##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q/A (Amendment No.1)
 x
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 2, 2004
 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 of other jurisdiction of
incorporation or organization)
    
    43-0577980(I.R.S. Employer Identification Number)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) 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 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. x Yes o No. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). o Yes x No Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Common Stock, $0.0001 par value, 5,102,481 shares issued and outstanding as of
March 18, 2005 1




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EXPLANATORY NOTE This Amendment to the Bakers Footwear Group, Inc. (the Company) Quarterly Report on Form 10-Q/A
(the Report) for the quarterly period ended October 2, 2004 is being filed solely to
correct and restate the Companys previously issued financial statements as of and for the thirteen
and thirty-nine week periods ended October 2, 2004 and October 4, 2003, and the notes related
thereto (the Corrections). This Report continues to speak as of the date of the original filing
of the Form 10-Q on November 12, 2004 (the Original Report), and the Company has not updated the
disclosures in this Report to speak as of a later date or to reflect subsequent results, events or
developments. The only changes in this Report to the Original Report are those caused by the
restatement. The Corrections are made to properly account for landlord allowances and the commencement of lease
terms in accordance with generally accepted accounting principles in the United States. See Note 2
to the Companys Condensed Financial Statements for additional discussion. The Company has reflected the results of the restatement for fiscal years ended January 3, 2004 in
an Annual Report on Form 10-K/A and has restated its interim financial statements in amended
Quarterly Reports on Form 10-Q/A for the quarterly periods ended April 3, 2004 and July 3, 2004. The restatement is reflected in Part I of this Quarterly Report on Form 10-Q/A. Item 3 of Part I
has not been amended. Item 2 of Part II has not been amended. Pursuant to the rules of the SEC,
in Part II, Item 6, we have provided currently dated certifications from our Chief Executive
Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act
of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached
to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively.  
 BAKERS FOOTWEAR GROUP, INC.
INDEX TO FORM 10-Q PageExplanatory Note
   
    
    2Part I
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Balance Sheets
    
    
    3Condensed Statements of Operations
    
    
    4Condensed Statement of Shareholders Equity
    
    
    5Condensed Statement of Cash Flows
    
    
    6Notes to Condensed Financial Statements
    
    
    7-11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12-20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20Part II
    
    Other InformationItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21-22Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    
    
    23Exhibit Index

    24-25CertificationCertificationCertificationCertification
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 
 BAKERS FOOTWEAR GROUP, INC.
CONDENSED BALANCE SHEETS October 4, 2003
    
    January 3, 2004
    
    October 2, 2004as restated
    
    
    
    
    
    as restatedUnaudited
    
    
    
    
    
    UnauditedAssetsCurrent assets:Cash and cash equivalents
    
    $
    444,150
    
    
    $
    574,475
    
    
    $
    1,694,255Accounts receivable
    
    
    846,022
    
    
    
    1,051,854
    
    
    
    1,463,159Other receivables
    
    
    137,270
    
    
    
    186,011
    
    
    
    91,238Inventories
    
    
    16,880,701
    
    
    
    12,780,256
    
    
    
    17,536,544Prepaid expenses and other current assets
    
    
    891,579
    
    
    
    1,029,908
    
    
    
    904,963Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,983,921Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,331,879Total current assets
    
    
    19,199,722
    
    
    
    15,622,504
    
    
    
    25,005,959Property and equipment, net
    
    
    13,968,463
    
    
    
    13,395,838
    
    
    
    18,291,924Other assets
    
    
    569,670
    
    
    
    922,825
    
    
    
    305,243Total assets
    
    $
    33,737,855
    
    
    $
    29,941,167
    
    
    $
    43,603,126Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    3,622,594
    
    
    $
    3,529,652
    
    
    $
    8,570,535Accrued expenses
    
    
    3,928,204
    
    
    
    5,986,873
    
    
    
    4,165,174Sales tax payable
    
    
    730,930
    
    
    
    1,257,294
    
    
    
    663,454Deferred income
    
    
    631,708
    
    
    
    809,122
    
    
    
    721,306Revolving credit agreement
    
    
    13,336,097
    
    
    
    2,169,474
    
    
    
    Class A stock purchase warrants
    
    
    800,000
    
    
    
    837,500
    
    
    
    Class A stock redemption obligation
    
    
    142,616
    
    
    
    210,799
    
    
    
    Current maturities of capital lease obligations
    
    
    965,765
    
    
    
    947,332
    
    
    
    746,614Current maturities of long-term subordinated debt
    
    
    671,725
    
    
    
    645,501
    
    
    
    Total current liabilities
    
    
    24,829,639
    
    
    
    16,393,547
    
    
    
    14,867,083Long-term subordinated debt, less current maturities
    
    
    251,872
    
    
    
    214,409
    
    
    
    Obligations under capital leases, less current maturities
    
    
    1,555,314
    
    
    
    1,347,112
    
    
    
    808,700Accrued rent
liabilities
    
    
    2,473,713
    
    
    
    2,597,770
    
    
    
    3,541,522Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    437,372Class A stock redemption obligation
    
    
    1,163,060
    
    
    
    1,178,527
    
    
    
    Class B stock redemption obligation
    
    
    
    
    
    
    455,316
    
    
    
    Subordinated convertible debentures
    
    
    4,900,000
    
    
    
    4,500,000
    
    
    
    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, 5,102,481 shares outstanding at October 2,
2004
    
    
    
    
    
    
    
    
    
    
    510Class A stock, $0.001 par value; 3,000,000 shares
authorized, 1,426,188 shares outstanding at October 4,
2003 and January 3, 2004
    
    
    1,426
    
    
    
    1,426
    
    
    
    Class B stock, $0.001 par value; 500,000 shares
authorized, no shares outstanding
    
    
    
    
    
    
    
    
    
    
    Class C stock, $0.001 par value; 1,500,000 shares
authorized, no shares outstanding
    
    
    
    
    
    
    
    
    
    
    Deferred stock compensation
    
    
    (2,890
    )
    
    
    
    
    
    
    Additional paid-in capital
    
    
    3,704,500
    
    
    
    3,756,814
    
    
    
    25,623,630Accumulated deficit
    
    
    (5,138,779
    )
    
    
    (503,754
    )
    
    
    (1,675,692
    )Total shareholders equity (deficit)
    
    
    (1,435,743
    )
    
    
    3,254,486
    
    
    
    23,948,448Total liabilities and shareholders equity
    
    $
    33,737,855
    
    
    $
    29,941,167
    
    
    $
    43,603,126
 See accompanying notes. 3




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited) Thirteen
    
    Thirteen
    
    Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks Ended
    
    Weeks Ended
    
    Weeks EndedOctober 4,
    
    October 2,
    
    October 4,
    
    October 2,2003
    
    2004
    
    2003
    
    2004as restated
    
    as restated
    
    as restated
    
    as restatedNet sales
    
    $
    34,274,081
    
    
    $
    31,589,495
    
    
    $
    104,494,724
    
    
    $
    104,799,251Cost of merchandise sold, occupancy, and buying expenses
    
    
    24,995,504
    
    
    
    24,558,577
    
    
    
    76,165,120
    
    
    
    75,426,331Gross profit
    
    
    9,278,577
    
    
    
    7,030,918
    
    
    
    28,329,604
    
    
    
    29,372,920Operating expenses:Selling
    
    
    7,096,328
    
    
    
    7,602,794
    
    
    
    21,654,051
    
    
    
    22,589,406General and administrative
    
    
    2,745,662
    
    
    
    3,483,884
    
    
    
    8,772,448
    
    
    
    10,325,975Loss on disposal of property and equipment
    
    
    8,840
    
    
    
    270,293
    
    
    
    158,399
    
    
    
    408,842Operating loss
    
    
    (572,253
    )
    
    
    (4,326,053
    )
    
    
    (2,255,294
    )
    
    
    (3,951,303
    )Other income (expense):Interest expense
    
    
    (404,175
    )
    
    
    (191,468
    )
    
    
    (1,212,665
    )
    
    
    (766,872
    )State income tax (expense) benefit
    
    
    (10,401
    )
    
    
    
    
    
    
    (52,154
    )
    
    
    Other income (expense), net
    
    
    (48,943
    )
    
    
    58,187
    
    
    
    (98,970
    )
    
    
    181,238Loss before income taxes
    
    
    (1,035,772
    )
    
    
    (4,459,334
    )
    
    
    (3,619,083
    )
    
    
    (4,536,937
    )Benefit from income taxes
    
    
    
    
    
    
    (1,672,848
    )
    
    
    
    
    
    
    (2,838,849
    )Net loss
    
    $
    (1,035,772
    )
    
    $
    (2,786,486
    )
    
    $
    (3,619,083
    )
    
    $
    (1,698,088
    )Basic loss per share
    
    $
    (0.74
    )
    
    $
    (0.55
    )
    
    $
    (2.40
    )
    
    $
    (0.37
    )Diluted loss per share
    
    $
    (0.74
    )
    
    $
    (0.55
    )
    
    $
    (2.40
    )
    
    $
    (0.37
    )Unaudited pro forma income tax informationLoss before income taxes
    
    $
    (1,025,372
    )
    
    
    
    
    
    $
    (3,566,929
    )Benefit from income taxes
    
    
    (383,941
    )
    
    
    
    
    
    
    (1,338,332
    )Net loss
    
    $
    (641,431
    )
    
    
    
    
    
    $
    (2,228,597
    )Net loss per common share:Basic
    
    $
    (0.46
    )
    
    
    
    
    
    $
    (1.43
    )Diluted
    
    $
    (0.46
    )
    
    
    
    
    
    $
    (1.43
    )
 See accompanying notes. 4




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited) Common Stock
    
    Voting Common StockShares
    
    
    
    
    
    Shares
    
    
    
    
    
    AdditionalIssued and
    
    
    
    
    
    Issued and
    
    
    
    
    
    Paid-In
    
    AccumulatedOutstanding
    
    Amount
    
    Outstanding
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance
at January 3, 2004
    
    
    
    
    
    
    $
    
    
    
    1,426,188
    
    
    
    $1,426
    
    
    
    $3,756,814
    
    
    $
    (503,754
    )
    
   
    $3,254,486Adjust accumulated
deficit and
shareholder
distributions to
reflect conversion
from S corporation
to C corporation, as restated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (442,140
    )
    
    
    503,754
    
    
    
    61,614Accretion of class
A redeemable stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,854
    )
    
    
    (116,854
    )Accretion of class
B redeemable stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,250
    
    
    
    139,250Exchange of Class A
and B common stock
for new common
stock, as restated
    
    
    1,965,150
    
    
    
    197
    
    
    
    (1,426,188
    )
    
    
    (1,426
    )
    
    
    1,823,475
    
    
    
    
    
    
    
    1,822,246Shares issued in
connection with
Initial Public
Offering
    
    
    2,484,000
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    15,530,745
    
    
    
    
    
    
    
    15,530,993Conversion of
convertible
debentures into
common stock
    
    
    653,331
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    4,954,736
    
    
    
    
    
    
    
    4,954,801Net loss,
as restated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,698,088
    )
    
    
    (1,698,088
    )Balance at October
2, 2004
    
    
    5,102,481
    
    
    $
    510
    
    
    
    
    
    
    $
    
    
    
    $
    25,623,630
    
    
    $
    (1,675,692
    )
    
    $
    23,948,448
 See accompanying notes. 5




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks EndedOctober 4, 2003
    
    October 2, 2004as restated
    
    as restatedOperating activitiesNet loss
    
    $
    (3,619,083
    )
    
    $
    (1,698,088
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,165,100
    
    
    
    2,417,054Deferred income taxes
    
    
    
    
    
    
    (894,506
    )Beneficial conversion of subordinated debentures
    
    
    
    
    
    
    163,333Stock-based compensation expense
    
    
    220,491
    
    
    
    Amortization of debt discount
    
    
    12,447
    
    
    
    9,820Accretion of stock warrants
    
    
    113,140
    
    
    
    12,500Loss on disposal of property and equipment
    
    
    158,399
    
    
    
    408,842Changes in operating assets and liabilities:Accounts receivable
    
    
    10,964
    
    
    
    259,468Inventories
    
    
    (2,601,099
    )
    
    
    (5,332,288
    )Prepaid expenses and other current assets
    
    
    (260,795
    )
    
    
    124,945Income tax benefit receivable
    
    
    
    
    
    
    (1,983,921
    )Other assets
    
    
    367,812
    
    
    
    559,120Accounts payable
    
    
    655,654
    
    
    
    5,040,882Accrued expenses and deferred income
    
    
    (536,260
    )
    
    
    (2,088,245
    )Accrued rent liabilities
    
    
    328,854
    
    
    
    943,752Net cash used in operating activities
    
    
    (2,984,376
    )
    
    
    (2,057,332
    )Investing activitiesPurchase of property and equipment
    
    
    (2,091,777
    )
    
    
    (7,765,651
    )Proceeds from sale of property and equipment
    
    
    2,174
    
    
    
    43,669Net cash used in investing activities
    
    
    (2,089,603
    )
    
    
    (7,721,982
    )Financing activitiesNet advances (repayments) under revolving notes payable
    
    
    6,292,879
    
    
    
    (2,169,474
    )Proceeds from initial public offering
    
    
    
    
    
    
    15,530,993Principal payments under capital lease obligations
    
    
    (617,587
    )
    
    
    (739,130
    )Principal payments of subordinated debt
    
    
    (156,214
    )
    
    
    (859,910
    )Payment to retire stock warrants
    
    
    
    
    
    
    (850,000
    )Cash distributions to shareholders
    
    
    (949
    )
    
    
    (13,385
    )Net cash provided by financing activities
    
    
    5,518,129
    
    
    
    10,899,094Net increase in cash and cash equivalents
    
    
    444,150
    
    
    
    1,119,780Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    574,475Cash and cash equivalents at end of period
    
    $
    444,150
    
    
    $
    1,694,255Supplemental disclosures of cash flow informationCash paid for income taxes
    
    $
    52,155
    
    
    $
    141,832Cash paid for interest
    
    $
    1,140,143
    
    
    $
    581,950Noncash investing and financing transactionsCapital lease obligations
    
    $
    1,021,500
    
    
    $
    
 See accompanying notes. 6




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited 1.     Basis of Presentation The accompanying unaudited condensed financial statements contain all
adjustments that management believes are necessary to present fairly Bakers
Footwear Group, Inc.s (the Companys) financial position, results of
operations and cash flows for the periods presented. Such adjustments consist
of normal recurring accruals. Certain information and disclosures normally
included in notes to financial statements have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. The Companys operations are subject to seasonal fluctuations and,
consequently, operating results for interim periods are not necessarily
indicative of the results that may be expected for other interim periods or for
the full year. The condensed financial statements should be read in
conjunction with the audited financial statements and the notes thereto
contained in our Annual Report on Form 10-K/A for fiscal year ended January 3,
2004. Certain reclassifications of prior year amounts have been made to conform
to the current year presentation. 2.      Restatement of Financial Statements This note should be read in conjunction with Note 2 Restatement of Financial Statements under
Notes to Financial Statements included in Item 8, Financial Statements and Supplementary Data of
our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2004. On February 25, 2005, we
announced that after consultation with our independent registered
public accountants, we would
correct our lease accounting to include the build out period as part of the straight line rental
calculation in compliance with FASTB No. 85-3. We also announced that we would correct previously
issued balance sheets to reflect the receipt of landlord allowances as an increase in accrued rent
liabilities rather than as a reduction of leasehold improvements. These corrections resulted in
the restatement of operating results and financial position for the fiscal years 1999 through 2003
and for the first three quarters of fiscal year 2004. Previously, we accounted for the receipt of landlord allowances as a reduction of leasehold
improvements and recognized rent expense over the lease term specified in the lease agreement. We
will now account for landlord allowances as an increase in accrued rent liabilities and recognize
rent expense beginning when we take possession of the leased premises, generally six to eight weeks
prior to the beginning of the lease term. We will also amortize landlord allowances as a reduction
of rent expense effective with this earlier date. This change does not affect the timing or amount
of actual rent payments. Following is a summary of the effects of these changes on the Companys balance sheets as of
October 2, 2004 and October 4, 2003, as well as the effects of these changes on the Companys
statements of operations and cash flows for the thirteen and thirty-nine week periods then ended: Statements of OperationsAs reported
    
    
    Change
    
    
    RestatedThirteen weeks ended October 4, 2003Cost of merchandise sold, occupancy and
buying expenses
    
    $
    25,018,999
    
    
    
    (23,495
    )
    
    
    24,995,504Gross profit
    
    
    9,255,082
    
    
    
    23,495
    
    
    
    9,278,577Selling expense
    
    
    7,069,995
    
    
    
    26,333
    
    
    
    7,096,328Operating loss
    
    
    (569,415
    )
    
    
    (2,838
    )
    
    
    (572,253
    )Loss before income taxes
    
    
    (1,032,934
    )
    
    
    (2,838
    )
    
    
    (1,035,772
    )Net loss
    
    
    (1,032,934
    )
    
    
    (2,838
    )
    
    
    (1,035,772
    )Net loss per common share  basic
    
    
    (0.73
    )
    
    
    (0.01
    )
    
    
    (0.74
    )Net loss per common share  diluted
    
    
    (0.73
    )
    
    
    (0.01
    )
    
    
    (0.74
    )Unaudited pro forma information:Loss before income taxes
    
    
    (1,022,534
    )
    
    
    (2,838
    )
    
    
    (1,025,372
    )Provision for income taxes
    
    
    (382,863
    )
    
    
    (1,078
    )
    
    
    (383,941
    )Net loss
    
    
    (639,671
    )
    
    
    (1,760
    )
    
    
    (641,431
    )Net loss per common share  basic
    
    
    (0.46
    )
    
    
    
    
    
    
    (0.46
    )Net loss per common share  diluted
    
    
    (0.46
    )
    
    
    
    
    
    
    (0.46
    )Thirty-nine weeks ended October 4, 2003Cost of merchandise sold, occupancy and
buying expenses
    
    
    76,189,026
    
    
    
    (23,906
    )
    
    
    76,165,120Gross profit
    
    
    28,305,698
    
    
    
    23,906
    
    
    
    28,329,604Selling expense
    
    
    21,576,232
    
    
    
    77,819
    
    
    
    21,654,051Operating loss
    
    
    (2,201,381
    )
    
    
    (53,913
    )
    
    
    (2,255,294
    )Loss before income taxes
    
    
    (3,565,170
    )
    
    
    (53,913
    )
    
    
    (3,619,083
    )Net loss
    
    
    (3,565,170
    )
    
    
    (53,913
    )
    
    
    (3,619,083
    )Net loss per common share  basic
    
    
    (2.33
    )
    
    
    (0.07
    )
    
    
    (2.40
    )Net income per common share  diluted
    
    
    (2.33
    )
    
    
    (0.07
    )
    
    
    (2.40
    )Unaudited pro forma information:Loss before income taxes
    
    
    (3,513,016
    )
    
    
    (53,913
    )
    
    
    (3,566,929
    )Provision for income taxes
    
    
    (1,317,846
    )
    
    
    (20,486
    )
    
    
    (1,338,332
    )Net loss
    
    
    (2,195,170
    )
    
    
    (33,427
    )
    
    
    (2,228,597
    )Net loss per common share  basic
    
    
    (1.37
    )
    
    
    (0.06
    )
    
    
    (1.43
    )Net loss per common share  diluted
    
    
    (1.37
    )
    
    
    (0.06
    )
    
    
    (1.43
    )Thirteen weeks ended October 2, 2004Cost of merchandise sold, occupancy and
buying expenses
    
    
    24,483,187
    
    
    
    75,390
    
    
    
    24,558,577Gross profit
    
    
    7,106,308
    
    
    
    (75,390
    )
    
    
    7,030,918Selling expense
    
    
    7,574,105
    
    
    
    28,689
    
    
    
    7,602,794Operating loss
    
    
    (4,221,974
    )
    
    
    (104,079
    )
    
    
    (4,326,053
    )Loss before income taxes
    
    
    (4,355,255
    )
    
    
    (104,079
    )
    
    
    (4,459,334
    )Provision for income taxes
    
    
    (1,633,298
    )
    
    
    (39,550
    )
    
    
    (1,672,848
    )Net loss
    
    
    (2,721,957
    )
    
    
    (64,529
    )
    
    
    (2,786,486
    )Net loss per common share  basic
    
    
    (0.53
    )
    
    
    (0.02
    )
    
    
    (0.55
    )Net loss per common share  diluted
    
    
    (0.53
    )
    
    
    (0.02
    )
    
    
    (0.55
    )Thirty-nine weeks ended October 2, 2004Cost of merchandise sold, occupancy and
buying expenses
    
    
    75,313,452
    
    
    
    112,879
    
    
    
    75,426,331Gross profit
    
    
    29,485,799
    
    
    
    (112,879
    )
    
    
    29,372,920Selling expense
    
    
    22,467,089
    
    
    
    122,317
    
    
    
    22,589,406Operating loss
    
    
    (3,716,107
    )
    
    
    (235,196
    )
    
    
    (3,951,303
    )Loss before income taxes
    
    
    (4,301,741
    )
    
    
    (235,196
    )
    
    
    (4,536,937
    )Provision for (benefit from) income taxes
    
    
    (2,608,941
    )
    
    
    (229,908
    )
    
    
    (2,838,849
    )Net loss
    
    
    (1,692,800
    )
    
    
    (5,288
    )
    
    
    (1,698,088
    )Net loss per common share  basic
    
    
    (0.37
    )
    
    
    
    
    
    
    (0.37
    )Net loss per common share  diluted
    
    
    (0.37
    )
    
    
    
    
    
    
    (0.37
    )
 Balance SheetsAs reported
    
    
    Change
    
    
    RestatedAs of October 4, 2003Property and equipment, net
    
    $
    13,041,656
    
    
    
    926,807
    
    
    
    13,968,463Total assets
    
    
    32,811,048
    
    
    
    926,807
    
    
    
    33,737,855Accrued rent liabilities
    
    
    1,168,156
    
    
    
    1,305,557
    
    
    
    2,473,713Total shareholders deficit
    
    
    (1,056,993
    )
    
    
    (378,750
    )
    
    
    (1,435,743
    )As of October 2, 2004Accounts receivable
    
    
    887,159
    
    
    
    576,000
    
    
    
    1,463,159Property and equipment, net
    
    
    17,477,580
    
    
    
    814,344
    
    
    
    18,291,924Total assets
    
    
    42,212,782
    
    
    
    1,390,344
    
    
    
    43,603,126Accrued rent liabilities
    
    
    1,546,159
    
    
    
    1,995,363
    
    
    
    3,541,522Net noncurrent deferred income tax liabilities
    
    
    667,280
    
    
    
    (229,907
    )
    
    
    437,373Total shareholders equity
    
    
    24,323,560
    
    
    
    (375,112
    )
    
    
    23,948,448
 Statements of Cash FlowsAs reported
    
    
    Change
    
    
    RestatedThirty-nine weeks Ended October 4, 2003Net cash used in operating activities
    
    $
    (3,058,137
    )
    
    $
    73,761
    
    
    $
    (2,984,376
    )Net cash used in investing activities
    
    
    (2,015,842
    )
    
    
    (73,761
    )
    
    
    (2,089,603
    )
 3.      Initial Public Offering On February 10, 2004, the Company completed its Initial Public Offering
(IPO) and sold 2,160,000 shares of common stock at $7.75 per share. On March
12, 2004, the Company sold an additional 324,000 shares of common stock at
$7.75 per share when the underwriters exercised their over-allotment option.
The net proceeds to the Company were approximately $15,530,000 after deducting
the underwriting discount and other expenses incurred in connection with the
IPO. The Company used the proceeds from the IPO to repay the $5,680,743 balance
on its revolving credit agreement, repay $859,910 of subordinated debt, and
repurchase stock warrants for $850,000. The Company used the remaining
proceeds for working capital purposes, primarily for the purchase of inventory
in the ordinary course of business and capital expenditures. Pending use of
the remaining proceeds, the Company has invested in short-term,
investment-grade, interest bearing instruments. Effective with the IPO, all shares of the Companys existing Class A,
Class B, and Class C common stock were exchanged for shares of new common stock
on a one to one basis, excluding fractional shares, and the Companys related
repurchase obligations were terminated. The Company issued stock purchase warrants covering 216,000 shares of
common stock with an exercise price of $12.7875 per share, subject to
antidilution adjustments, to representatives of the underwriters. The warrants
become exercisable on February 10, 2005 and expire on February 10, 2009. The subordinated convertible debentures were converted into 653,331 shares
of common stock at a conversion rate of $7.50 per share. The Company
recognized a beneficial conversion expense of $163,333 for the difference
between the $7.75 IPO price and the $7.50 conversion price. 4.      Income Taxes Effective January 4, 2004, the Company elected, by the consent of its
shareholders, to revoke its status as an S corporation and become subject to
taxation as a C corporation. Under the S corporation 7




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##### Table of Contents



provisions of the Internal Revenue Code, the individual shareholders
included their pro rata portion of the Companys taxable income in their
personal income tax returns. Accordingly, through January 3, 2004, the Company
was not subject to federal and certain state corporate income taxes. However,
the Company was subject to income taxes in certain states in which it conducts
business. The pro forma information on the accompanying statement of operations for
the thirteen week and thirty-nine week periods ended October 4, 2003 has been
adjusted to reflect a reduction in other income (expense) for these state
income tax expenses, and is presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, as if the
Company had been a C corporation during that period and thus subject to federal
and state income taxes. As a result of this change in tax status, the Company recorded deferred
tax assets and liabilities for the temporary differences between the book and
tax basis of assets and liabilities at the time of conversion. The Company
recognized a net benefit of $1,158,043 for the impact of these amounts as a
component of the provision for income taxes for the thirteen weeks ended April
3, 2004. Significant components of income tax expense (benefit) for the thirteen
weeks and thirty-nine weeks ended October 2, 2004 are as follows: Thirteen
    
    Thirty-nine WeeksWeeks Ended
    
    EndedOctober 2, 2004
    
    October 2, 2004Current:Federal
    
    $
    (1,745,123
    )
    
    $
    (1,658,393
    )State and local
    
    
    (312,210
    )
    
    
    (285,950
    )Total current
    
    
    (2,057,333
    )
    
    
    (1,944,343
    )Deferred:Federal
    
    
    323,777
    
    
    
    (753,268
    )State and local
    
    
    60,708
    
    
    
    (141,238
    )Total deferred
    
    
    384,485
    
    
    
    (894,506
    )Total income tax expense (benefit)
    
    $
    (1,672,848
    )
    
    $
    (2,838,849
    )
 The differences between income tax expense (benefit) at the statutory U.S.
federal income tax rate of 34% and the amount reported in the statement of
operations for the thirteen weeks and thirty-nine weeks ended
October 2, 2004 are
as follows: Thirteen
    
    Thirty-nineWeeks Ended
    
    Weeks EndedOctober 2, 2004
    
    October 2, 2004Federal income tax at 34% statutory rate
    
    $
    (1,516,174
    )
    
    $
    (1,542,559
    )State and local taxes, net of federal income taxes
    
    
    (163,373
    )
    
    
    (156,478
    )Permanent differences
    
    
    6,699
    
    
    
    18,231Conversion from S corporation status to C corporation status
    
    
    
    
    
    
    (1,158,043
    )Total income tax expense (benefit)
    
    $
    (1,672,848
    )
    
    $
    (2,838,849
    )
 Deferred income taxes arise from temporary differences in the recognition
of income and expense for income tax purposes. Deferred income taxes were
computed using the liability method and reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes. 8




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##### Table of Contents



Components of the Companys deferred tax assets and liabilities are as
follows: October 2, 2004Deferred tax assets:Vacation accrual
    
    $
    316,268Inventory
    
    
    1,015,611Stock-based compensation
    
    
    426,634Accrued rent
    
    
    1,345,779Total deferred tax assets
    
    
    3,104,292Deferred tax liabilities:Property and equipment
    
    
    2,209,786Total deferred tax liabilities
    
    
    2,209,786Net deferred tax assets
    
    $
    894,506
 5.      Stock-Based Compensation SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use
of the fair value-based method of accounting for all stock-based compensation
arrangements. SFAS No. 123 permits companies to use the intrinsic value
accounting method specified in Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations to
account for stock-based employee compensation arrangements. The Company uses
the intrinsic value-based method to account for stock-based employee
compensation arrangements and complies with the disclosure provisions of SFAS
No. 123. Options to purchase 24,718 shares of common stock were granted during the
thirty-nine weeks ended October 4, 2003. The Company recorded compensation
expense of $2,898 and $220,491 for the thirteen weeks and thirty-nine weeks
ended October 4, 2003, respectively, which represents the difference between
the estimated fair value of the stock on the date of the grant compared to the
$0.01 exercise price per option. Effective with the IPO, the Company issued options to purchase 304,500
shares of common stock with an exercise price of $7.75 per share to certain
employees and directors. These options vest over five years and expire after
ten years. Options covering 2,800 of these shares were forfeited during the
thirteen weeks and thirty-nine weeks ended October 2, 2004. 9




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##### Table of Contents



Had compensation cost for all options been determined based on the grant
date fair values of the options in accordance with SFAS No. 123, net loss and
loss per share would have been reduced to the pro forma amounts indicated
below: Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Net loss as reported
    
    $
    (1,035,772
    )
    
    $
    (2,786,486
    )
    
    $
    (3,619,083
    )
    
    $
    (1,698,088
    )Add: Stock based
compensation expense
included in net income
as reported
    
    
    2,898
    
    
    
    
    
    
    
    220,491
    
    
    
    Deduct: Stock based
compensation expense
determined under fair
value method, net of
related income tax
effect
    
    
    (2,898
    )
    
    
    (99,826
    )
    
    
    (220,491
    )
    
    
    (266,203
    )Pro forma net loss
    
    $
    (1,035,772
    )
    
    $
    (2,886,312
    )
    
    $
    (3,619,083
    )
    
    $
    (1,964,291
    )Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Basic loss per share:As reported
    
    $
    (0.74
    )
    
    $
    (0.55
    )
    
    $
    (2.40
    )
    
    $
    (0.37
    )Pro forma
    
    $
    (0.74
    )
    
    $
    (0.57
    )
    
    $
    (2.40
    )
    
    $
    (0.43
    )Diluted loss per share:As reported
    
    $
    (0.74
    )
    
    $
    (0.55
    )
    
    $
    (2.40
    )
    
    $
    (0.37
    )Pro forma
    
    $
    (0.74
    )
    
    $
    (0.57
    )
    
    $
    (2.40
    )
    
    $
    (0.43
    )
 The weighted-average fair value of options granted during the thirty-nine
weeks ended October 2, 2004 was $4.68. The fair value of these options was
estimated at grant date using the Black-Scholes option pricing model assuming
no dividends, a risk-free interest rate of 3%, expected volatility of 64%, and
expected option life of 6 years. 6.      Earnings (Loss) Per Share Basic earnings (loss) per common share are computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings (loss) per common share are computed using the weighted average number
of common shares and potential dilutive securities that were outstanding during
the period. Potential dilutive securities consist of outstanding stock
options, warrants, and, through the effective date of the IPO, convertible
debentures and redeemable Class A and Class B stock. 10




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The following table presents a reconciliation of our basic and diluted
weighted average common shares outstanding for the period. Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Numerator:Net loss
    
    $
    (1,035,772
    )
    
    $
    (2,786,486
    )
    
    $
    (3,619,083
    )
    
    $
    (1,698,088
    )Accretion on redeemable stock
    
    
    (14,487
    )
    
    
    
    
    
    
    195,562
    
    
    
    22,396Numerator for basic earnings per share
    
    
    (1,050,259
    )
    
    
    (2,786,486
    )
    
    
    (3,423,521
    )
    
    
    (1,675,692
    )Reverse accretion on redeemable stock
    
    
    14,487
    
    
    
    
    
    
    
    (195,562
    )
    
    
    (22,396
    )Interest expense related to
convertible debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,387Interest expense related to warrants
    
    
    37,500
    
    
    
    
    
    
    
    113,140
    
    
    
    7,750Numerator for diluted earnings per share
    
    $
    (998,272
    )
    
    $
    (2,786,486
    )
    
    $
    (3,505,943
    )
    
    $
    (1,663,951
    )Denominator for basic earnings per share -
weighted average shares
    
    
    1,426,188
    
    
    
    5,102,481
    
    
    
    1,426,188
    
    
    
    4,553,209Effect of dilutive securities
Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock purchase warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Redeemable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings per share
- adjusted weighted average shares and
assumed conversions
    
    
    1,426,188
    
    
    
    5,102,481
    
    
    
    1,426,188
    
    
    
    4,553,209The following securities were excluded from the computation of diluted
earnings per share because they were anti-dilutive:Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Stock options
    
    
    268,633
    
    
    
    311,078
    
    
    
    254,799
    
    
    
    327,186Stock purchase warrants
    
    
    76,897
    
    
    
    216,000
    
    
    
    76,897
    
    
    
    232,339Redeemable securities
    
    
    538,967
    
    
    
    
    
    
    
    538,967
    
    
    
    75,021Convertible securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,940
 11




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##### 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/A. 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/A under Item 1. Business -
Cautionary Statements Regarding Forward-Looking Statements and Certain Risks. Restatement of Financial Statements On February 25, 2005,
the Company announced that after consultation with its independent
registered public accountants, it
would correct its lease accounting to include the build out period as part of the straight line
rental calculation in compliance with FASTB No. 85-3. The Company also announced that it would
correct previously issued balance sheets to reflect the receipt of landlord allowances as an
increase in accrued rent liabilities rather than as a reduction of leasehold improvements. These
corrections resulted in the restatement of operating results and financial position for the fiscal
years 1999 through 2003 as reflected in Amendment No. 1 to our Annual Report on Form 10-K/A for the
fiscal year ended January 3, 2004 and for the first three quarters of fiscal year 2004 as reflected
in amended Quarterly Reports on Form 10-Q/A. Previously, the Company accounted for the receipt of landlord allowances as a reduction of
leasehold improvements and recognized rent expense over the lease term specified in the lease
agreement. The Company will now account for landlord allowances as an increase in accrued rent
liabilities and recognize rent expense beginning when it takes possession of the leased premises,
generally six to eight weeks prior to the beginning of the lease term. The Company will also
amortize landlord allowances as a reduction of rent expense effective with this earlier date. This
change does not affect the timing or amount of actual rent payments. See Note 2 to the condensed financial statements of this Report for a summary of the effects of
these changes on the Companys balance sheets as of October 4, 2003 and October 2, 2004, as well as
on the Companys statements of operations and cash flows for the thirteen and thirty-nine week
periods then ended. The accompanying Managements Discussion and Analysis gives effect to these
corrections. Overview We are a national, mall-based, specialty retailer of distinctive footwear
and accessories targeting young women who demand quality fashion products. We
feature private label and national brand dress, casual and sport shoes, boots,
sandals and accessories. As of October 2, 2004, we operated 185 Bakers stores
and 29 Wild Pair stores located in 36 states. During the first quarter of 2004, we completed our initial public offering
(IPO) generating net proceeds of $15.5 million, converted $6.8 million of
convertible debt and redeemable securities into common stock, and repaid $4.1
million of debt obligations. This has significantly enhanced our financial
position and has enabled us to remodel existing stores and open new stores. We have developed new formats for our Bakers and Wild Pair stores which
have resulted in comparable store sales increases at new format stores that
exceed our corporate average. New format stores may not necessarily continue
to achieve such above average growth beyond their first comparable year. We
have undertaken a program to remodel existing stores and open new stores which
should result in more than 50% of our Bakers stores operating in the new format
by the end of 2005. We expect remodeled stores to be closed for approximately
six to seven weeks during the period of remodeling. After experiencing a strong first half of 2004, we experienced soft demand
during the third quarter which largely offset the sales and gross margin gains
of the first half. Net sales of $104.8 million for the first three quarters of
2004 were essentially unchanged from the prior year. The $1.0 million increase
in our gross profit was less than the $2.7 million increase in our operating
expenses for the first three quarters of 2004 and, as a result, our loss from
operations increased to $4.0 million for the first three quarters of 2004, up
from a loss from operations of $2.3 million for the first three quarters of
2003, and our loss before income taxes increased to $4.5 million in 2004 up
from $3.6 million in 2003. For comparison purposes, we classify our stores as comparable or
non-comparable. A new stores sales are not included in comparable store sales
until the thirteenth month of operation. Sales from remodeled stores are
excluded from comparable store sales during the period of remodeling. Critical Accounting Policies Our financial statements are prepared in accordance with generally
accepted accounting principles in the United States, which require us to make
estimates and assumptions about future events and their impact on amounts
reported in our financial statements and related notes. Since future events
and their impact cannot be determined with certainty, the actual results will
inevitably differ from our estimates. These differences could be material to
the financial statements. 12




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##### Table of Contents



We believe that our application of accounting policies, and the estimates
that are inherently required by these policies, are reasonable. We believe
that the following significant accounting policies may involve a higher degree
of judgment and complexity. Merchandise inventories Merchandise inventories are valued at the lower of cost or market using
the first-in first-out retail inventory method. Permanent markdowns are
recorded to reflect expected adjustments to retail prices in accordance with
the retail inventory method. The process of determining our expected
adjustments to retail prices requires significant judgment by management.
Among other factors, management utilizes performance metrics to evaluate the
quality and freshness of inventory, including the number of weeks of supply on
hand, sell-through percentages and aging categories of inventory by selling
season, to make its best estimate of the appropriate inventory markdowns. If
market conditions are less favorable than those projected by management,
additional inventory markdowns may be required. Store closing and impairment charges Based on the criteria in Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Disposal of Long-Lived Assets, long-lived
assets to be held and used are reviewed for impairment when events or
circumstances exist that indicate the carrying amount of those assets may not
be recoverable. We regularly analyze the operating results of our stores and
assess the viability of under-performing stores to determine whether they
should be closed or whether their associated assets, including furniture,
fixtures, equipment, and leasehold improvements, have been impaired. Asset
impairment tests are performed at least annually, on a store-by-store basis.
After allowing for an appropriate start-up period, unusual nonrecurring events,
and favorable trends, fixed assets of stores indicated to be impaired are
written down to fair value. Deferred income taxes Through January 3, 2004, we were an S corporation under Subchapter S of
the Internal Revenue Code and comparable state tax laws, and consequently were
not subject to income taxes on our earnings in those jurisdictions, other than
state franchise and net worth taxes. However, we were subject to income taxes
in some states which do not recognize S corporation status. Our S corporation
status was terminated effective January 4, 2004 and, as a result, we became
subject to Federal and state income taxes as a C corporation. We calculate income taxes in accordance with SFAS No. 109 Accounting for
Income Taxes, which requires the use of the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized based on the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and income tax reporting
purposes. Deferred tax assets and liabilities are measured using the tax rates
in effect in the years when those temporary differences are expected to
reverse. Inherent in the measurement of deferred taxes are certain judgments
and interpretations of existing tax law and other published guidance as applied
to our operations. No valuation allowance has been provided for the deferred
tax assets because we generated taxable income in prior periods and we
anticipate that future taxable income will be sufficient to allow us to fully
realize the amount of net deferred tax assets. 13




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Results of Operations The following table sets forth our operating results, expressed as a
percentage of sales, for the periods indicated. Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of merchandise sold, occupancy and buying expense
    
    
    72.9
    
    
    
    77.7
    
    
    
    72.9
    
    
    
    72.0Gross profit
    
    
    27.1
    
    
    
    22.3
    
    
    
    27.1
    
    
    
    28.0Selling expense
    
    
    20.7
    
    
    
    24.1
    
    
    
    20.7
    
    
    
    21.5General and administrative expense
    
    
    8.0
    
    
    
    11.0
    
    
    
    8.4
    
    
    
    9.9Loss on disposal of property and equipment
    
    
    0.1
    
    
    
    0.9
    
    
    
    0.2
    
    
    
    0.4Operating income (loss)
    
    
    (1.7
    )
    
    
    (13.7
    )
    
    
    (2.2
    )
    
    
    (3.8
    )Other income (expense)
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.2Interest expense
    
    
    (1.2
    )
    
    
    (0.6
    )
    
    
    (1.2
    )
    
    
    (0.7
    )Income (loss) before income taxes
    
    
    (3.0
    )
    
    
    (14.1
    )
    
    
    (3.5
    )
    
    
    (4.3
    )Income tax expense (benefit)
    
    
    
    
    
    
    (5.3
    )
    
    
    
    
    
    
    (2.7
    )Net income (loss)
    
    
    (3.0
    )%
    
    
    (8.8
    )%
    
    
    (3.5
    )%
    
    
    (1.6
    )%The following table sets forth our number of stores at the beginning and
end of each period indicated and the number of stores opened, acquired and
closed during each period indicated.Thirteen Weeks
    
    Thirteen Weeks
    
    Thirty-nine Weeks
    
    Thirty-nine WeeksEnded October 4,
    
    Ended October 2,
    
    Ended October 4,
    
    Ended October 2,2003
    
    2004
    
    2003
    
    2004Number of stores at beginning of period
    
    
    216
    
    
    
    206
    
    
    
    233
    
    
    
    215Stores opened or acquired during period
    
    
    1
    
    
    
    8
    
    
    
    2
    
    
    
    8Stores closed during period
    
    
    (1
    )
    
    
    
    
    
    
    (19
    )
    
    
    (9
    )Number of stores at end of period
    
    
    216
    
    
    
    214
    
    
    
    216
    
    
    
    214
 Thirteen Weeks Ended October 2, 2004 Compared to Thirteen Weeks Ended October 4, 2003 Net sales.Net sales decreased to $31.6 million for the thirteen weeks
ended October 2, 2004 (third quarter 2004) from $34.3 million for the thirteen
weeks ended October 4, 2003 (third quarter 2003), a decrease of $2.7 million.
Sales continued to be negatively impacted by customer demand for low-priced
flip flops and athletics and we experienced soft demand for back-to-school
casuals. As a consequence, our comparable store sales for the third quarter of
2004 decreased by 6.0% compared to the third quarter of 2003. We experienced
lower unit sales volume and lower average unit prices reflecting greater
discounting compared to the third quarter of 2003. Gross profit.Gross profit decreased to $7.0 million in the third quarter
of 2004 from $9.3 million in the third quarter of 2003, a decrease of $2.3
million. As a percentage of sales, gross profit decreased to 22.3% in the
third quarter of 2004 from 27.1% in the third quarter of 2003. This reflects
increased 14




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discounting resulting from the weakness in customer demand during the
third quarter of 2004 and increased occupancy and buying expense in a quarter
with a decrease in sales. Selling expense.Selling expense increased to $7.6 million in the third
quarter of 2004 from $7.1 million in the third quarter of 2003, an increase of
$0.5 million. The increase was primarily the result of higher supplies and
repair expenses and increased depreciation expense partially offset by
decreased store salaries. General and administrative expense.General and administrative expense
increased to $3.5 million in the third quarter of 2004 from $2.7 million in the
third quarter of 2003, an increase of $0.8 million. This increase is
attributable to higher administrative payroll and to public company expenses
incurred in 2004. Loss on disposal of property and equipment. Loss on disposal of property
and equipment increased to $270,000 in the third quarter of 2004 up from $9,000
in the third quarter of 2003. The 2004 loss relates primarily to expensing
leasehold improvements and store fixtures due to the relocation one of our
stores in New York City and the remodeling of certain other stores during the
third quarter of 2004. Interest expense.Interest expense decreased to $191,000 in the third
quarter of 2004 from $404,000 in the third quarter of 2003, a decrease of
$213,000. The decrease in interest expense reflects the reduction in our
borrowings compared to the prior year. Income tax expense.Effective January 4, 2004, we converted to a C
corporation and became subject to federal and state income taxes. We
recognized an income tax benefit of $1.7 million for the third quarter of 2004
related to the taxable loss for the quarter. No valuation allowance has been
provided for this tax benefit because we have generated taxable income in prior
periods and we anticipate that future taxable income will be sufficient to
allow us to fully realize the amount of the resulting tax asset. Because we
were an S corporation during the third quarter of 2003 there was no comparable
income tax benefit for that period. On a pro forma basis, had we been a C
corporation for the third quarter of 2003, we would have had an income tax
benefit of $384,000 for the period. Net loss. We had a net loss of $2.8 million in the third quarter of 2004
compared to a net loss of $1.0 million in the third quarter of 2003. If we had
been taxed as a C corporation for the third quarter of 2003, our net loss would
have been $641,000 for that period. Thirty-nine Weeks Ended October 2, 2004 Compared to Thirty-nine Weeks Ended October 4, 2003 Net sales.Net sales were $104.8 million for the thirty-nine weeks ended
October 2, 2004 (first three quarters of 2004) up from $104.5 million for the
thirty-nine weeks ended October 4, 2003 (first three quarters of 2003), an
increase of $0.3 million. The increase in sales during the first half of 2004
was largely offset by the decrease in sales in the third quarter. We
experienced lower unit sales offset by higher average unit prices compared to
the first three quarters of 2003. Our comparable store sales for the first
three quarters of 2004 increased by 3.2% compared to the first three quarters
of 2003. The comparable store sales increase during the first half of the year
(up 7.7%) reversed in the third quarter of 2004 (down 6.0%). Gross profit.Gross profit increased to $29.4 million in 2004 from $28.3
million in 2003. As a percentage of sales, gross profit increased to 28.0% in
2004 from 27.1% in 2003. The increase in gross profit for the first half of
2004 was partially offset by the decrease in gross profit during the third
quarter of 2004, as customer demand weakened during the course of the first
three quarters of 2004. 15




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Selling expense.Selling expense increased to $22.6 million in 2004 from
$21.7 million in 2003, an increase of $0.9 million. This increase was due
primarily to increased supplies and repair expenses and increased depreciation
expense. General and administrative expense.General and administrative expense
increased to $10.3 million in 2004 from $8.8 million in 2003, an increase of
$1.5 million. This increase is attributable to higher administrative payroll
and to public company expenses incurred in 2004. Interest expense.Interest expense decreased to $0.8 million in 2004 from
$1.2 million in 2003, a decrease of $0.4 million. The decrease in interest
expense reflects the reduction in our borrowings compared to the prior year. Income tax benefit.Effective January 4, 2004, we converted to a C
corporation and became subject to federal and state income taxes. In
accordance with SFAS No. 109, Accounting for Income Taxes, we have reflected
the net impact of the temporary differences between the book and tax basis of
our assets and liabilities as of the date of conversion as a component of our
provision for income taxes for the period. This resulted in the recognition of
a nonrecurring income tax benefit of $1.2 million for the first three quarters
of 2004. In addition, we recognized an income tax benefit of $1.6 for the
first three quarters of 2004 related to our taxable loss during the period. No
valuation allowance has been provided for these tax assets because we generated
taxable income in prior periods and we anticipate that future taxable income
will be sufficient to allow us to fully realize these tax assets. Because we
were an S corporation during the first three quarters of 2003 there was no
comparable income tax benefit for that period. On a pro forma basis, had we
been a C corporation for the first three quarters of 2003, we would have had a
tax benefit of $1.3 million for the period. Net loss. We had a net loss of $1.7 million in the first three quarters
of 2004 compared to a net loss of $3.6 million in the first three quarters of
2003. If we had been taxed as a C corporation for the first three quarters of
2003, our net loss would have been $2.2 million for that period. Seasonality and Quarterly Fluctuations Our operating results are subject to significant seasonal variations. Our
quarterly results of operations have fluctuated, and are expected to continue
to fluctuate in the future, as a result of these seasonal variances, in
particular our principal selling seasons. We have five principal selling
seasons: transition (post-holiday), Easter, back-to-school, fall and holiday.
Sales and net income in our second and fourth quarters are typically much
stronger than in our first and third quarters. In addition to our normal seasonal fluctuations, some events, in
particular the Easter holiday, shift between fiscal quarters in some years due
to the nature of our fiscal year. This shift can influence our quarterly
comparable results. Easter was in the second quarter of fiscal years 2003 and
2004. Quarterly comparisons may also be affected by the timing of sales
promotions and costs associated with remodeling stores, opening new stores, or
acquiring stores. Liquidity and Capital Resources During the first quarter of 2004, we completed our IPO which generated net
proceeds of $15.5 million. Our cash requirements are primarily for working
capital, capital expenditures and principal payments on our capital lease
obligations. Historically, these needs for cash have been met by cash flows
from operations, borrowings under our revolving credit facility and sales of
subordinated debt. 16




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At October 2, 2004, we had total assets of $43.6 million and shareholders
equity of $23.9 million compared to total assets of $29.9 million and
shareholders equity of $3.3 million at January 3, 2004, and compared to total
assets of $33.7 million and a deficit in shareholders equity of $1.4 million
at October 4, 2003. At October 2, 2004, we had net working capital of $10.1 million,
 and $13.5 million of unused borrowing capacity under our revolving
credit facility, based upon our borrowing base calculation, compared to
negative net working capital of $800,000 and $5.6 million of unused borrowing
capacity at January 3, 2004 and compared to negative net working capital of
$5.6 million and $1.1 million of unused borrowing capacity at October 4, 2003. The improvement in our financial position primarily relates to the
proceeds from our IPO, the conversion of our subordinated debentures and
redeemable Class A and Class B common stock into common stock, offset by weaker
operating results. We anticipate that our cash flows from operations, borrowings under our
revolving credit facility, and proceeds from our IPO will be sufficient for our
operating cash requirements for at least the next 12 months and will allow us
to further execute our business plan, including our planned expansion. Operating activities For the first three quarters of 2004, our net cash used in operating
activities was $2.1 million compared to net cash used by operating activities
of $3.0 million in the first three quarters of 2003, an decrease of $0.9 million.
The primary uses of operating cash were the pre-tax loss, partially
offset by depreciation expense, and investment in inventory, partially offset
by increased accounts payable. The increased investment in inventory during
2004 reflects the strong sales during the fourth quarter of 2003. We started
2004 with lower inventories than at the beginning of 2003 due to strong fourth
quarter sales in 2003 and we have increased inventory levels at the end of the
third quarter of 2004 in order to meet anticipated demand for this years
fourth quarter. Our inventories at October 2, 2004 were $17.5 million up from
$16.9 million at October 4, 2003 Over two-thirds of our products are currently manufactured in China.
Recently the continued significant growth in the Chinese economy has resulted
in periodic energy and labor shortages, as well as transportation and shipping
bottlenecks. In addition, due to the volume of Chinese imports, there have
been delays at ports on the west coast of the United States. We actively
monitor these matters and have accelerated the timing of our product
sourcing by approximately one week in
order to minimize the impact of any production or transportation delays. Investing activities Cash used in investing activities was $7.7 million in the first three
quarters of 2004 compared to $2.1 million for the first three quarters of 2003.
During each period, cash used in investing activities consisted of capital
expenditures for furniture, fixtures and leasehold improvements. A substantial
portion of the 2004 capital expenditures relates to new and remodeled stores
opened during the third quarter or scheduled to open during the fourth quarter. Our capital expenditures during the first three quarters of 2004 were $7.8
million. We anticipate that our total capital expenditures for fiscal year
2004, primarily related to new stores, store remodelings, distribution and
general corporate activities, will be approximately $10.0 million. We opened 8 new stores during the first three quarters of 2004 and plan to
open 9 new stores in the fourth quarter of 2004. We now plan to open
approximately 25 to 30 new stores in fiscal year 2005 compared to our earlier
projection of 30-35 new stores. We have moderated our expansion plans to
better 17




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focus on expanding sales and
gross margins in our existing stores. Capital expenditures for a new store including point of sale equipment are expected to average approximately
$225,000 to $275,000. We generally receive landlord allowances in
connection with new stores averaging approximately $25,000 to $75,000. The average inventory investment,
net of payables, for a new store is expected to range from approximately
$45,000 to $75,000, depending on the size and sales expectation of the store
and the timing of the new store opening. Pre-opening expenses, such as
marketing, salaries, supplies and utilities are expensed as incurred. We have remodeled 13 stores during the first three quarters of 2004 and
plan to complete the remodeling of approximately three stores in our new format
in the fourth quarter of 2004. Remodeling the average existing store into the
new format is estimated to cost approximately $200,000 to $250,000. We also
plan to complete minor remodeling at approximately ten stores in fiscal year
2004 at an average cost of $40,000 per store. Financing activities On February 10, 2004, we consummated our IPO with the sale of 2,160,000
shares of common stock. On March 12, 2004, we sold an additional 324,000
shares of common stock in connection with the exercise, by the underwriters, of
the full over-allotment option. All of the shares of common stock sold to the
public were sold at a price of $7.75 per share. The aggregate gross proceeds
from the shares of common stock and the warrants sold was approximately $19.3
million. The net proceeds to us from the offering were approximately $15.5
million. As of October 2, 2004, we have used the net proceeds received from
the IPO to repay $5.7 million on our revolving credit agreement, $0.9 million
to redeem outstanding warrants, $0.9 million to repay subordinated debt, and
$7.7 million for capital expenditures. We expect to use the remaining net
proceeds for capital expenditures. Pending use of the proceeds, we are
investing in short-term, investment-grade interest bearing instruments. In connection with our IPO, $4.5 million of subordinated convertible
debentures automatically converted into 653,331 shares of common stock at a
fixed exercise price of $7.50 per share. Our Class A and Class B common stock
was converted into shares of our new common stock on a one to one basis,
excluding fractional shares, and $1.9 million of related redemption obligations
were terminated. At October 2, 2004, we had 5,102,481 shares of common stock
outstanding. We have a $25.0 million secured revolving credit facility with Fleet
Retail Group, Inc. that was amended effective September 1, 2004. Among other
things, the amendment reduced the margin on our base rate loans from 0.75% per
annum to 0% per annum and reduced the monthly facility fee paid by us to Fleet.
In addition, the amendment eliminates the financial covenant relating to
capital expenditures and extends the maturity date of the credit facility to
August 31, 2008. As part of the amendment, Fleet released Mr. Peter Edisons
$500,000 limited guaranty of collection under the facility. Prior to this
amendment, amounts borrowed under the facility bore interest at a rate equal to
the base rate (as defined in the agreement) plus 0.75% per annum, which was
equal to 4.75% per annum at January 3, 2004. The aggregate amount that we may
borrow under the agreement at any time is established by a formula, which is
based on our inventory level but cannot be greater than $25.0 million. The
agreement is secured by substantially all of our assets. We repaid the
outstanding balance on the credit facility during the first quarter of 2004
from the proceeds of our IPO. On October 25, 2004, we made our first draw on our revolving credit
agreement since we repaid the balance from the proceeds of our IPO in February
2004. The highest outstanding balance on our facility from October 25, 2004
through November 10, 2004 was $889,000, and on November 10, 2004 the
outstanding balance was $425,000. We used the borrowings on our revolving
credit facility for working capital purposes. 18




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##### Table of Contents



In connection with the closing of our IPO, we sold to the representatives
of the underwriters and their designees warrants to purchase up to an aggregate
of 216,000 shares of common stock at an exercise price equal to $12.7875 per
share, subject to antidilution adjustments, for a purchase price of $0.0001 per
warrant for the warrants. The warrant holders may exercise the warrants as to
all or any lesser number of the underlying shares of common stock at any time
during the four-year period commencing on February 10, 2005. Our ability to meet our current and anticipated operating requirements
will depend on our future performance, which, in turn, will be subject to
general economic conditions and financial, business and other factors,
including factors beyond our control. Off-Balance Sheet Arrangements At July 3, 2004 and July 5, 2003, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities or variable
interest entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. We are, therefore, not materially exposed to any financing,
liquidity, market or credit risk that could otherwise have arisen if we had
engaged in such relationships. Contractual Obligations The following table summarizes our contractual obligations as of October 2,
2004: Payments due in PeriodLess thanContractual Obligations
    
    Total
    
    1 Year
    
    1 - 3 Years
    
    3 -5 Years
    
    More than 5 YearsCapital lease obligations (1)
    
    $
    2,152,393
    
    
    $
    1,050,801
    
    
    $
    962,494
    
    
    $
    139,098
    
    
    
    Operating lease obligations
(2)
    
    
    131,651,904
    
    
    
    18,180,264
    
    
    
    33,073,353
    
    
    
    28,979,528
    
    
    $
    51,418,759Purchase obligations (3)
    
    
    15,804,438
    
    
    
    15,635,154
    
    
    
    135,043
    
    
    
    31,862
    
    
    
    2,379Total
    
    $
    149,608,735
    
    
    $
    34,866,219
    
    
    $
    34,170,890
    
    
    $
    29,150,488
    
    
    $
    51,421,138
  (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
miscellaneous service contracts. Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements,
relating to consolidation of variable interest entities (VIEs). We were not
required to consolidate any VIEs. 19




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##### Table of Contents



Effect of Inflation Overall, we do not believe that inflation has had a material adverse
impact on our business or operating results during the periods presented. We
cannot give assurance, however, that our business will not be affected by
inflation in the future. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings and cash flows may be subject to fluctuations due to changes
in interest rates. Our financing arrangements include both fixed and variable
rate debt in which changes in interest rates will impact the fixed and variable
rate debt differently. A change in the interest rate of fixed rate debt will
impact the fair value of the debt, whereas a change in the interest rate on the
variable rate debt will impact interest expense and cash flows. Management
does not believe that the risk associated with changing interest rates would
have a material effect on our results of operations or financial condition. 
 ITEM 4. CONTROLS AND PROCEDURES The companys management, with
the participation of the Companys Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the Companys internal control over
financial reporting to determine whether any changes occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
Based on that evaluation, there has been no such change during the period
covered by this report. The Companys management, with the
participation of the Companys Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of
the end of the period covered by this report. Any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. As described in Note 2 to the Condensed Financial Statements, in February 2005, the Company, in consultation
with its Audit Committee and its independent registered public accountants, concluded that it must
correct its previously issued financial statements to properly account for landlord allowances and
the commencement of lease terms. This correction resulted in the restatement of operating results
and financial position for the fiscal years 1999 through 2003, which is reflected in the Companys
Annual Report on Form 10-K/A, and for the first thirty-nine weeks of 2004, which is reflected in
amended Quarterly Reports on Form 10-Q/A for the quarterly periods of fiscal year 2004. The Public Company Accounting Oversight Boards Auditing Standard No. 2, An Audit of Internal
Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements,
states that a restatement of financial statements in prior filings with the SEC is a strong
indicator of the existence of a material weakness in the design or operation of internal control
over financial reporting. Based on that definition, the Companys Chief Executive Officer and Chief
Financial Officer concluded that a material weakness existed in the Companys internal control over
financial reporting, and disclosed this to the Audit Committee and to the independent registered
public accountants. The Companys Chief Executive Officer and Chief Financial Officer also concluded that this matter
constituted ineffectiveness of its disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q/A (October 2, 2004), in ensuring that material
information relating to the Company, required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. The Company has remediated the material weakness in internal control over financial reporting and the
ineffectiveness of its disclosure controls and procedures by conducting a review of its accounting
related to leases, and correcting its method of accounting for landlord allowances and the
commencement of lease terms. The Company has established procedures designed to ensure that
landlord allowances will be properly classified and that rent expense will be recognized in the
appropriate periods in the Companys financial statements. 20




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
PART II  OTHER INFORMATION 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Use of Proceeds On February 5, 2004, the Company commenced its initial public offering. On
February 10, 2004, the Company consummated its initial public offering with the
sale of 2,160,000 shares of common stock, excluding exercise of the
underwriters over-allotment option. In connection with the Companys initial
public offering, the Company also sold 216,000 warrants to purchase shares of
common stock to Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of
Scott and Stringfellow, Inc. as the representatives of the underwriters, or
their designees. On March 12, 2004, the Company sold an additional 324,000
shares of common stock in connection with the exercise, by the underwriters, of
the full over-allotment option. The public offering price of the common stock
was $7.75 per share. We sold the warrants for $0.0001 per warrant. The shares of common stock sold in the offering and the warrants to
purchase common stock were registered under the Securities Act of 1933, as
amended, on two Registration Statements (Nos. 333-86332 and 333-112477) on Form
S-1. The Securities and Exchange Commission declared Registration Statement No.
333-86332 effective on February 3, 2004. Registration Statement No. 333-112477
was effective upon filing on February 4, 2004 pursuant to Rule 462(b) under the
Securities Act of 1933. All 2,160,000 shares of common stock sold to the public
in the initial closing, plus all 324,000 shares of common stock covered by an
over-allotment option granted to the underwriters were sold at a price of $7.75
per share. The warrants were sold to the representatives of the underwriters at
a price of $0.0001 per warrant. Each warrant may be converted into one share of
common stock at an exercise price $12.7875. The Registration Statements
collectively registered 2,484,000 shares of common stock at a maximum aggregate
offering price of $26,772,000, 216,000 warrants at a maximum aggregate offering
price of $22, all of which common stock and warrants were sold in the offering,
and 216,000 shares of common stock underlying the warrants at a maximum
aggregate offering price of $2,851,000. The aggregate gross proceeds from the shares of common stock and the
warrants sold were approximately $19.3 million. The net proceeds to the Company
from the offering were approximately $15.5 million after deducting the
underwriting discount of $1.9 million and $1.9 million of other expenses
incurred in connection with the offering. A reasonable estimate for the amount
of expenses incurred has been provided instead of the actual amount of
expenses. None of such payments were to directors, officers, ten percent
shareholders or affiliates of the issuer. As of October 2, 2004, the Company has used the net proceeds received from
the initial public offering for the following purposes: $5.7 million to repay
the balance on its revolving credit agreement to Fleet Retail Group, Inc., $1.4
million to redeem outstanding warrants and a note payable in favor of
Mississippi Valley Capital, LLC, $0.4 million to repay subordinated debt in
favor of the Companys prior Class B shareholders, and $7.7 million for the
purchase of property and equipment, primarily store fixtures and leasehold
improvements related to new and remodeled stores opened during 2004.
Reasonable estimates for the amounts have been provided instead of the actual
amounts. The credit agreement and the subordinated debt were secured, in part,
by a personal guaranty of Peter Edison, the Companys Chairman of the Board and
Chief Executive Officer. Mississippi Valley Capital, LLC is a member managed
limited liability company, of which Mr. Baur, one of the Companys directors,
is one of the two managers. In addition, Mr. Baurs children are three of the
four members. Mr. Baur is also a 21




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director of Marshall & Ilsley Corporation, which is a ten percent
participant in the Companys credit facility with Fleet Retail Group, Inc. The
Company intends to use the remaining net proceeds from the offering to
partially fund its remaining planned capital expenditures in fiscal year 2004.
Pending use of the remaining proceeds, the Company has invested in short-term,
investment-grade interest bearing instruments. Except as set forth above, none of proceeds were paid to directors,
officers, ten percent shareholders or affiliates of the issuer. Our revolving
credit facility prohibits the payment of dividends, except for common stock
dividends. Purchase of Equity Securities by the Issuer and Affiliated Purchasers The Company does not have any programs to repurchase shares of its common
stock and no such repurchases were made during the thirty-nine weeks ended
October 2, 2004. Issuer Purchases of Equity Securities (c) Total Number of
    
    (d) Maximum NumberShares Purchased as
    
    of Shares that MayPart of Publicly
    
    Yet Be Purchased(a) Total Number of
    
    (b) Average Price
    
    Announced Plans or
    
    Under thePeriod
    
    Shares Purchased
    
    Paid per Share
    
    Programs
    
    Plans or ProgramsJuly 4, 2004 - July 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2004 - August 28, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 29, 2004 - October 2,
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 ITEM 6. EXHIBITS (a) Exhibits: See Exhibit Index herein 22




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to this Quarterly
Report on Form  10-Q/A to be signed, on its behalf by the
undersigned thereunto duly authorized. Date: March 21, 2005 BAKERS FOOTWEAR GROUP, INC.
(Registrant)By:
    /s/ Peter A. EdisonPeter A. EdisonChief Executive Officer
(On behalf of the Registrant) By:
    /s/ Lawrence L. Spanley, Jr.Lawrence L. Spanley, Jr.Chief Financial Officer, Vice President-
Finance, Treasurer, and Secretary
(As principal financial officer) 23




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##### 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)).4.1
    
    Debenture Purchase Agreement dated
April 4, 2002 by and among the
Company and the persons on the
attached signature pages
(incorporated by reference to
Exhibit 4.1 of the Companys
Registration Statement on Form S-1
(File No. 333-86332), filed April
16, 2002).4.1.1
    
    Convertible Debenture Exchange
Agreement dated January 2, 2004 by
and among the Company, Special
Situations Private Equity Fund,
L.P., Special Situations Cayman
Fund, L.P., Special Situations Fund
III, L.P., Julian Edison, The Crown
Advisors, LLC, Crown Investment
Partners, L.P. and SWB Holdings,
Inc. (incorporated by reference to
Exhibit 4.1.1 of Amendment No. 3 to
the Companys Registration Statement
on Form S-1 (File No. 333-86332),
filed January 8, 2004).4.1.2
    
    Form of Subordinated Convertible
Debenture dated January 2004
(included as Exhibit A to Exhibit
4.1.1).4.2.1
    
    Second Registration Rights Agreement
dated January 2, 2004 by and among
the Company, Special Situations Fund
III, L.P., Special Situations Cayman
Fund, L.P., Special Situations
Private Equity Fund, L.P., The Crown
Advisors LLC, Crown Investment
Partners, LP, SWB Holdings, Inc. and
Julian Edison (incorporated by
reference to Exhibit 4.2.1 of
Amendment No. 3 to the Companys
Registration Statement on Form S-1
(File No. 333-86332), filed January
8, 2004).4.2.2
    
    Letter to Ryan Beck & Co., Inc. and
BB&T Capital Markets, as
representatives of the underwriters,
relating to restrictions on
transferability of common stock
underlying convertible debentures,
executed by all holders of
subordinated convertible debentures
(incorporated by reference to
Exhibit 4.2.2 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)).
 24




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##### Table of Contents



Number
    
    Description4.3
    
    Representatives Warrant Agreement,
dated February 10, 2004 by and among
the Company, Ryan Beck & Co., Inc.
and BB&T Capital Markets, a Division
of Scott & Stringfellow, Inc.
(incorporated by reference to
Exhibit 4.3 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)).4.4
    
    Amended and Restated Intercreditor
and Subordination Agreement dated
January 2, 2004 by and among Fleet
Retail Group, Inc., Special
Situations Private Equity Fund,
L.P., Special Situations Cayman
Fund, L.P., Special Situations Fund
III, L.P., Julian Edison, The Crown
Advisors, LLC, Crown Investment
Partners, L.P., SWB Holdings, Inc.
and the Company (incorporated by
reference to Exhibit 4.4 of
Amendment No. 3 to the Companys
Registration Statement on Form S-1
(File No. 333-86332), filed January
8, 2004).4.5
    
    Letter to Ryan Beck & Co., Inc. and
BB&T Capital Markets, as
representatives of the underwriters,
relating to restrictions on
transferability of common stock,
executed by all directors, officers
and shareholders prior to the
initial public offering
(incorporated by reference to
Exhibit 4.5 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)).4.6
    
    Form of common stock certificate
(incorporated by reference to
Exhibit 4.6 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)).4.7
    
    Warrants issued by the Company to
representatives of the underwriters,
or their designees (incorporated by
reference to Exhibit 4.7 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
    
    Fifth Amendment to Amended and
Restated Loan and Security Agreement
dated as of September 1, 2004 by and
between Fleet Retail Group, Inc.
(f/k/a Fleet Retail Finance Inc.)
and the Company (incorporated by
reference to Exhibit 10.17.10 of the
Companys Current Report on Form 8-K
filed on September 10, 2004).10.2
    
    Termination of Guaranty between
Peter A. Edison and Fleet Retail
Group, Inc. (f/k/a Fleet Retail
Finance Inc.) (incorporated by
reference to Exhibit 10.17.11 of the
Companys Current Report on Form 8-K
filed on September 10, 2004).11.1
    
    Statement regarding computation of
per share earnings (incorporated by
reference from Note 6 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)
 25