##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended July 29, 2006
 o
    
    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: 000-50563
 BAKERS FOOTWEAR GROUP, INC.
 (Exact name of registrant as specified in its charter)
 Missouri(State or other jurisdiction of 
incorporation or organization)
    
    43-0577980(I.R.S. Employer Identification No.)2815 Scott Avenue, 
St. Louis, Missouri(Address of principal executive offices)
    
    63103(Zip Code)
 (314)621-0699  (Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




---



##### 



BAKERS FOOTWEAR GROUP, INC.
INDEX TO FORM 10-Q
 PagePart I Financial InformationItem 1. Financial Statements (Unaudited)Condensed Balance Sheets
    
    3Condensed Statements of Operations
    
    4Condensed Statement of Shareholders Equity
    
    5Condensed Statements of Cash Flows
    
    6Notes to Condensed Financial Statements
    
    7-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13-20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    20Item 4. Controls and Procedures
    
    21Part II Other Information
    
    21Item 1A. Risk Factors
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    21Item 6. Exhibits
    
    21Signatures
    
    22Exhibit Index
    
    23Exhibit 31.1 Sec 302 Certification of Chief Executive OfficerExhibit 31.2 Sec 302 Certification of Chief Financial OfficerExhibit 32.1 Sec 906 Certification of Chief Executive OfficerExhibit 32.2 Sec 906 Certification of Chief Financial Officer
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED BALANCE SHEETS
 July 30,
    
    
    January 28,
    
    
    July 29,2005
    
    
    2006
    
    
    2006(Unaudited)
    
    
    
    
    
    
    (Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,397,231
    
    
    $
    3,924,970
    
    
    $
    191,747Accounts receivable
    
    
    1,095,184
    
    
    
    1,099,436
    
    
    
    1,067,429Other receivables
    
    
    948,411
    
    
    
    1,271,544
    
    
    
    1,070,911Inventories
    
    
    21,530,715
    
    
    
    25,997,859
    
    
    
    26,268,341Prepaid expenses and other current assets
    
    
    1,081,060
    
    
    
    1,251,581
    
    
    
    927,486Prepaid income taxes
    
    
    1,486,303
    
    
    
    
    
    
    
    530,190Deferred income taxes
    
    
    1,267,363
    
    
    
    1,821,097
    
    
    
    1,676,852Total current assets
    
    
    29,806,267
    
    
    
    35,366,487
    
    
    
    31,732,956Property and equipment, net
    
    
    29,861,793
    
    
    
    38,701,362
    
    
    
    45,772,551Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    251,801Other assets
    
    
    527,911
    
    
    
    686,835
    
    
    
    1,134,858Total assets
    
    $
    60,195,971
    
    
    $
    74,754,684
    
    
    $
    78,892,166Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    7,913,339
    
    
    $
    12,059,734
    
    
    $
    9,107,153Accrued expenses
    
    
    7,857,522
    
    
    
    11,922,950
    
    
    
    10,262,268Sales tax payable
    
    
    706,927
    
    
    
    634,497
    
    
    
    251,936Accrued income taxes
    
    
    138,524
    
    
    
    1,297,964
    
    
    
    Deferred income
    
    
    1,000,178
    
    
    
    1,297,872
    
    
    
    1,093,467Revolving credit facility
    
    
    
    
    
    
    
    
    
    
    7,960,653Current maturities of capital lease obligations
    
    
    490,962
    
    
    
    386,743
    
    
    
    283,838Total current liabilities
    
    
    18,107,452
    
    
    
    27,599,760
    
    
    
    28,959,315Obligations under capital leases, less current maturities
    
    
    411,570
    
    
    
    247,671
    
    
    
    127,732Accrued rent liabilities
    
    
    5,190,562
    
    
    
    6,327,625
    
    
    
    7,755,678Deferred income taxes
    
    
    423,726
    
    
    
    189,044
    
    
    
    Shareholders equity:Preferred stock, $0.0001 par value, 5,000,000 shares
authorized, no shares outstanding
    
    
    
    
    
    
    
    
    
    
    Common Stock, $0.0001 par value; 40,000,000 shares
authorized, 6,193,273 shares outstanding at July 30,
2005, 6,300,479 shares outstanding at January 28,
2006, and 6,492,955 shares outstanding at July 29,
2006
    
    
    619
    
    
    
    630
    
    
    
    649Additional paid-in capital
    
    
    33,402,687
    
    
    
    34,252,066
    
    
    
    36,269,047Retained earnings
    
    
    2,659,355
    
    
    
    6,137,888
    
    
    
    5,779,745Total shareholders equity
    
    
    36,062,661
    
    
    
    40,390,584
    
    
    
    42,049,441Total liabilities and shareholders equity
    
    $
    60,195,971
    
    
    $
    74,754,684
    
    
    $
    78,892,166
  3




---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks
    
    
    Weeks
    
    
    Weeks
    
    
    WeeksEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 30, 2005
    
    
    July 29, 2006
    
    
    July 30, 2005
    
    
    July 29, 2006Net sales
    
    $
    45,255,560
    
    
    $
    47,184,870
    
    
    $
    90,198,740
    
    
    $
    96,989,783Cost of merchandise sold, occupancy, and buying expenses
    
    
    30,272,239
    
    
    
    33,673,554
    
    
    
    59,808,800
    
    
    
    67,181,316Gross profit
    
    
    14,983,321
    
    
    
    13,511,316
    
    
    
    30,389,940
    
    
    
    29,808,467Operating expenses:Selling
    
    
    9,126,781
    
    
    
    10,675,399
    
    
    
    17,753,758
    
    
    
    21,073,767General and administrative
    
    
    3,791,679
    
    
    
    4,197,764
    
    
    
    7,348,910
    
    
    
    8,896,804Loss on disposal of property and equipment
    
    
    58,758
    
    
    
    113,491
    
    
    
    198,631
    
    
    
    128,103Operating income (loss)
    
    
    2,006,103
    
    
    
    (1,475,338
    )
    
    
    5,088,641
    
    
    
    (290,207
    )Other income (expense):Interest expense
    
    
    (86,501
    )
    
    
    (183,954
    )
    
    
    (212,891
    )
    
    
    (296,892
    )Other, net
    
    
    65,927
    
    
    
    10,944
    
    
    
    102,394
    
    
    
    33,781Income (loss) before income taxes
    
    
    1,985,529
    
    
    
    (1,648,348
    )
    
    
    4,978,144
    
    
    
    (553,318
    )Provision for (benefit from) income taxes
    
    
    761,910
    
    
    
    (621,850
    )
    
    
    1,903,387
    
    
    
    (195,175
    )Net income (loss)
    
    $
    1,223,619
    
    
    $
    (1,026,498
    )
    
    $
    3,074,757
    
    
    $
    (358,143
    )Basic earnings (loss) per share
    
    $
    0.20
    
    
    $
    (0.16
    )
    
    $
    0.54
    
    
    $
    (0.06
    )Diluted earnings (loss) per share
    
    $
    0.19
    
    
    $
    (0.16
    )
    
    $
    0.51
    
    
    $
    (0.06
    )
  4




---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 Common StockShares
    
    
    
    
    
    
    AdditionalIssued and
    
    
    
    
    
    
    Paid-In
    
    
    RetainedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance at January 28, 2006
    
    
    6,300,479
    
    
    $
    630
    
    
    $
    34,252,066
    
    
    $
    6,137,888
    
    
    $
    40,390,584Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    442,816
    
    
    
    
    
    
    
    442,816Shares issued in connection with exercise of
stock warrants
    
    
    71,366
    
    
    
    7
    
    
    
    508,983
    
    
    
    
    
    
    
    508,990Shares issued in connection with exercise of
stock options
    
    
    121,110
    
    
    
    12
    
    
    
    450,790
    
    
    
    
    
    
    
    450,802Excess income tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    614,392
    
    
    
    
    
    
    
    614,392Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (358,143
    )
    
    
    (358,143
    )Balance at July 29, 2006
    
    
    6,492,955
    
    
    $
    649
    
    
    $
    36,269,047
    
    
    $
    5,799,745
    
    
    $
    42,049,441
  5




---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks EndedJuly 30, 2005
    
    
    July 29, 2006Operating activitiesNet income (loss)
    
    $
    3,074,757
    
    
    $
    (358,143
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    2,331,925
    
    
    
    3,519,864Deferred income taxes
    
    
    1,226,916
    
    
    
    (296,600
    )Stock-based compensation expense
    
    
    
    
    
    
    442,816Excess income tax benefit from exercise of stock options
    
    
    222,553
    
    
    
    Loss on disposal of property and equipment
    
    
    198,631
    
    
    
    128,103Changes in operating assets and liabilities:Accounts receivable
    
    
    (700,986
    )
    
    
    232,640Inventories
    
    
    (3,728,360
    )
    
    
    (270,482
    )Prepaid expenses and other current assets
    
    
    99,696
    
    
    
    324,095Prepaid income taxes
    
    
    (1,486,303
    )
    
    
    (530,190
    )Other assets
    
    
    (150,444
    )
    
    
    (448,023
    )Accounts payable
    
    
    (590,321
    )
    
    
    (2,952,581
    )Accrued expenses and deferred income
    
    
    2,332,114
    
    
    
    (2,247,648
    )Accrued income taxes
    
    
    138,524
    
    
    
    (1,297,964
    )Accrued rent liabilities
    
    
    1,489,114
    
    
    
    1,428,053Net cash provided by (used in) operating activities
    
    
    4,457,816
    
    
    
    (2,326,060
    )Investing activitiesPurchase of property and equipment
    
    
    (10,674,117
    )
    
    
    (10,733,819
    )Proceeds from sale of property and equipment
    
    
    9,677
    
    
    
    14,663Net cash used in investing activities
    
    
    (10,664,440
    )
    
    
    (10,719,156
    )Financing activitiesNet advances under revolving credit facility
    
    
    
    
    
    
    7,960,653Proceeds from sales of common stock and warrants
    
    
    7,540,225
    
    
    
    Proceeds from exercise of stock warrants
    
    
    
    
    
    
    508,990Proceeds from exercise of stock options
    
    
    16,388
    
    
    
    450,802Excess income tax benefit from exercise of stock options
    
    
    
    
    
    
    614,392Principal payments under capital lease obligations
    
    
    (384,517
    )
    
    
    (222,844
    )Net cash provided by financing activities
    
    
    7,172,096
    
    
    
    9,311,993Net increase (decrease) in cash and cash equivalents
    
    
    965,472
    
    
    
    (3,733,223
    )Cash and cash equivalents at beginning of period
    
    
    1,431,759
    
    
    
    3,924,970Cash and cash equivalents at end of period
    
    $
    2,397,231
    
    
    $
    191,747Supplemental disclosures of cash flow informationCash paid for income taxes
    
    $
    1,784,501
    
    
    $
    1,481,896Cash paid for interest
    
    $
    207,283
    
    
    $
    251,008
  6




---



##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 Unaudited
 1. Basis of Presentation
  2. Issuance of Common Stock and Warrants
  Accounting for Contingencies
   7




---



##### Table of Contents



3. Income Taxes
  Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedJuly 30, 2005
    
    
    July 29, 2006
    
    
    July 30, 2005
    
    
    July 29, 2006Current:Federal
    
    $
    409,872
    
    
    $
    (376,659
    )
    
    $
    569,661
    
    
    $
    86,530State and local
    
    
    76,850
    
    
    
    (71,154
    )
    
    
    106,810
    
    
    
    14,895Total current
    
    
    486,722
    
    
    
    (447,813
    )
    
    
    676,471
    
    
    
    101,425Deferred:Federal
    
    
    231,738
    
    
    
    (147,262
    )
    
    
    1,033,192
    
    
    
    (250,969
    )State and local
    
    
    43,450
    
    
    
    (26,775
    )
    
    
    193,724
    
    
    
    (45,631
    )Total deferred
    
    
    275,188
    
    
    
    (174,037
    )
    
    
    1,226,916
    
    
    
    (296,600
    )Total income tax expense (benefit)
    
    $
    761,910
    
    
    $
    (621,850
    )
    
    $
    1,903,387
    
    
    $
    (195,175
    )
  Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedJuly 30, 2005
    
    
    July 29, 2006
    
    
    July 30, 2005
    
    
    July 29, 2006Federal income tax at statutory rate
    
    $
    694,935
    
    
    $
    (576,922
    )
    
    $
    1,742,350
    
    
    $
    (193,661
    )Impact of graduated Federal rates
    
    
    (19,855
    )
    
    
    14,912
    
    
    
    (49,773
    )
    
    
    5,117State and local taxes, net of federal income taxes
    
    
    79,421
    
    
    
    (65,934
    )
    
    
    199,126
    
    
    
    (22,133
    )Permanent differences
    
    
    7,409
    
    
    
    6,094
    
    
    
    11,684
    
    
    
    15,502Total income tax expense (benefit)
    
    $
    761,910
    
    
    $
    (621,850
    )
    
    $
    1,903,387
    
    
    $
    (195,175
    )
   July 30, 2005
    
    
    January 28, 2006
    
    
    July 29, 2006Deferred tax assets:Vacation accrual
    
    $
    396,130
    
    
    $
    387,344
    
    
    $
    410,744Inventory
    
    
    1,068,261
    
    
    
    1,593,904
    
    
    
    1,495,419Stock-based compensation
    
    
    284,407
    
    
    
    267,835
    
    
    
    326,299Accrued rent
    
    
    1,833,309
    
    
    
    2,380,024
    
    
    
    2,878,465Total deferred tax assets
    
    
    3,582,107
    
    
    
    4,629,107
    
    
    
    5,110,857Deferred tax liabilities:Prepaid expenses
    
    
    197,027
    
    
    
    160,152
    
    
    
    229,311Property and equipment
    
    
    2,541,443
    
    
    
    2,836,902
    
    
    
    2,952,893Total deferred tax liabilities
    
    
    2,738,470
    
    
    
    2,997,054
    
    
    
    3,182,204Net deferred tax assets
    
    $
    843,637
    
    
    $
    1,632,053
    
    
    $
    1,928,653
 4. Stock-Based Compensation
 Adoption of SFAS 123R
 Share-Based Payment
 8




---



##### Table of Contents



Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees,
  Thirteen
    
    
    Twenty-sixWeeks
    
    
    WeeksEnded
    
    
    EndedJuly 30, 2005
    
    
    July 30, 2005Net income as reported
    
    $
    1,223,619
    
    
    $
    3,074,757Add: Stock based compensation expense
included in net income as reported
    
    
    
    
    
    
    Deduct: Stock based compensation
expense determined under fair value
method, net of related income tax
effect
    
    
    (151,576
    )
    
    
    (255,119
    )Pro forma net income
    
    $
    1,072,043
    
    
    $
    2,819,638Basic earnings per share:As reported
    
    $
    0.20
    
    
    $
    0.54Pro forma
    
    $
    0.17
    
    
    $
    0.49Diluted earnings per share:As reported
    
    $
    0.19
    
    
    $
    0.51Pro forma
    
    $
    0.17
    
    
    $
    0.47
 Stock Options
   Twenty-six
    
    Twenty-sixWeeks Ended
    
    Weeks EndedJuly 30, 2005
    
    July 29, 2006Options granted
    
    
    198,700
    
    
    
    79,228Weighted-average fair value of options granted
    
    $
    6.88
    
    
    $
    10.68AssumptionsDividends
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    4.75% - 5.0
    %Expected volatility
    
    
    64
    %
    
    
    50% - 55
    %Expected option life
    
    6 years
    
    5 - 6 years
 9




---



##### Table of Contents



Vested
    
    Non Vested
    
    TotalNumber of
    
    Weighted Average
    
    Number of
    
    Weighted Average
    
    Number of
    
    Weighted AverageOptions
    
    Exercise Price
    
    Options
    
    Exercise Price
    
    Options
    
    Exercise PriceBalance at January
28, 2006
    
    
    207,710
    
    
    $
    1.62
    
    
    
    438,680
    
    
    $
    9.41
    
    
    
    646,390
    
    
    $
    6.91Granted
    
    
    
    
    
    
    
    
    
    
    79,228
    
    
    
    19.54
    
    
    
    79,228
    
    
    
    19.54Vested
    
    
    98,160
    
    
    
    9.20
    
    
    
    (98,160
    )
    
    
    9.20
    
    
    
    
    
    
    
    Exercised
    
    
    (121,110
    )
    
    
    3.78
    
    
    
    
    
    
    
    
    
    
    
    (121,110
    )
    
    
    3.78Forfeited
    
    
    (400
    )
    
    
    7.75
    
    
    
    (12,000
    )
    
    
    14.30
    
    
    
    (12,400
    )
    
    
    14.09Balance at July 29, 2006
    
    
    184,360
    
    
    $
    4.22
    
    
    
    407,748
    
    
    $
    11.29
    
    
    
    592,108
    
    
    $
    9.09
   Weighted-Average
    
    
    Weighted-AverageNumber of
    
    
    Contractual Life
    
    
    Exercise
    
    
    AggregateRange of Exercise Prices
    
    Options
    
    
    (Years)
    
    
    Price
    
    
    Intrinsic Value$0.01
    
    
    98,540
    
    
    
    7.5
    
    
    $
    0.01
    
    
    $
    1,126,312$7.75
    
    
    54,280
    
    
    
    7.5
    
    
    
    7.75
    
    
    
    200,293$9.70$13.80
    
    
    31,540
    
    
    
    8.6
    
    
    
    11.30
    
    
    
    4,466$20.06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total ($0.01  $20.06)
    
    
    184,360
    
    
    
    7.7
    
    
    $
    4.22
    
    
    $
    1,331,071
  Weighted-Average
    
    
    Weighted-AverageNumber of
    
    
    Contractual Life
    
    
    Exercise
    
    
    AggregateRange of Exercise Prices
    
    Options
    
    
    (Years)
    
    
    Price
    
    
    Intrinsic Value$0.01
    
    
    98,540
    
    
    
    7.5
    
    
    $
    0.01
    
    
    $
    1,126,312$7.75
    
    
    221,280
    
    
    
    7.5
    
    
    
    7.75
    
    
    
    816,523$9.70  $13.80
    
    
    190,816
    
    
    
    8.7
    
    
    
    11.38
    
    
    
    24,792$20.06
    
    
    64,425
    
    
    
    9.6
    
    
    
    20.06
    
    
    
    Total ($0.01
 $20.06)
    
    
    575,061
    
    
    
    8.2
    
    
    $
    9.01
    
    
    $
    1,967,627
  Restricted and Performance Shares
  10




---



##### Table of Contents



5. Earnings (Loss) Per Share
   Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks
    
    
    Weeks
    
    
    Weeks
    
    
    WeeksEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 30, 2005
    
    
    July 29, 2006
    
    
    July 30, 2005
    
    
    July 29, 2006Numerator:Numerator for basic earnings per share  Net income (loss)
    
    $
    1,223,619
    
    
    $
    (1,026,498
    )
    
    $
    3,074,757
    
    
    $
    (358,143
    )Numerator for diluted earnings per share
    
    $
    1,223,619
    
    
    $
    (1,026,498
    )
    
    $
    3,074,757
    
    
    $
    (358,143
    )Denominator for basic earnings per share  weighted average shares
    
    
    6,145,613
    
    
    
    6,492,955
    
    
    
    5,744,926
    
    
    
    6,412,533Effect of dilutive securitiesStock options
    
    
    224,257
    
    
    
    
    
    
    
    238,994
    
    
    
    Stock purchase warrants
    
    
    14,459
    
    
    
    
    
    
    
    5,622
    
    
    
    Denominator for diluted earnings per share  adjusted weighted
average shares and assumed conversions
    
    
    6,384,329
    
    
    
    6,492,955
    
    
    
    5,989,542
    
    
    
    6,412,533
  6. Revolving Credit Agreement
  11




---



##### Table of Contents



12




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be
read in conjunction with the Companys unaudited condensed
financial statements and notes thereto provided herein and the Companys audited financial
statements and notes thereto in our annual report on Form 10-K. The following Managements
Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ materially from the
results discussed in the forward-looking statements. The factors that might cause such a difference
also include, but are not limited to, those discussed in our annual report on Form 10-K under Item
1. Business  Cautionary Note Regarding Forward-Looking Statements and Risk Factors and under
Item 1. Business  Risk Factors and those discussed elsewhere in our Annual
Report on Form 10-K
and elsewhere in this report.
 Overview
     Share-Based Payment Accounting for Stock Issued to
Employees
   Critical Accounting Policies
  13




---



##### Table of Contents



Merchandise inventories
  Store closing and impairment charges
 Accounting for the Disposal of Long-Lived Assets
 Stock-based compensation expense
 Share-Based
Payment
 Accounting for Stock Issued to
Employees, Accounting for Stock-Based Compensation
   14




---



##### Table of Contents



Deferred income taxes
 Accounting for Income Taxes
 Results of Operations
  Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedJuly 30,
    
    July 29,
    
    July 30,
    
    July 29,2005
    
    2006
    
    2005
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of merchandise sold, occupancy and buying expense
    
    
    66.9
    
    
    
    71.4
    
    
    
    66.3
    
    
    
    69.3Gross profit
    
    
    33.1
    
    
    
    28.6
    
    
    
    33.7
    
    
    
    30.7Selling expense
    
    
    20.2
    
    
    
    22.6
    
    
    
    19.7
    
    
    
    21.7General and administrative expense
    
    
    8.4
    
    
    
    8.9
    
    
    
    8.2
    
    
    
    9.2Loss on disposal of property and equipment
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1Operating income (loss)
    
    
    4.4
    
    
    
    (3.1
    )
    
    
    5.6
    
    
    
    (0.3
    )Other income (expense)
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Interest expense
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.3
    )Income (loss) before income taxes
    
    
    4.4
    
    
    
    (3.5
    )
    
    
    5.5
    
    
    
    (0.6
    )Income tax expense (benefit)
    
    
    1.7
    
    
    
    (1.3
    )
    
    
    2.1
    
    
    
    (0.2
    )Net income (loss)
    
    
    2.7
    %
    
    
    (2.2
    )%
    
    
    3.4
    %
    
    
    (0.4
    )%
  Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedJuly 30,
    
    July 29,
    
    July 30,
    
    July 29,2005
    
    2006
    
    2005
    
    2006Number of stores at beginning of period
    
    
    221
    
    
    
    245
    
    
    
    218
    
    
    
    235Stores opened during period
    
    
    6
    
    
    
    4
    
    
    
    13
    
    
    
    16Stores closed during period
    
    
    (2
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    (4
    )Number of stores at end of period
    
    
    225
    
    
    
    247
    
    
    
    225
    
    
    
    247
 Thirteen Weeks Ended July 29, 2006 Compared to Thirteen Weeks Ended July 30, 2005
 Net sales.
 Gross profit.
 15




---



##### Table of Contents



Selling expense.
 General and administrative expense.
 Interest expense.
 Income tax expense (benefit).
 Net income (loss)
 Twenty-six Weeks Ended July 29, 2006 Compared to Twenty-six Weeks Ended July 30, 2005
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 Interest expense.
 16




---



##### Table of Contents



Income tax expense (benefit).
 Net income (loss)
 Seasonality and Quarterly Fluctuations
   Liquidity and Capital Resources
   July 30, 2005
    
    January 28, 2006
    
    July 29, 2006Cash
    
    $
    2,397,231
    
    
    $
    3,924,970
    
    
    $
    191,747Inventories
    
    
    21,530,715
    
    
    
    25,997,859
    
    
    
    26,268,341Total current assets
    
    
    29,806,267
    
    
    
    35,366,487
    
    
    
    31,732,956Revolving Credit Facility
    
    
    
    
    
    
    
    
    
    
    7,960,653Total current liabilities
    
    
    18,107,452
    
    
    
    27,599,760
    
    
    
    28,959,315Net working capital
    
    
    11,698,815
    
    
    
    7,766,727
    
    
    
    2,773,641Property and equipment, net
    
    
    29,861,793
    
    
    
    38,701,362
    
    
    
    45,772,551Total assets
    
    
    60,195,971
    
    
    
    74,754,684
    
    
    
    78,892,166Total shareholders equity
    
    
    36,062,661
    
    
    
    40,390,584
    
    
    
    42,049,441Unused borrowing capacity*
    
    
    16,790,280
    
    
    
    19,220,644
    
    
    
    10,605,184
 
 *
    
    as calculated under the terms of our revolving credit facility  Operating activities
  17




---



##### Table of Contents



Investing activities
   Financing activities
   18




---



##### Table of Contents



Accounting
for Contingencies
 Accounting for Derivative Instruments and Hedging Activities Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock
 19




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments due by PeriodLess thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 -5 Years
    
    
    More than 5 YearsCapital lease obligations (1)
    
    $
    557,082
    
    
    $
    373,438
    
    
    $
    183,644
    
    
    $
    
    
    
    $
    Operating lease obligations (2)
    
    
    191,601,180
    
    
    
    23,733,331
    
    
    
    46,982,014
    
    
    
    43,582,189
    
    
    
    77,303,647Purchase obligations (3)
    
    
    28,648,489
    
    
    
    28,640,126
    
    
    
    8,364
    
    
    
    
    
    
    
    Total
    
    $
    220,806,751
    
    
    $
    52,746,894
    
    
    $
    47,174,021
    
    
    $
    43,582,189
    
    
    $
    77,303,647
 
 (1)
    
    Includes payment obligations relating to our point of sale hardware and software leases.(2)
    
    Includes minimum payment obligations related to our store leases.(3)
    
    Includes merchandise on order and payment obligations relating to store construction and
miscellaneous service contracts. Recent Accounting Pronouncements
  Effect of Inflation
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 20




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
 Internal Control Over Financial Reporting.
 
 PART II  OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Purchase of Equity Securities by the Issuer and Affiliated Purchasers
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
 ITEM 6. EXHIBITS
  21




---



##### Table of Contents



SIGNATURES
   BAKERS FOOTWEAR GROUP, INC.(Registrant)By:
    
    /s/ Peter A. EdisonPeter A. EdisonChairman of the Board of Directors and
 Chief Executive Officer(On behalf of the Registrant)By:
    
    /s/ Lawrence L. Spanley, Jr.Lawrence L. Spanley, Jr.Chief Financial Officer, Executive Vice President, Treasurer, and Secretary(As principal financial officer)
 22




---



##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description3.1
    
    Restated Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended
January 3, 2004 filed on April 2, 2004 (File No. 000-50563)).3.2
    
    Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Companys Annual Report on Form 10-K for the fiscal year ended January 3, 2004 filed
on April 2, 2004 (File No. 000-50563)).10.1
    
    Bakers Footwear Group, Inc. 2003 Stock Option Plan (incorporated by reference to the
Companys 2006 Proxy Statement dated April 24, 2006, Appendix C).10.2
    
    Second Amended and Restated Loan and Security Agreement dated as of August 31, 2006
by and between Bank of America, N.A. and the Company (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 7, 2006).10.3
    
    Amended and Restated Revolving Credit Note dated as of August 31, 2006 by and between
Bank of America, N.A. and the Company (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 8-K dated September 7, 2006).10.4
    
    Employment Agreement dated August 31, 2006 by and between the Company and Mark Ianni
(incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form
8-K dated September 7, 2006).10.5
    
    Employment Agreement dated September 5, 2006 by and between the Company and Joe
Vander Pluym (incorporated by reference to Exhibit 10.4 to the Companys Current
Report on Form 8-K dated September 7, 2006).11.1
    
    Statement regarding computation of per share earnings (incorporated by reference from
Note 5 of the Companys unaudited interim financial statements included herein).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, executed by Chief Executive Officer).31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, executed by Chief Financial Officer).32.1
    
    Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, executed by Chief Executive Officer).32.2
    
    Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, executed by Chief Financial Officer)
 23