  Mootsies Kids

     The Mootsies Kids 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 line. The children's line is
focused on casual shoes, party shoes, boots and sandals.


  Sam & Libby and Just Libby

     The Sam & Libby 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 brand with its trademarks registered in over 20
countries will allow the Company 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 a license to sell Sam
& Libby and Just Libby women's footwear products. See "--License Agreements--
SLJ Retail."


  Sam & Libby Kids

     The Sam & Libby 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 women's
styles. The children's line is focused on dress shoes, casual shoes, casual
athletic shoes, boots and sandals.


  Jones New York

     The Jones New York footwear line focuses on contemporary, quality footwear
targeted at career oriented women 30 years and older. The line capitalizes on
the name recognition and reputation enjoyed by the Jones New York apparel line
produced by the Company's licensor and is designed to complement Jones New York
apparel. The Company's Jones New York footwear line consists of approximately 25
styles per season with all leather uppers and soles. The Company has granted a
sub-license to SLJ Retail to use the Jones New York trademark in connection with
certain activities, including retail sale of women's footwear merchandise
bearing such trademark. See "--License Agreements--SLJ Retail."


  Jones New York Sport

     The Jones New York Sport line appeals to the Jones New York casual
sportswear customer by providing leisure footwear to career oriented women. The
line contains approximately 20 styles per season. The Company has granted a sub-
license to SLJ Retail to use the Jones New York Sport trademark in connection
with certain activities, including retail sale of women's footwear merchandise
bearing such trademark. See "--License Agreements--SLJ Retail."


  J. G. Hook 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 name to sell as a first cost product for retailers who require brand
identification.

                                       7
<PAGE>
 
     The following table sets forth the percentage of the Company's sales
generated by each of its major product categories for the periods indicated:


<TABLE>
<CAPTION>
                                                  Year Ended October 31
                                                 -----------------------
       Category                                   1995     1996    1997
       --------                                  ------   ------  ------
       <S>                                       <C>      <C>     <C>      
       Women's............................        83.0%    85.4%   84.9%
       Children's.........................        16.3     14.2    14.8
       Other..............................         0.7      0.4     0.3
                                                 -----    -----   -----
       Total..............................       100.0%   100.0%  100.0%
                                                 =====    =====   =====
</TABLE>

Closeout Business

     The Company sells certain product styles that it purchases at volume
discounts from other footwear manufacturers. These products, which are typically
either slow-moving or factory seconds, are sold to discount retailers. At times
the Company holds closeout products in inventory until the next fashion season.


Retail Joint Venture

     In April 1997, the Company completed a transaction to operate approximately
130 retail Sam & Libby and Jones New York women's footwear stores through SLJ
Retail. The Company and the Butler Group Inc., a wholly owned subsidiary of
General Electric Capital Corporation, own 49% and 51% of SLJ Retail,
respectively. A subsidiary of the Company has been designated as the manager of
SLJ Retail. The Company accounts for its ownership under the equity method of
accounting as long as it continues to own less than 50% of the equity of SLJ
Retail. The Company holds an option through February 1, 2000 to purchase
additional equity in SLJ Retail to increase its equity ownership to 55%, subject
to achieving certain operating income levels. In the event the Company exercises
such option it could be required to consolidate SLJ Retail's operating results
with its financial statements. However, the Company does not intend to exercise
such option until SLJ Retail achieves certain profitability.

     Under the Services Agreement with SLJ Retail, Messrs. Mark Cocozza and
James Tinagero, the President and Executive Vice President of the Company,
respectively, are required to devote 25% of their time to SLJ Retail's business.
There is no assurance that such devotion of Messrs. Cocozza's and Tinagero's
time to SLJ Retail will not adversely affect the Company's financial condition
and results of operations.  Under the Option Agreement among the Company, SLJ
Retail and Butler, Butler has certain rights to require the Company to purchase
all or a portion of its interest in SLJ Retail for cash or Common Stock of the
Company.  There is no assurance that any exercise by Butler of its rights under
such Option Agreement would not have a material adverse effect on the Company's
financial condition and results of operations.

     The Company's contribution to SLJ Retail was the provision of exclusive
retail license agreements with respect to the Sam & Libby and Jones New York
brand names, management services for the business of SLJ Retail and access to
the Company's manufacturing resources worldwide. SLJ Retail will purchase
footwear directly on a first cost basis from the same factories as the Company,
as well as factories which the Company does not use. The Butler Group
contributed certain assets consisting of store leases and headquarters assets,
the purchase of a $12.5 million subordinated note and the provision of a
guaranty for a $16.0 million term loan which is secured by the assets of SLJ
Retail.

     The first retail stores operated by SLJ Retail opened in July 1997. As of
January 15, 1998, 120 stores had been converted from their prior retail concepts
to either Sam & Libby or Jones New York branded concepts. As of January 15,
1998, there were 93 Sam & Libby and 27 Jones New York footwear retail stores
opened.

                                       8
<PAGE>
 
     The Company believes that there are significant financial advantages to the
Company of its participation in SLJ Retail, including modest risk of loss to the
Company, an attractive transaction cost and financing structure and a $500,000
annual management fee payable to the Company. In addition to such financial
advantages, SLJ Retail provides a showcase for the Jones New York and Sam &
Libby products. The Company believes that the SLJ Retail store presence will
increase consumer awareness of the Company's branded footwear products and act
as a showcase for the Company's full lines of products. Furthermore, because SLJ
Retail sources its products through the Company's buying agents, the additional
footwear sourced by SLJ Retail has had the impact of increasing the Company's
purchasing leverage with its manufacturers.


Design and Product Development

     The Company seeks to identify fashion trends and to translate such trends
into contemporary footwear which appeal to 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 of the Company's product lines is developed separately using a team
concept that includes design staff, sales staff and management 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 Jones New York and Jones New York Sport
lines also meet regularly with the Jones New York apparel group to exchange
product and fashion concepts. 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 1997, the Company sold products to approximately 1,500 accounts
with over 5,000 retail locations. The Mootsies Tootsies retailers, which market
moderately priced apparel merchandise, include the Federated Department Stores,
the Mercantile Stores and Belks. The Jones New York and Jones New York Sport
footwear lines are distributed to those retailers who typically market
merchandise at higher retail price points, including Macy's, May Co., Dayton
Hudson and Bloomingdale's. The Sam & Libby footwear lines are distributed to
retailers such as Federated, May Co., Bon Ton and Nordstrom. 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 and HSN.

     The Company's largest customer, The TJX Companies, Inc. "TJX", the
successor entity from the combination of Marshall's and T. J. Maxx, accounted
for 22% and 19% of the Company's net sales in fiscal 1996

                                       9
<PAGE>
 
and fiscal 1997, respectively, including revenues from closeouts. The Company's
top three customers accounted for 35% and 32% of net sales for fiscal 1996 and
fiscal 1997, respectively. 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 decision 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 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. The Company anticipates
increasing its advertising and promotional expenditures during fiscal 1998 in
order to maximize the growth potential of its Sam & Libby lines.

     Print advertisements for Mootsies Tootsies 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 like Glamour and Cosmopolitan as well as in general interest
publications like People. 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. The Company's print advertising campaign for
its Jones New York and Jones New York Sport footwear is intended to build rapid
consumer awareness and acceptance of the footwear by taking advantage of the
recognition of the Jones New York apparel name. In addition, the Company has
gained additional media attention through fashion editorial publications.

     Print advertisements for Sam & Libby are designed to build brand awareness
by creating a lifestyle viewpoint that appeals to a modern consumer. The
advertisements will appear in fashion publications such as Vogue, Glamour and
Cosmopolitan. In addition, SLJ Retail will provide additional media focus
through a direct marketing catalog and collaborative in-store promotions.

     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.

                                      10
<PAGE>
 
     The Company uses point-of-sale advertising to further promote its products
in the store. Point-of-sale techniques used by the Company includes packaging,
point-of-sale displays, counter cards, banners and other visual 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, Mootsies Kids, Sam & Libby and Jones New York footwear
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 Jones New York footwear brand is also manufactured in Spain and
Italy because Spanish and Italian suppliers can meet the Company's quality
requirements, and the Spanish and Italian reputation for quality footwear is
consistent with the Jones New York image.

     The Company does not have 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 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, 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 seeks to assess 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 assure the price of
products from Spain, the Company buys forward exchange contracts for Spanish
pesetas in connection with the placement of orders for products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."

                                      11
<PAGE>
 
Distribution

     Following manufacture, the Company's products are packaged in retail boxes
bearing bar codes and shipped to the Company's warehouse facilities in Boston,
Westwood and 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 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 10% 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 1997, approximately 83% 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 quotes, 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.

     Imports from China continue to enter the United States on a conditional
most-favored nation ("MFN") basis. Pursuant to MFN status, products imported
by the Company from China currently receive the lower tariff rates made
available to most of the United States' major trading partners. In the case of
China, however, this MFN treatment is made possible under the Trade Act of 1974
by virtue of certain Presidential findings that waive restrictions that would
otherwise render China ineligible for MFN treatment. The President has waived
these

                                      12
<PAGE>
 
restrictions each year since 1979. There can be no assurance that China will
continue to enjoy MFN status in the future. If goods manufactured in China enter
the United States without the benefit of MFN treatment, such goods will be
subject to significantly higher duty rates, ranging between 20% and 66% of
customs value. Any such increased duties or tariffs could significantly increase
the cost or reduce the supply of goods from China.


Backlog

     At October 31, 1995, 1996, and 1997, the Company had unfilled customer
orders of $38.1 million, $50.0 million and $61.6 million respectively. This is
an increase of 23.2% for fiscal year end 1997 over fiscal year end 1996. 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. To date, the
Company has not experienced material returns of its products or material
cancellations of orders. The Company expects that substantially all of its
backlog as of October 31, 1997 will be filled during the first six months of
fiscal 1998.


License Agreements

  Jones New York

     In July 1993, the Company entered into a license agreement (the "Jones
License Agreement") with Jones Investment Co., Inc. ("Jones") under which the
Company has 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 covers the United States (including its territories)
and Canada and expires in December 2002.  In April 1997 the Company and Jones
amended the Jones License Agreement to, among other things, (i) grant the
Company three, five-year options to extend the Jones License Agreement through
December 2017, subject to the Company meeting certain minimum net sales amounts,
(ii) extend the Jones License Agreement to cover the retail sale of Jones New
York women's footwear by SLJ Retail, (iii) require the Company and SLJ Retail to
pay certain royalties to Jones and (iv) permit Jones to terminate the Jones
License Agreement with respect to the retail sale of Jones New York women's
footwear by SLJ Retail if the Company is no longer the managing member of SLJ
Retail or if SLJ Retail defaults on any of its royalty payments. The Jones
License Agreement also requires the Company to spend a specified minimum amount
each year on advertising the Jones New York and Jones New York Sport footwear
lines, which obligation may be satisfied through cooperative advertising. The
Jones License Agreement prohibits the Company from manufacturing, selling,
distributing or promoting any merchandise which would compete both as to style
and price with the Jones New York and Jones New York Sport footwear lines.
Hence, the Company is restricted from expanding its brand portfolio and
acquiring new product lines which would compete both as to style and price with
the Jones New York and Jones New York Sport women's footwear while this license
is in effect.  A breach by the Company of its obligations under the Jones
License Agreement would permit Jones to terminate such license agreement. The
Jones License Agreement could also be terminated by the licensor for certain
other reasons, including any occurrence of an event where the beneficial
ownership of the Company changes in a manner so as to change the actual control
of the Company.


  J.G. Hook

     In April 1997, the Company entered into a license agreement (the "J.G.
Hook License Agreement") with J.G. Hook, 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 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 License Agreement expires in September 1998, subject to the Company's
exercise of two one-year extension options. The J.G. Hook License Agreement is
subject to early termination for various specified reasons, including any
failure by the Company to meet its royalty obligations thereunder. The Company
plans to use the J.G. Hook label to sell footwear on a first cost basis.

                                      13
<PAGE>
 
  SLJ Retail

     In April 1997, the Company entered into a sub-license agreement (the "SLJ
Retail Sub-License Agreement") with SLJ Retail pursuant to which the Company
granted to SLJ Retail a sub-license throughout the United States to use the
Jones New York and Jones New York Sport trademarks in connection with the
manufacturing, promotion and retail sale of women's footwear merchandise bearing
such trademarks. The initial term of the SLJ Retail Sub-License Agreement
expires in December 2002 but is extended automatically for the same period of
time as any extension by the Company of the Jones License Agreement.  The SLJ
Retail Sub-License Agreement is subject to early termination for various
reasons, including any termination of the Jones New York License Agreement or if
the Company or its subsidiaries is not a managing member of SLJ Retail.

     In April 1997, the Company entered into a retail license agreement (the
"SLJ Retail Sam & Libby 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 and Just Libby women's
footwear products, to use the Sam & Libby and Just Libby trademarks in
connection with the manufacturing, advertising, merchandising, promotion and
retail sale of women's footwear merchandise bearing such trademarks; 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 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 initial term of the SLJ Retail Sam &
Libby License Agreement expires on January 31, 2047, subject to earlier
termination upon the occurrence of certain specified events.


  Inter-Pacific Corporation

     In January 1997, the Company entered into a license agreement with IPC.
IPC is 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 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 trademark. For the use of
the Sam & Libby tradename, IPC will pay the Company royalties at a rate based on
sales volume, subject to payment of minimum royalties of $495,000 over the
initial term of the agreement. Upon satisfaction of certain conditions, IPC may
exercise its option to extend the license agreement until May 2003.


Trademarks

     Mootsies Tootsies and Mootsies Kids are registered trademarks of the
Company in the United States. 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 expires in 2000 and the registration for Mootsies Kids
expires in 2003, although both are renewable.

     Jones New York and Jones New York Sport are registered trademarks of Jones
in the United States. Under the Jones License Agreement, Jones has the sole
right to defend against any infringement of these trademarks.

     Sam & Libby, Just Libby, New Nineties and Jeff & Kristi are registered
trademarks of Sprague Company, a 100% owned subsidiary of the Company.  These
trademarks were acquired by the Company in August 1996 from Sam & Libby, Inc.
and are registered trademarks in the United States (see Note 1 of "Notes to
Consolidated Financial Statements"). In addition, the Sam & Libby and Just
Libby trademarks are registered in over 20 countries worldwide. Sprague's United
States trademark registration of Sam & Libby expires in 2001 and the
registration of Just Libby expires in 2005, although both are renewable. 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

                                      14
<PAGE>
 
footwear to license the Sam & Libby trademarks for slippers and E.V.A. sandals,
pursuant to which the Company will receive certain royalties and other revenues.


Competition

     The women's and kids' fashion footwear markets are highly competitive. The
Company's products compete against other branded footwear and, in the case of
Mootsies Tootsies, 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, 1997, the Company employed 103 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 10,000 square feet
of office space and 130,000 square feet of warehouse space, is located in
Boston, Massachusetts, approximately 49,000 square feet of which is leased to an
unaffiliated third party. This facility is leased by the Company under a lease
that expires in 2001. The Company also leases a 64,000 square foot warehouse
located near its headquarters in Westwood, Massachusetts. This lease expires in
1998, subject to a three-year renewal option. The Company also leases a 215,000
square feet warehouse in Brockton, Massachusetts. This lease expires in 2007,
subject to two five-year options. The Company also holds an option exercisable
in the year 2001 to lease for six years, with two additional five-year options,
an additional 240,000 square feet of space in the same warehouse facility. The
Company also leases a 4,000 square feet showroom in New York City under a lease
that expires in 2001. 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.

                                      15
<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 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>
        1996         January 31,  April 30,  July 31,  October 31,
        ----         -----------  ---------  --------  -----------
<S>                  <C>          <C>        <C>       <C>
  Low.............      4 3/4      4 1/2        5         6 1/8
  High............      7          6            7 3/8     6 3/4

<CAPTION> 
            
        1997         January 31,  April 30,  July 31,  October 31,
        ----         -----------  ---------  --------  -----------
<S>                  <C>          <C>        <C>       <C> 
  Low.............      6 1/2      7 1/8        7 1/2    10 3/4
  High............      8 3/8      8 3/4       13        15
</TABLE>


  The Class A Common Stock is listed on the automatic quotation system of the
National Association of Securities Dealers under the symbol MAXS.

  The number of stockholders of record of the Class A Common Stock on October
31, 1997 was 23.  However, based on available information, the Company believes
that the total number of Class A Common stockholders, including beneficial
stockholders, is approximately 1400.

  There is currently no established public trading market for the Company's
Class B Common Stock.  The number of stockholders of record of the Class B
Common Stock on October 31, 1997 was 4.


Dividend Policy

  The Company has not paid cash dividends on the Common Stock to date since the
payment of certain distributions in connection with the termination of the S
corporation status of the Company prior to the consummation of the Company's
initial public offering. In addition, because the Company currently intends to
retain any earnings for development of its business, 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.

                                       16
<PAGE>
 
Item 6.  Selected Financial Data

  The following selected financial data are derived from financial statements of
the Company.  The financial statements for the five years ended October 31,
1993, 1994, 1995, 1996 and 1997 have been audited by  Ernst & Young LLP,
independent auditors.  The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Report.


<TABLE>
<CAPTION>
                                                                    Year Ended October 31,
                                                       -------------------------------------------------
                                                        1993      1994       1995      1996       1997
                                                       -------  ---------  --------  ---------  --------
                                                             (In thousands, except per share data)
<S>                                                    <C>      <C>        <C>       <C>        <C> 
Statement of Income Data:
Net sales............................................  $79,049  $100,931   $101,870  $104,337   $134,211
Cost of sales........................................   56,297    72,117     77,912    79,915     98,230
                                                       -------  --------   --------  --------   --------
Gross profit.........................................   22,752    28,814     23,958    24,422     35,981
Selling, general and administrative
 expenses(1)(2)......................................   17,690    23,695     13,581    15,413     20,982
                                                       -------  --------   --------  --------   --------
Operating income.....................................    5,062     5,119     10,377     9,009     14,999
Interest expense.....................................      609       662        255        38        110
Other expense (income), net..........................       62      (101)       399      (579)       325
                                                       -------  --------   --------  --------   --------
Income before income taxes...........................    4,391     4,558      9,723     9,550     14,564
Income taxes.........................................      400     1,709      3,889     3,629      5,534
                                                       -------  --------   --------  --------   --------
Net income...........................................  $ 3,991  $  2,849   $  5,834  $  5,921   $  9,030
                                                       =======  ========   ========  ========   ========
Earnings per share(3)
 Primary.............................................                      $   0.70  $   0.72   $   1.06
                                                                           ========  ========   ========
 Fully diluted.......................................                      $   0.70  $   0.71   $   1.04
                                                                           ========  ========   ========
 
Shares used to compute earnings per share(3)
 Primary.............................................                         8,311     8,261      8,537
                                                                           ========  ========   ========

 Fully diluted.......................................                         8,311     8,314      8,710
                                                                           ========  ========   ========
</TABLE>
                                                                                
<TABLE>
<CAPTION>
                                                                          October 31,
                                                       -------------------------------------------------
                                                        1993      1994       1995      1996       1997
                                                       -------   -------    -------   -------    -------
<S>                                                    <C>       <C>        <C>       <C>        <C>
Balance Sheet Data:                                                                           
Working capital......................................  $15,967   $28,770    $35,097   $35,523    $44,441
Total assets.........................................   27,926    36,621     39,979    46,920     60,179
Total debt (including current maturities)............    8,279       123        787       611        469
Total stockholders' equity...........................  $14,623   $29,850    $35,684   $41,605    $50,635
</TABLE>

(1)  Operating results for fiscal 1993 and 1994 were significantly affected by
     officers' compensation expense, which totaled $8,370 and $12,381,
     respectively. Operating income before officers' compensation for fiscal
     1993 and 1994 was $13,432 and $17,500, respectively.

(2)  Includes a $7,000 one-time compensation expense incurred in the first
     quarter of fiscal 1994 in connection with the grant of an option to the
     Company's President to purchase 888,412 shares of Class A Common Stock,
     which option was granted in exchange for the termination of a pre-existing
     deferred compensation arrangement.

(3)  Earnings per share have not been presented for fiscal years 1993 and 1994
     since such amounts are not deemed meaningful due to the significant changes
     in the Company's income tax status and compensation 

                                       17
<PAGE>
 
     arrangements subsequent to the initial public offering in fiscal 1995.
     Prior to the initial public offering, as a Subchapter S corporation the
     Company was not required to provide for federal income taxes and incurred
     significantly greater officers' compensation expense.


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

     Certain statements contained in this Form 10-K regard matters that are not
historical facts and are forward looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")).  Because such forward looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward looking statements.  Factors that could cause actual
results to differ materially include, but are not limited to:  changing consumer
preferences, competition from other footwear manufacturers, loss of key
employees, general economic conditions and adverse factors impacting the retail
footwear industry, and the inability by the Company to source its products due
to political or economic factors or the imposition of trade or duty
restrictions.  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:

<TABLE>
<CAPTION>
                                                         Year Ended October 31,
                                             ----------------------------------------------
                                                  1995            1996            1997
                                             --------------  --------------  --------------
<S>                                          <C>     <C>     <C>     <C>     <C>     <C>
                                                    (In millions--except percentages)
Mootsies Tootsies..........................  $ 65.6   64.4%  $ 60.8   58.3%  $ 71.0   52.9%
Jones New York Footwear....................    17.2   16.9     24.0   23.0     32.2   24.0
Sam & Libby................................    --     --       --     --       14.6   10.9
Private Label Footwear.....................    12.9   12.7     14.5   13.9     13.6   10.1
Closeout...................................     6.2    6.0      5.0    4.8      2.8    2.1
                                             ------  -----   ------  -----   ------  -----
                                             $101.9  100.0%  $104.3  100.0%  $134.2  100.0%
                                             ======  =====   ======  =====   ======  =====
</TABLE>


  Fiscal 1997 Compared to Fiscal 1996

     Net sales were $134.2 million in fiscal 1997 compared to $104.3 million in
fiscal 1996, an increase of 28.7%. This increase was due to a 34.2% and 16.8%
rise in net sales of Jones New York and Mootsies Tootsies footwear,
respectively, over the prior year, and the additional $14.6 million in net sales
generated by the Sam & Libby division, offset by a decrease of 6.2% in net sales
generated by private label footwear.

     Gross profit was $36.0 million in fiscal 1997 compared to $24.4 million in
fiscal 1996, an increase of 47.5%. Gross margins also increased in fiscal 1997
from fiscal 1996 due to improved gross margins in the branded lines of footwear
and a decrease in the proportion of net sales derived from lower margin private
label sales. Selling, general and administrative expenses increased $5.6 million
during fiscal 1997 from fiscal 1996 due to an increase in aggregate compensation
and corresponding fringe benefits expenses resulting from the addition of new
personnel required for the launching of the Company's Sam & Libby division and
administrative charges relating to increased net sales and improved
profitability.

     Other expenses were $325,000 for fiscal 1997 compared to other income of
$579,000 for fiscal 1996. During fiscal 1997, amortization expense relating to
the acquisition of the Sam & Libby trademark was $367,000 and losses of $76,000
were realized from foreign exchange contracts, offset by $132,000 in interest
income from cash equivalents. During fiscal 1996, the account was comprised
principally of net gains from forward exchange contracts entered into in
anticipation of future purchase of inventory denominated in foreign currencies
and interest income from the investment of cash equivalents. In fiscal 1997,
other expenses included interest expense of 

                                       18
<PAGE>
 
$110,000 compared to $38,000 for fiscal 1996. Interest expense in fiscal 1997
was incurred for capital leases and short term borrowings. The Company had no
short term borrowings in fiscal 1996.

  Fiscal 1996 Compared to Fiscal 1995

     Net sales were $104.3 million in fiscal 1996 compared to $101.9 million in
fiscal 1995, an increase of 2.4%. Net sales for the Jones New York footwear
lines of business in fiscal 1996 increased 39.5% over fiscal 1995 net sales.
Private label net sales in fiscal 1996 increased 12.4% over fiscal 1995 net
sales. These net sales increases were offset by a 7.3% decrease in Mootsies
Tootsies net sales for fiscal 1996 from fiscal 1995. The average selling price
per pair of shoes sold increased 2.3% in fiscal 1996 over the fiscal 1995
average selling price per pair.

     Gross profit was $24.4 million in fiscal 1996 compared to $24.0 million in
fiscal 1995, an increase of 1.7%. Gross margin was substantially unchanged from
fiscal 1996 to fiscal 1995.  Selling, general and administrative expenses
increased $1.8 million during fiscal 1996 from fiscal 1995 due to the expenses
associated with launching the Company's Sam & Libby brand and increased
advertising expense.

     Interest expense was $38,000 in fiscal 1996 compared to $300,000 in fiscal
1995. This decrease was due to the Company being able to rely on cash provided
by operating activities to fund its working capital requirements throughout the
year.

     Other income was $579,000 for fiscal 1996 compared to other expense of
$400,000 for fiscal 1995. In fiscal 1996, this income was comprised principally
of gains and losses from forward exchange contracts entered into in anticipation
of future purchases of inventory denominated in foreign currencies and interest
income. During fiscal 1995, expenses of approximately $300,000 were recognized
as non-recurring costs arising from terminated discussions relating to the
possible sale of the Company.


Liquidity and Capital Resources

  The Company has relied primarily upon internally generated cash flows from
operations, borrowings under its revolving credit facility, and borrowings from
stockholders (when the Company was privately held) to finance its operations and
expansion. Cash provided (used) by operating activities totaled approximately
$5.7 million in fiscal 1995, $9.5 million in fiscal 1996, and ($6.5) million in
fiscal 1997. At October 31, 1997, working capital was $44.4 million as compared
to $35.5 million at October 31, 1996. 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.

  In fiscal 1997, cash used by operations was $6.5 million as compared to cash
provided by operations in fiscal 1996 of $9.5 million. The decrease of cash
provided was due to increases in accounts receivable and inventory balances.
This was a result of increased revenues, as well as the establishment of
inventory for the Sam & Libby division.

  The Company currently has a $25.0 million revolving credit facility bearing
interest at the Bank of Boston's base rate, renewable annually under certain
conditions, which is secured by substantially all of the assets of the Company.
A portion of the revolving credit facility can be utilized to issue letters of
credit to guarantee payment of the Company's purchases of footwear manufactured
overseas. Amounts available under the revolving credit facility are based on
eligible accounts receivable, inventory and a portion of the open letters of
credit. As of October 31, 1997, there were no outstanding borrowings, $10.9
million was outstanding under letters of credit and $14.1 million was available
for future borrowings.

  Capital expenditures, which have been for equipment and leasehold
improvements, were minimal in fiscal 1997. The Company utilizes operating leases
for substantially all of its management information systems and related
equipment. The Company is dependent upon complex computer systems for certain
phases of its operations, including sales, distribution and delivery. Since many
of the Company's older computer software programs

                                       19
<PAGE>
 
recognize only the last two digits of the year in any date (e.g. "97" for
"1997"), some software may fail to operate properly in 1999 or 2000 if the
software is not reprogrammed or replaced (the "Year 2000 Problem"). The
Company believes that many of its customers also have Year 2000 Problems which
could adversely affect the Company. The Company intends to spend up to $3.0
million in fiscal 1998 to upgrade its computer systems which is intended to
among other things, address the Year 2000 Problem. The Company plans to fund
this expenditure through borrowings under its revolving credit facility or
equipment financing arrangements. It is not possible at present to quantify the
financial effect of the Year 2000 Problem if it is not timely resolved. However,
the Company presently believes that the cost of fixing the Year 2000 Problem
will not have a material effect on the Company's current financial condition or
results of operations.

  During the first six months of 1998, the Company intends to acquire a conveyor
and warehouse management system for its Brockton, Massachusetts warehouse. This
equipment will cost approximately $3.0 million and will allow the distribution
facility to run more efficiently on a cost and service basis. The Company plans
to fund this acquisition through borrowings under its revolving credit facility
or equipment financing arrangements.

  The Company regularly enters into forward exchange contracts in anticipation
of future purchases of inventory denominated in foreign currency, principally
the Spanish peseta. At October 31, 1997, forward exchange contracts totaling
$700,000 were outstanding with settlement dates ranging from November 3, 1997
through January 30, 1998. As of the date of this report, future inventory
purchases required sufficient foreign currency to meet these commitments.

  The Company anticipates that it will be able to satisfy its cash requirements
for fiscal 1998 including its expected growth, primarily with cash flow from
operations, supplemented by borrowings under its revolving 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 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 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, 1996 and 1997, 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, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Maxwell
Shoe Company Inc. at October 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended October 31, 1997 in conformity with generally accepted accounting
principles.


                                  ERNST & YOUNG LLP


Boston, Massachusetts
December 15, 1997

                                       21
<PAGE>
 


                            MAXWELL SHOE COMPANY INC.

                           CONSOLIDATED BALANCE SHEETS
                   (In Thousands -- except per share amounts)


<TABLE>
<CAPTION>

                                                                                             October 31,
                                                                                         -------------------
                                                                                          1996         1997
                                                                                         ------       ------

                                     ASSETS
<S>                                                                                      <C>          <C>     
Current assets:
     Cash and cash equivalents.......................................................     $10,393      $ 3,129
     Accounts receivable, trade (net of allowance for doubtful accounts and discounts      
       of $730 in 1996, $739 in 1997)................................................      16,853       28,594 
     Inventory, net..................................................................      12,175       20,141
     Prepaid expenses................................................................         127          251
     Deferred income taxes...........................................................         821        1,526
                                                                                          -------      -------
Total current assets.................................................................      40,369       53,641
Property and equipment, net..........................................................       1,039        1,393
Trademarks...........................................................................       5,500        5,133
Other assets.........................................................................          12           12
                                                                                          -------      -------
                                                                                          $46,920      $60,179
                                                                                          =======      =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable................................................................     $   880      $ 2,197
     Accrued expenses................................................................       3,300        6,767
     Income taxes payable............................................................         433           --
     Deferred income taxes...........................................................          91          111
     Current portion of capital lease obligation.....................................         142          125
                                                                                          -------      -------
Total current liabilities............................................................       4,846        9,200
Capital lease obligation.............................................................         469          344
Stockholders' equity:
     Preferred stock, par value $.01, 1,000 shares authorized, none outstanding......          --           --
     Class A common stock, par value $.01, 20,000 shares authorized, 2,525
        outstanding..................................................................          25           25
     Class B common stock, par value $.01, 10,000 shares authorized, 5,063 shares
        outstanding..................................................................          51           51
     Additional paid-in capital......................................................      27,312       27,312
     Retained earnings...............................................................      14,217       23,247
                                                                                          -------      -------
Total stockholders' equity...........................................................      41,605       50,635
                                                                                          -------      -------
                                                                                          $46,920      $60,179
                                                                                          =======      =======
</TABLE>

                            See accompanying notes.

                                      22
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
                       CONSOLIDATED STATEMENTS OF INCOME
                   (In Thousands -- except per share amounts)
                                        


<TABLE>
<CAPTION>
                                                                                 October 31,
                                                                        -----------------------------
                                                                          1995      1996       1997
                                                                        --------  --------   --------
<S>                                                                     <C>       <C>        <C>
Net sales.............................................................  $101,870  $104,337   $134,211
Cost of sales.........................................................    77,912    79,915     98,230
                                                                        --------  --------   --------
Gross profit..........................................................    23,958    24,422     35,981
Operating expenses:
  Selling.............................................................     5,042     5,589      7,903
  General and administrative..........................................     8,539     9,824     13,079
                                                                        --------  --------   --------
                                                                          13,581    15,413     20,982
                                                                        --------  --------   --------
Operating income......................................................    10,377     9,009     14,999
Other expenses (income):
  Interest............................................................       255        38        110
  Other, net..........................................................       399      (579)       325
                                                                        --------  --------   --------
                                                                             654      (541)       435
                                                                        --------  --------   --------
Income before income taxes............................................     9,723     9,550     14,564
Income taxes..........................................................     3,889     3,629      5,534
                                                                        --------  --------   --------
Net income............................................................  $  5,834  $  5,921   $  9,030
                                                                        ========  ========   ========
Earnings per share
  Primary.............................................................  $    .70  $    .72   $   1.06
                                                                        ========  ========   ========
  Fully diluted.......................................................  $    .70  $    .71   $   1.04
                                                                        ========  ========   ========
Shares used to compute earnings per share
  Primary.............................................................     8,311     8,261      8,537
                                                                        ========  ========   ========
  Fully diluted.......................................................     8,311     8,314      8,710
                                                                        ========  ========   ========
</TABLE>
                                                                                
                            See accompanying notes.

                                       23
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                        


<TABLE>
<CAPTION>
                                                                                   October 31,
                                                                          ------------------------------
                                                                            1995      1996       1997
                                                                          -------   --------   ---------
<S>                                                                       <C>       <C>        <C>
Operating activities:
Net income..............................................................  $ 5,834    $ 5,921   $  9,030
Adjustments to reconcile net income to net cash provided (used) by
 operating activities:
  Depreciation and amortization.........................................      213        242        672
  Deferred income taxes.................................................     (153)       240       (685)
  Doubtful accounts provision...........................................      150         50        125
  Changes in operating assets and liabilities:
     Accounts receivable................................................   (1,571)       931    (11,866)
     Inventory..........................................................    4,157        219     (7,966)
     Prepaid expenses...................................................       (2)       706       (124)
     Accounts payable...................................................   (1,768)       (48)     1,317
     Income taxes payable...............................................     (306)       433       (433)
     Accrued expenses...................................................     (897)       791      3,467
                                                                          -------    -------   --------
Net cash provided (used) by operating activities........................    5,657      9,485     (6,463)
 
Investing activities:
Purchase of trademark...................................................       --     (5,500)        --
Purchases of property and equipment.....................................     (144)      (101)      (659)
                                                                          -------    -------   --------
Net cash used by investing activities...................................     (144)    (5,601)      (659)
 
Financing activities:
Payments on capital lease obligation....................................     (163)      (176)      (142)
Proceeds from lease financing...........................................      717         --         --
                                                                          -------    -------   --------
Net cash provided (used) by financing activities........................      554       (176)      (142)
                                                                          -------    -------   --------
Net increase (decrease) in cash and cash equivalents....................    6,067      3,708     (7,264)
Cash and cash equivalents at beginning of year..........................      618      6,685     10,393
                                                                          -------    -------   --------
Cash and cash equivalents at end of year................................  $ 6,685    $10,393   $  3,129
                                                                          =======    =======   ========
Interest paid...........................................................  $   255    $    38   $    110
                                                                          =======    =======   ========
Income taxes paid.......................................................  $ 4,975    $ 2,380   $  6,807
                                                                          =======    =======   ========
</TABLE>

                                                                                
                            See accompanying notes.
                                                                                

                                       24
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In Thousands)
                                        


<TABLE>
<CAPTION>
                                         Class A               Class B
                                       Common Stock          Common Stock
                                      --------------       ---------------
                                      Number               Number               Additional
                                        of                   of                  Paid-In       Retained
                                      Shares  Amount       Shares   Amount       Capital       Earnings      Total
                                      ------  ------       ------   ------      ----------     --------     -------- 
<S>                                   <C>     <C>          <C>      <C>         <C>            <C>          <C>
Balance at October 31, 1994.........   2,375     $24        5,213      $52         $27,312      $ 2,462      $29,850
 Net income for 1995................                                                              5,834        5,834
 Shares converted...................     150       1         (150)      (1)                             
                                       -----     ---        -----      ---      ----------     --------     --------   
Balance at October 31, 1995.........   2,525      25        5,063       51          27,312        8,296       35,684
 Net income for 1996................                                                              5,921        5,921
                                       -----     ---        -----      ---      ----------     --------     -------- 
Balance at October 31, 1996.........   2,525      25        5,063       51          27,312       14,217       41,605
 Net income for 1997................                                                              9,030        9,030
                                       -----     ---        -----      ---      ----------     --------     --------   
Balance at October 31, 1997.........   2,525     $25        5,063      $51         $27,312      $23,247      $50,635
                                       =====     ===        =====      ===         =======      =======      =======
</TABLE>

                            See accompanying notes.

                                       25
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (Dollars in Thousands--except per share amounts)


                               October 31, 1997

1.     Summary of Significant Accounting Policies

    Principles of Consolidation

       The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. 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, Canada and Japan. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral. Credit losses have been within or below management's
expectations. In fiscal 1995, 1996 and 1997 one customer accounted for
approximately 14%, 15%, and 19% respectively, of net sales. During 1996, this
one customer was acquired by another customer of the Company. Had these two
customers been treated as one account for fiscal years 1995 and 1996, they would
have accounted for approximately 18% and 22% respectively, of net sales.


    Use of Estimates

       The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles 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 debt instruments with
original maturities three months or less are deemed to be cash and cash
equivalents.


    Inventory

       Inventory 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)


    Long Term 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 and
certain related trademarks and tradenames for $5.5 million cash. The trademarks
and tradenames will be 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, 1997 was
$367.


    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 $1,449, $1,546,
and $2,502 for the years ended October 31, 1995, 1996 and 1997, respectively.


    Income Taxes

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


    Earnings Per Common Share

       Primary earnings per share have been computed based upon the weighted-
average number of common shares outstanding during the year, adjusted for the
dilutive effect of shares issuable upon the exercise of stock options determined
based upon average market price for the period.

       Fully diluted earnings per share have been computed based upon the
weighted-average number of common shares outstanding during the year, adjusted
for the dilutive effect of shares issuable upon the exercise of 

                                       27
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


stock options, determined based upon the higher of the average price for the
period or the period-ending market price.


    Forward Exchange Contracts

       The Company uses forward exchange contracts to manage its foreign
currency exposure. Realized and unrealized gains and losses on contracts that
hedge anticipated cash flows are determined by comparison of contract values to
current market values upon execution of a contract (realized) and at each
balance sheet date for open contracts (unrealized). Resulting gains and losses
are recognized in other income and expense ($41 loss in 1995, $275 gain in 1996
and $76 loss in 1997).


    Stock Based Compensation

       The Company grants stock options for a fixed number of shares to
employees 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.

       The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards 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 6).


    Accounting Pronouncements

       In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share" (FAS 128), which is required to be
adopted beginning with the Company's first fiscal quarter of 1998. At that time,
the Company will be required to change the method currently used to compute
primary and fully diluted earnings per share (EPS) and restate all prior
periods. Under FAS 128, basic earnings per share would be $.77, $.78 and $1.19
for the years ended October 31, 1995, 1996 and 1997, respectively. Diluted
earnings per share would be $.70, $.72 and $1.06 for the years ended October 31,
1995, 1996 and 1997, respectively.

       In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131). FAS 130 establishes standards for
reporting and displaying comprehensive income and its components. FAS 131
establishes standards for public companies to report information about operating
segments in financial statements, and supersedes FAS 14, "Financial Reporting
for Segments of a Business Enterprise," but retains the requirements to report
information about major customers. FAS 130 and FAS 131 are effective for the
Company in fiscal 1999. The Company does not believe the adoption of these
Statements will have a material effect on the Company's financial statements.

                                       28
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


2.     Related Party Transactions

       One of the principal stockholders and another officer of the Company had
owned a chain of six retail stores that purchase footwear from the Company.
Their ownership position in these stores was sold during fiscal 1996. Total
sales (and cost of sales) to these stores in fiscal 1995, and while they had an
ownership position in 1996, were $365 ($229) and $237 ($173), respectively. In
addition, the Company has provided administrative services to these stores. Fees
for such services, as negotiated between the parties, totaled $25 and $19 in
fiscal 1995 and 1996, respectively.
 
 
3.     Property and Equipment

       Property and equipment consists of the following:

<TABLE> 
<CAPTION> 
                                                                  1996     1997
                                                                 ------   ------
       <S>                                                       <C>      <C> 
       Warehouse equipment....................................   $1,275   $1,278
       Furniture and fixtures.................................      523      641
       Leasehold improvements.................................      398      635
       Computer equipment.....................................      285      485
       Other..................................................        4        4
                                                                 ------   ------
                                                                  2,485    3,043
       Less accumulated depreciation..........................    1,446    1,650
                                                                 ------   ------
       Property and equipment, net............................   $1,039   $1,393
                                                                 ======   ======
</TABLE> 
                                                                                
       At October 31, 1996 and 1997, property and equipment included assets
recorded under capital leases of $1,047. Accumulated depreciation of such assets
was $468 and $637 at October 31, 1996, and 1997, respectively. Depreciation
expense, including amortization of assets recorded under capital leases, for the
years ended October 31, 1995, 1996 and 1997 amounted to $213, $242 and $305,
respectively.


4.     Bank Borrowings

       The Company has a revolving line of credit pursuant to a loan agreement
with Bank of Boston. The loan agreement provides that the bank will both advance
funds directly to the Company and issue letters of credit on behalf of the
Company. The total credit line available shall not exceed an amount which is the
lesser of (i) an amount determined under a formula based upon qualified accounts
receivable and inventory balances, or (ii) $25,000.

       Direct borrowings bear interest at the bank's base rate. At October 31,
1997, the Company had outstanding letters of credit totaling $10.9 million for
the purchase of inventory and approximately $14.1 million available under the
line of credit. The line of credit is secured by substantially all of the
Company's assets.

                                       29
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


5.     Accrued Expenses

       Accrued expenses consist of the following at October 31:

<TABLE>
<CAPTION>
                                                                  1996     1997
                                                                 ------   ------
       <S>                                                       <C>      <C> 
       Inventory purchases....................................   $1,149   $3,394
       Compensation...........................................    1,455    2,653
       Employee benefit plan contribution.....................      142      248
       Other..................................................      554      472
                                                                 ------   ------
                                                                 $3,300   $6,767
                                                                 ======   ======
</TABLE>
                                                                                

6.     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.


    Common Stock

       Each share of Class B Common Stock is freely convertible into one share
of Class A Common Stock at the option of the Class B stockholders. Holders of
Class A Common Stock are entitled to one vote for each share held of record, and
holders of Class B Common Stock are entitled to ten votes for each share held of
record. The Class A Common Stock and the Class B Common Stock vote together as a
single class on all matters submitted to a vote of stockholders (including the
election of directors), except that, in the case of a proposed amendment to the
Company's Certificate of Incorporation that would alter the powers, preferences
Maxwell Shoe Company, Inc., or special rights of either the Class A Common Stock
or the Class B Common Stock, the class of Common Stock to be altered shall vote
on the amendment as a separate class. Shares of Common Stock do not have
cumulative voting rights with respect to the election of directors.


    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. Except for options granted
to non-employee directors, which vest immediately, options generally vest
annually over a four-year period.

       In the first quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" 
(FAS 123). FAS 123 encourages companies to adopt 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.

                                       30
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


       In accordance with FAS 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.

       Pro forma information regarding net income and earnings per share is
required by FAS 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 for 1996 and 1997: risk-free interest rates ranging
from 5.26% to 6.89%; dividend yield of 0%; volatility factor of the expected
market price of the Company's common stock of 63.4%; and a weighted average
expected life of 5.1 years for options granted. 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,         
                                                                                 -----------------      
                                                                                  1996       1997       
                                                                                 ------     ------      
       <S>                                                                       <C>        <C>         
       Pro forma:                                                                                       
         Net income.........................................................     $5,758     $8,731      
         Earnings per share:                                                                            
           Primary..........................................................      $0.70      $1.02      
           Fully diluted....................................................      $0.69      $1.00      
       Weighted average fair value of options granted during the period.....      $3.53      $3.92      
</TABLE>

       During the initial phase-in period, the effects of applying FAS 123 for
recognizing compensation expense may not be representative of the effects on
reported 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.

       Presented below is a summary of the status of the stock option plan and
related transactions:

<TABLE>
<CAPTION>
                                                                               Year ended October 31,
                                                    ---------------------------------------------------------------------------
                                                              1995                      1996                    1997
                                                    -----------------------   -----------------------   -----------------------
                                                                  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.......       104,700      $10.38       294,250      $ 9.47       670,850      $ 7.46
Granted........................................       198,000      $ 9.00       382,500      $ 5.96       129,500      $ 6.45
Canceled.......................................        (8,450)     $ 9.81        (5,900)     $10.38       (64,500)     $ 9.00
                                                      -------                   -------                   -------
Options outstanding at end of year.............       294,250      $ 9.47       670,850      $ 7.46       735,850      $ 7.15
                                                      =======                   =======                   -------
Options exercisable at end of year.............        44,408                   102,324                   214,405
                                                      =======                   =======                   =======
</TABLE>

                                       31
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


       The following table summarizes information about stock options
outstanding under the stock option plan at October 31, 1997:

<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>
       $5.00 - $ 7.75...........................  512,000      8.6         $6.08    121,930     $6.26
       $9.00 - $10.38...........................  223,850      6.9         $9.58     92,475     $9.77
                                                  -------                           -------
                                                  735,850      8.1         $7.15    214,405     $8.25
                                                  =======                           =======
</TABLE>


       At October 31, 1996 and 1997, there were 79,150 shares and 14,150 shares
available, respectively, for future grants under stock option plans. In December
1997, the Board of Directors reserved an additional 300,000 shares of Class A
Common Stock for issuance upon exercise of options or grants of other awards
under the 1994 Stock Incentive Plan. The shares reserved are subject to the
approval of the stockholders at the Company's April 1998 annual meeting.

       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 President 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. At
October 31, 1997, all of the options granted were outstanding.


7.     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:

<TABLE>
<CAPTION>
                                                                  1996      1997
                                                                -------   -------
       <S>                                                      <C>       <C> 
       Deferred tax assets
           Stock option compensation.......................     $ 2,800    $ 2,800
           Inventory reserve...............................         376        571
           Allowance for doubtful accounts.................         292        295
           Accrued compensation............................          --        386
           Inventory capitalization........................         153        274
                                                                 -------    -------
                                                                  3,621      4,326
       Valuation allowances for deferred tax assets              (2,800)    (2,800)
                                                                 -------    -------
       Total deferred tax assets...........................         821      1,526
       Deferred tax liabilities:                          
              Depreciation.................................          91        111
                                                                 -------    -------
       Total deferred tax liabilities......................          91        111
                                                                 -------    -------
       Net deferred tax assets.............................      $  730    $ 1,415
                                                                 =======    =======
</TABLE>

                                       32
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


       FAS 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. The stock option compensation, discussed in Note 6, will be
deductible for tax reporting only upon the exercise of the option. The ultimate
amount of the compensation deduction cannot be determined currently as it is not
certain when, if ever, the holder of the option will ultimately exercise the
option, or the value of the tax deduction that the Company would realize.

       Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>

                                                        1995     1996     1997
                                                       ------   ------   ------
       <S>                                             <C>      <C>      <C> 
       Current:
              Federal................................  $3,183   $3,011   $5,023
              State..................................     859      378    1,196
                                                       ------   ------   ------
       Total current.................................   4,042    3,389    6,219
       Deferred:
              Federal................................    (130)     204     (582)
              State..................................     (23)      36     (103)
                                                       ------   ------   ------
       Total deferred................................    (153)     240     (685)
                                                       ------   ------   ------
                                                       $3,889   $3,629   $5,534
                                                       ======   ======   ======
</TABLE>
                                                                                

       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>
                                                        1995     1996     1997
                                                       ------   ------   ------
         <S>                                           <C>      <C>      <C> 
         U.S. statutory rate.........................    34%      34%      34%
           State income taxes, net of federal tax 
             benefit.................................     6        4        4
                                                        ---      ---      ---
           Effective tax rate........................    40%      38%      38%
                                                        ===      ===      ===
</TABLE>


8.     Profit-Sharing Plan

       The Company has a contributory 401(k) profit-sharing plan covering
substantially all employees. 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 $156, $200 and $300 for fiscal years 1995, 1996 and 1997,
respectively.


9.     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, 2007. These leases require the Company to pay the real estate taxes
on the real property. The Company also leases equipment under capital leases.

                                       33
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


       At October 31, 1997, future minimum payments under such leases were as
follows:

<TABLE>
<CAPTION>
                                                                            Capital         Operating   
                                                                            -------         ---------   
                                                                                                        
       <S>                                                                  <C>             <C>         
       1998...........................................................        $151           $1,225     
       1999...........................................................         151            1,026     
       2000...........................................................         142            1,003     
       2001...........................................................         123            1,066     
       2002...........................................................          --              660     
       Later years....................................................          --            2,550     
                                                                              ----           ------     
       Total minimum lease payments...................................         567           $7,530     
                                                                                             ======     
       Amounts representing interest..................................         (98)                    
                                                                              ----                     
       Capital lease obligation (including current portion)...........        $469                     
                                                                              ====                      
</TABLE>
                                        
       Rent expense for the years ended October 31, 1995, 1996 and 1997 was
$605, $639 and $831, respectively.

       The Company is a licensee under two 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. In April 1997, the Company
exercised its option to renew the license agreement with Jones Investment Co.,
Inc. (the Jones Agreement) through December 31, 2002 which requires minimum
royalty payments ranging from $800 to $1,250 per annum during the period ending
December 31, 2002. The April 1997 amendment also granted the Company three five-
year option periods to renew through December 2017, subject to satisfying
certain conditions. The three option periods require minimum royalty payments of
$1,250 per annum. In April 1997, the Company entered into a license agreement
with J. G. Hook, Inc. (the Hook agreement) for an initial 18 month period ending
September 30, 1998, with two one-year option periods.

       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 beachwear type footwear for an
initial term of January 1997 to May 2000. For the use of the Sam & Libby
tradename, IPC will pay the Company royalties based on qualified product sales
subject to payment of minimum royalties of $495 over the initial term of the
agreement. Upon satisfaction of certain conditions, IPC may exercise its option
to extend the license agreement until May 2003.

       On April 14, 1997 the Company completed a transaction to own and operate
approximately 130 retail women's footwear stores through a joint venture, SLJ
Retail LLC (SLJ), which will sell a complete selection of women's footwear under
the Sam & Libby and Jones New York brand names. Initially, the joint venture
will be 49% owned by the Company, which will account for its ownership under the
equity method, and 51% owned by the Butler Group, Inc., a wholly owned
subsidiary of General Electric Capital Corporation. The Company also holds an
option through February 1, 2000 to purchase additional equity in the joint
venture to increase its equity ownership to 55%. Under certain circumstances,
the Company may be obligated to acquire the ownership interest of the Butler
Group at a value based upon the operating results of SLJ Retail. The Company
also entered into an agreement to provide management services to SLJ Retail for
$500 per annum.

       Summarized financial information of SLJ Retail as of October
31, 1997 and for the period from April 14, 1997 (date of inception) to October
31, 1997 is as follows: current assets - $17,559, noncurrent assets - $7,352,
current liabilities - $4,933, noncurrent liabilities - $26,532, net sales -
$7,050, gross profit - $4,107 and net operating loss - ($6,430). The results
reflect significant start up costs associated with store openings

                                       34
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
               (Dollars in Thousands--except per share amounts)


and implementing a new data processing system. The Company has not recognized
any portion of SLJ Retail's net operating losses through October 31, 1997
because, under the equity method of accounting, the Company does not recognize
any losses beyond the carrying value of its investment in SLJ Retail, which is
zero.

       Simultaneously with the formation of SLJ Retail, the Company entered into
a sub-license agreement with SLJ Retail pursuant to which the Company granted to
SLJ Retail a sub-license of its rights under the Jones Agreement noted above.
The initial term of this sub-license agreement expires in December 2002, but is
extended automatically for the same period of time as any extension by the
Company of the Jones Agreement. The sub-license agreement is subject to early
termination for various reasons, including any termination of the Jones
Agreement. In addition, the Company entered into a retail license agreement (the
"Retail 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 SLJ Retail may manufacture and
sell Sam & Libby women's footwear products, provided however, that such license
does not extend to products to which IPC has the exclusive rights. Under the
Retail License Agreement, SLJ Retail does not have to pay any royalty to the
Company in consideration of the license granted. The initial term of the Retail
License Agreement expires on January 31, 2047, subject to earlier termination
upon the occurrence of certain specified events.

       The Company has entered into forward exchange contracts in anticipation
of future purchases of inventory denominated in foreign currency, principally
the Spanish peseta. At October 31, 1997, forward exchange contracts totaling
$700 were outstanding with settlement dates ranging from November 3, 1997
through January 30, 1998. Maximum risk of loss on these contracts is the amount
of the difference between the spot rate at the date of contract delivery and the
contracted rate. The Company expects that future inventory purchases will
require sufficient foreign currency to meet these commitments.


10.    Supplementary Quarterly Financial Data (Unaudited)

       The following is a summary of unaudited quarterly results for the fiscal
years ended October 31, 1996 and October 31, 1997.

<TABLE>
<CAPTION>
                                                                   Quarter Ended
                                                   ---------------------------------------------
                                                   January 31,  April 30,  July 31,  October 31,
                                                   -----------  ---------  --------  -----------
     <S>                                           <C>          <C>        <C>       <C>
     Fiscal 1996
        Net sales................................      $23,705    $26,774   $30,222      $23,636
        Gross profit.............................        5,821      5,917     7,009        5,675
        Net income...............................        1,452      1,530     1,920        1,019
        Primary earnings per share...............      $   .18    $   .19   $   .23      $   .12
                                                       =======    =======   =======      =======
 
     Fiscal 1997
        Net sales................................      $28,764    $31,073   $36,833      $37,541
        Gross profit.............................        7,261      9,161    10,173        9,386
        Net income...............................        1,662      2,190     2,965        2,213
        Primary earnings per share...............      $   .20    $   .26   $   .35      $   .25
                                                       =======    =======   =======      =======
</TABLE>

                                       35
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.
                                        


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 2, 1998 to be
filed with the Securities and Exchange Commission within 120 days after October
31, 1997 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 2, 1998 to be
filed with the Securities and Exchange Commission within 120 days after October
31, 1997 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 2, 1998 to be
filed with the Securities and Exchange Commission within 120 days after October
31, 1997 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 2, 1998 to be
filed with the Securities and Exchange Commission within 120 days after October
31, 1997 and is incorporated herein by reference.

                                       36
<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 10K         
                                                                                    --------------      
<S>                                                                                 <C> 
     Report of Independent Auditors...........................................            21            
     Balance Sheets as of October 31, 1996 and 1997...........................            22            
     Statements of Income for each of the three years in the period ended 
         October 31, 1997.....................................................            23            
     Statements of Cash Flows for each of the three years in the period ended 
         October 31, 1997.....................................................            24            
     Statements of Changes in Stockholders' Equity for each of the three years
         in the period ended October 31, 1997.................................            25            
     Notes to Financial Statements............................................            26            
                                                                                                        
 (a) (2)  Financial Statements:                                                                       
                                                                                                        
     Schedule II -- Valuation and qualifying accounts for the years
         ended October 31, 1995, 1996 and 1997................................            42             

</TABLE> 

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

 (b)  Reports on Form 8-K

         There were no reports on Form 8-K filed during the fourth quarter of
         fiscal 1997.
<TABLE> 
<CAPTION> 
     (c)  Exhibits
             <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)

             10.1    1994 Stock Incentive Plan (incorporated by reference to
                     exhibit 10.1 to the registrant's Form S-1 Registration
                     Statement No. 33-74768)

             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)
</TABLE> 

                                       37
<PAGE>
 
<TABLE> 
<S>                  <C> 
             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 May 15, 1991 by and between George
                     Shapiro, Arthur S. Goldberg and Sidney Shapiro, Trustees of
                     the Shapiro Properties Realty Trust, as lessor, and Maxwell
                     Shoe Company Inc., as lessee (incorporated by reference to
                     exhibit 10.7 to the registrant's Form S-1 Registration
                     Statement No. 33-74768)

             10.7    Lease dated as of November 17, 1993 by and between Trustees
                     of Bradshaw Westwood Trust, as landlord, and Maxwell Shoe
                     Company Inc., as tenant (incorporated by reference to
                     exhibit 10.8 to the registrant's Form S-1 Registration
                     Statement No.33-74768)

             10.8    Agreement of Lease between Anon Realty Associates, L.P., as
                     successor lessor to 1414 Americas Company and Maxwell Shoe
                     Company Inc., as lessee (incorporated by reference to
                     exhibit 10.9 to the registrant's Form S-1 Registration
                     Statement No. 33-74768)

             10.9    Loan and Security Agreement dated May 30, 1991 between
                     Maxwell Shoe Company Inc. and The First Bank of Boston, as
                     amended March 11, 1993, June 22, 1993, and August 31, 1993
                     (incorporated by reference to exhibit 10.10 to the
                     registrant's Form S-1 Registration Statement No. 33-74768)

             10.10   Promissory Note dated March 11, 1993 issued by Maxwell Shoe
                     Company Inc. to The First National Bank of Boston
                     (incorporated by reference to exhibit 10.11 to the
                     registrant's Form S-1 Registration Statement No. 33-74768)

             10.11   License Agreement dated July 1, 1993 between Jones
                     Investment Co., Inc. and Maxwell Shoe Company
                     Inc.(incorporated by reference to exhibit 10.12 to the
                     registrant's Form S-1 Registration Statement No. 33-74768)

             10.12   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)

             10.13   Employment Agreement dated as of January 26, 1994 between
                     Maxwell Shoe Company Inc. and Mark J. Cocozza (incorporated
                     by reference to exhibit 10.14 to the registrant's Form S-1
                     Registration Statement No. 33-74768)

             10.14   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)
</TABLE> 

                                       38
<PAGE>
 
<TABLE>
<S>          <C>     
             10.15   Deferred Incentive Compensation Agreement dated October 31,
                     1988 between Maxwell Shoe Company Inc. and Mark J. Cocozza,
                     as amended (incorporated by reference to exhibit 10.16 to
                     the registrant's Form S-1 Registration Statement No. 33-
                     74768)

             10.16   Master Lease Agreement dated as of July 18, 1994 between
                     Maxwell Shoe Company Inc. and BancBoston Leasing Inc.
                     (incorporated by reference to exhibit 10.23 to the
                     registrants Form 10K for the fiscal year ended October 31,
                     1994)

             10.17   Assumption Agreement dated July 7, 1995 between BancBoston
                     Leasing Inc. and Maxwell Shoe Company Inc. (incorporated by
                     reference to exhibit 10.24 to the registrants Form 10K for
                     the fiscal year ended October 31, 1995)

             10.18   Letter Agreement dated January 25, 1995 between Legas
                     Realty Corp., as successor lessor to S.L. Green Properties
                     Inc., as successor to Anon Realty Associates, L.P., and
                     Maxwell Shoe Company Inc. (incorporated by reference to
                     exhibit 10.25 to the registrants Form 10K for the fiscal
                     year ended October 31, 1995)

             10.19   First Amendment to License Agreement dated October 2, 1995
                     between Jones Investment Co., Inc., and Maxwell Shoe
                     Company Inc. (incorporated by reference to exhibit 10.26 to
                     the registrants Form 10K for the fiscal year ended October
                     31, 1995)

             10.20   Trademark and Intellectual Property Rights Purchase and
                     Sale Agreement dated July 2, 1996 between Sam & Libby, Inc.
                     and Maxwell Shoe Company Inc. (incorporated by reference to
                     exhibit 10.21 to the registrants Form 10K for the fiscal
                     year ended October 31, 1996)

             10.21   License Agreement dated January 8, 1997 between Inter-
                     Pacific Trading Corporation d/b/a/ Inter-Pacific
                     Corporation and Maxwell Shoe Company Inc. (incorporated by
                     reference to exhibit 10.22 to the registrants Form 10K for
                     the fiscal year ended October 31, 1996)

             10.22   Contribution Agreement dated as of April 14, 1997, by and
                     among The Butler Group Inc., Maxwell Shoe Company Inc., and
                     Maxwell Retail Inc. (incorporated by reference to exhibit
                     10.1 to the registrants Form 8K filed on May 5, 1997)

             10.23   Operating Agreement of SLJ Retail LLC dated as of April 14,
                     1997 by and between the Butler Group, Inc. and Maxwell
                     Retail Inc. (incorporated by reference to exhibit 10.2 to
                     the registrants Form 8K filed on May 5, 1997)

             10.24   Option Agreement dated as of April 14, 1997 by and among
                     The Butler Group Inc., Maxwell Shoe Company Inc., Maxwell
                     Retail Inc. and SLJ Retail LLC (incorporated by reference
                     to exhibit 10.3 to the registrants Form 8K filed on May 5,
                     1997)

             10.25   Services Agreement dated as of April 14, 1997 by and
                     between Maxwell Shoe Company Inc. and SLJ Retail LLC
                     (incorporated by reference to exhibit 10.4 to the
                     registrants Form 8K filed on May 5, 1997 )

             10.26   Non-Compete Agreement dated as of April 14, 1997 by and
                     among SLJ Retail LLC, Maxwell Shoe Company Inc., Maxwell V.
                     Blum, Betty Ann Blum, Marjorie W. Blum, Mark J. Cocozza,
                     David Andelman, as trustee of the Eleanor S. Blum Trust,
                     Maxwell Retail, Inc. and Sprague Company (incorporated by
                     reference to exhibit 10.5 to the registrants Form 8K filed
                     on May 5, 1997)

             10.27   Retail Opportunity Agreement dated as of April 14, 1997 by
                     and among SLJ Retail LLC, Maxwell Shoe Company Inc.,
                     Maxwell V. Blum, Betty Ann Blum, Marjorie W. Blum, David
                     Andelman, as trustee of the Eleanor S. Blum Trust, Maxwell
                     Retail, Inc. and Sprague Company (incorporated by reference
                     to exhibit 10.6 to the registrants Form 8K filed on May 5,
                     1997)
</TABLE>

                                       39
<PAGE>
 
<TABLE>
<S>                  <C>  
             10.28   Registration Rights Agreement dated as of April 14, 1997 by
                     and among Maxwell Shoe Company Inc., The Butler Group Inc.,
                     Maxwell V. Blum, Betty Ann Blum, Marjorie W. Blum, Mark J.
                     Cocozza and David Andelman, as trustee of the Eleanor S.
                     Blum Trust (incorporated by reference to exhibit 10.7 to
                     the registrants Form 8K filed on May 5, 1997)

             10.29   Second Amendment to License Agreement dated as of April 14,
                     1997 by and between Maxwell Shoe Company Inc. and Jones
                     Investment Co., Inc. (incorporated by reference to exhibit
                     10.8 to the registrants Form 8K filed on May 5, 1997)

             10.30   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
                     registrants Form 8K filed on May 5, 1997)

             10.31   License Agreement dated April 1, 1997 between J. G. Hook
                     Inc. and Maxwell Shoe Company Inc.
 
             10.32   Sublease Agreement dated June 16, 1997 between Macy's East,
                     Inc. and Maxwell Shoe Company Inc.

             10.33   Lease Agreement dated June 16, 1997 between John H. Finley,
                     III, as trustee of Brockton Oak Real Estate Trust and
                     Maxwell Shoe Company Inc.

             21      Subsidiaries of Maxwell Shoe Company Inc.

             23      Consent of Independent Auditors

             27      Financial Data Schedule

</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,
                                           President and Chief Operating Officer
 
                                                    January 28, 1998


  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/ MAXWELL V. BLUM      Chairman of the Board and     January 28, 1998
  ----------------------     Chief Executive Officer 
     Maxwell V. Blum      (Principal Executive Officer)    

                          
   /s/ MARK J. COCOZZA         President and Chief        January 28, 1998
  ----------------------        Operating Officer 
     Mark J. Cocozza            

 
  /s/ JAMES J. TINAGERO      Executive Vice President     January 28, 1998
  ----------------------  (Principal Financial Officer)  
    James J. Tinagero     

 
   /s/ RICHARD J. BAKOS     Vice President Finance and    January 28, 1998
  ----------------------      Chief Financial Officer 
     Richard J. Bakos     (Principal Accounting Officer)    
                          
 
    /s/ BETTY ANN BLUM       Executive Vice President     January 28, 1998
  ----------------------           and Director 
      Betty Ann Blum               
 
 
   /s/ MARJORIE W. BLUM      Vice President Sales and     January 28, 1998
  ----------------------      Secretary and Director 
     Marjorie W. Blum         
 
 
   /s/ STEPHEN A. FINE               Director             January 28, 1998
  ----------------------
     Stephen A. Fine
 
 
  /s/ JONATHAN K. LAYNE              Director             January 28, 1998
  ----------------------
    Jonathan K. Layne
 
 
  /s/ MALCOLM L. SHERMAN             Director             January 28, 1998
 -----------------------
    Malcolm L. Sherman
</TABLE>

                                       41
<PAGE>
 
                           MAXWELL SHOE COMPANY INC.

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

                                        
<TABLE>
<CAPTION>
                                                  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, 1995
  Allowance for doubtful accounts.............       $801             $150           $ 98             $853       

Year ended October 31, 1996                                                                                  
  Allowance for doubtful accounts.............       $853             $ 50           $173             $730    

Year ended October 31, 1997                                                                                    
  Allowance for doubtful account..............       $730             $125           $116             $739     
</TABLE>

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



                                      42