##### 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 October 28, 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 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)
 þ o
  o o þ
 o þ




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##### 



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
    
    
    13-21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21Part II Other InformationItem 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit Index
    
    
    23Rule 13a-14(a)15d-14(a)
Certification Executed by CEORule 13a-14(a)15d-14(a)
Certification Executed by CFOSection 1350
Certification Executed by CEOSection 1350
Certification Executed by CFOCertification by Chief Executive OfficerCertification by Chief Financial OfficerSection 1350 Certification by Chief Executive OfficerSection 1350 Certification by Chief Financial Officer
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED BALANCE SHEETS
 October 29, 2005
    
    
    January 28, 2006
    
    
    October 28, 2006Unaudited
    
    
    
    
    
    
    UnauditedAssetsCurrent assets:Cash and cash equivalents
    
    $
    128,314
    
    
    $
    3,924,970
    
    
    $
    180,341Accounts receivable
    
    
    1,489,024
    
    
    
    1,099,436
    
    
    
    1,622,942Other receivables
    
    
    1,257,975
    
    
    
    1,271,544
    
    
    
    1,523,585Inventories
    
    
    24,950,807
    
    
    
    25,997,859
    
    
    
    27,499,098Prepaid expenses and other current assets
    
    
    931,444
    
    
    
    1,251,581
    
    
    
    768,816Prepaid income taxes
    
    
    1,822,703
    
    
    
    
    
    
    
    2,106,998Deferred income taxes
    
    
    1,537,312
    
    
    
    1,821,097
    
    
    
    1,900,252Total current assets
    
    
    32,117,579
    
    
    
    35,366,487
    
    
    
    35,602,032Property and equipment, net
    
    
    34,596,070
    
    
    
    38,701,362
    
    
    
    50,192,784Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    404,918Other assets
    
    
    553,016
    
    
    
    686,835
    
    
    
    919,255Total assets
    
    $
    67,266,665
    
    
    $
    74,754,684
    
    
    $
    87,118,989Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    10,107,873
    
    
    $
    12,059,734
    
    
    $
    7,125,245Accrued expenses
    
    
    8,124,983
    
    
    
    11,922,950
    
    
    
    9,262,779Sales tax payable
    
    
    726,651
    
    
    
    634,497
    
    
    
    658,173Accrued income taxes
    
    
    
    
    
    
    1,297,964
    
    
    
    Deferred income
    
    
    1,168,467
    
    
    
    1,297,872
    
    
    
    1,197,382Revolving credit facility
    
    
    5,077,992
    
    
    
    
    
    
    
    19,806,713Current maturities of capital lease obligations
    
    
    439,524
    
    
    
    386,743
    
    
    
    232,854Total current liabilities
    
    
    25,645,490
    
    
    
    27,599,760
    
    
    
    38,283,146Obligations under capital leases, less current maturities
    
    
    327,003
    
    
    
    247,671
    
    
    
    94,149Accrued rent liabilities
    
    
    5,974,116
    
    
    
    6,327,625
    
    
    
    9,042,805Deferred income taxes
    
    
    208,400
    
    
    
    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, 6,206,933 shares outstanding at October 29,
2005, 6,300,479 shares outstanding at January 28, 2006,
and 6,493,035 shares outstanding at October 28, 2006
    
    
    621
    
    
    
    630
    
    
    
    649Additional paid-in capital
    
    
    33,501,662
    
    
    
    34,252,066
    
    
    
    36,520,249Retained earnings
    
    
    1,609,373
    
    
    
    6,137,888
    
    
    
    3,177,991Total shareholders equity
    
    
    35,111,656
    
    
    
    40,390,584
    
    
    
    39,698,889Total liabilities and shareholders equity
    
    $
    67,266,665
    
    
    $
    74,754,684
    
    
    $
    87,118,989
  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 29,
    
    
    October 28,
    
    
    October 29,
    
    
    October 28,2005
    
    
    2006
    
    
    2005
    
    
    2006Net sales
    
    $
    43,242,897
    
    
    $
    46,552,522
    
    
    $
    133,441,637
    
    
    $
    143,542,305Cost of merchandise sold, occupancy, and buying expenses
    
    
    31,402,544
    
    
    
    34,429,758
    
    
    
    91,211,344
    
    
    
    101,611,074Gross profit
    
    
    11,840,353
    
    
    
    12,122,764
    
    
    
    42,230,293
    
    
    
    41,931,231Operating expenses:Selling
    
    
    9,352,861
    
    
    
    10,979,829
    
    
    
    27,106,619
    
    
    
    32,053,596General and administrative
    
    
    3,968,239
    
    
    
    4,987,209
    
    
    
    11,317,149
    
    
    
    13,884,013Loss on disposal or impairment of property and equipment
    
    
    231,615
    
    
    
    115,402
    
    
    
    430,246
    
    
    
    243,505Operating income (loss)
    
    
    (1,712,362
    )
    
    
    (3,959,676
    )
    
    
    3,376,279
    
    
    
    (4,249,883
    )Other income (expense):Interest expense
    
    
    (95,775
    )
    
    
    (319,893
    )
    
    
    (308,666
    )
    
    
    (616,785
    )Other, net
    
    
    20,211
    
    
    
    67,560
    
    
    
    122,605
    
    
    
    101,341Income (loss) before income taxes
    
    
    (1,787,926
    )
    
    
    (4,212,009
    )
    
    
    3,190,218
    
    
    
    (4,765,327
    )Provision for (benefit from) income taxes
    
    
    (737,944
    )
    
    
    (1,610,255
    )
    
    
    1,165,443
    
    
    
    (1,805,430
    )Net income (loss)
    
    $
    (1,049,982
    )
    
    $
    (2,601,754
    )
    
    $
    2,024,775
    
    
    $
    (2,959,897
    )Basic earnings (loss) per share
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.34
    
    
    $
    (0.46
    )Diluted earnings (loss) per share
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.33
    
    
    $
    (0.46
    )
  4




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##### 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
    
    
    
    
    
    
    
    
    
    
    693,248
    
    
    
    
    
    
    
    693,248Shares issued in connection with exercise of stock warrants
    
    
    71,366
    
    
    
    7
    
    
    
    508,983
    
    
    
    
    
    
    
    508,990Shares issued in connection with exercise of stock options
    
    
    121,190
    
    
    
    12
    
    
    
    451,410
    
    
    
    
    
    
    
    451,422Excess income tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    614,542
    
    
    
    
    
    
    
    614,542Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,959,897
    )
    
    
    (2,959,897
    )Balance at October 28, 2006
    
    
    6,493,035
    
    
    $
    649
    
    
    $
    36,520,249
    
    
    $
    3,177,991
    
    
    $
    39,698,889
  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 29, 2005
    
    
    October 28, 2006Operating activitiesNet income (loss)
    
    $
    2,024,775
    
    
    $
    (2,959,897
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    3,721,459
    
    
    
    5,479,438Deferred income taxes
    
    
    741,641
    
    
    
    (673,117
    )Stock-based compensation expense
    
    
    
    
    
    
    693,248Excess income tax benefit from exercise of stock options
    
    
    262,231
    
    
    
    Loss on disposal of property and equipment
    
    
    430,246
    
    
    
    243,505Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,404,390
    )
    
    
    (775,547
    )Inventories
    
    
    (7,148,452
    )
    
    
    (1,501,239
    )Prepaid expenses and other current assets
    
    
    249,312
    
    
    
    482,765Prepaid income taxes
    
    
    (1,822,703
    )
    
    
    (2,106,998
    )Other assets
    
    
    (175,549
    )
    
    
    (232,420
    )Accounts payable
    
    
    1,604,213
    
    
    
    (4,934,489
    )Accrued expenses and deferred income
    
    
    2,787,588
    
    
    
    (2,736,985
    )Accrued income taxes
    
    
    
    
    
    
    (1,297,964
    )Accrued rent liabilities
    
    
    2,272,668
    
    
    
    2,715,180Net cash provided by (used in) operating activities
    
    
    3,543,039
    
    
    
    (7,604,520
    )Investing activitiesPurchase of property and equipment
    
    
    (17,040,095
    )
    
    
    (17,341,330
    )Proceeds from sale of property and equipment
    
    
    20,229
    
    
    
    126,965Net cash used in investing activities
    
    
    (17,019,866
    )
    
    
    (17,214,365
    )Financing activitiesNet advances under revolving credit facility
    
    
    5,077,992
    
    
    
    19,806,713Proceeds from sale of common stock and warrants
    
    
    7,538,419
    
    
    
    Proceeds from exercise of stock warrants
    
    
    
    
    
    
    508,990Proceeds from exercise of stock options
    
    
    77,493
    
    
    
    451,422Excess income tax benefit from exercise of stock options
    
    
    
    
    
    
    614,542Principal payments under capital lease obligations
    
    
    (520,522
    )
    
    
    (307,411
    )Net cash provided by financing activities
    
    
    12,173,382
    
    
    
    21,074,256Net decrease in cash and cash equivalents
    
    
    (1,303,445
    )
    
    
    (3,744,629
    )Cash and cash equivalents at beginning of period
    
    
    1,431,759
    
    
    
    3,924,970Cash and cash equivalents at end of period
    
    $
    128,314
    
    
    $
    180,341Supplemental disclosures of cash flow informationCash paid for income taxes
    
    $
    1,852,289
    
    
    $
    1,643,607Cash paid for interest
    
    $
    287,168
    
    
    $
    514,230
  6




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##### 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




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##### Table of Contents



3. Income Taxes
  Thirteen
    
    
    Thirteen
    
    
    Thirty-nine
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedOctober 29, 2005
    
    
    October 28, 2006
    
    
    October 29, 2005
    
    
    October 28, 2006Current:Federal
    
    $
    (212,774
    )
    
    $
    (1,007,570
    )
    
    $
    356,886
    
    
    $
    (921,040
    )State and local
    
    
    (39,895
    )
    
    
    (226,168
    )
    
    
    66,916
    
    
    
    (211,273
    )Total current
    
    
    (252,669
    )
    
    
    (1,233,738
    )
    
    
    423,802
    
    
    
    (1,132,313
    )Deferred:Federal
    
    
    (408,653
    )
    
    
    (318,591
    )
    
    
    624,539
    
    
    
    (569,561
    )State and local
    
    
    (76,622
    )
    
    
    (57,926
    )
    
    
    117,102
    
    
    
    (103,556
    )Total deferred
    
    
    (485,275
    )
    
    
    (376,517
    )
    
    
    741,641
    
    
    
    (673,117
    )Total income tax expense (benefit)
    
    $
    (737,944
    )
    
    $
    (1,610,255
    )
    
    $
    1,165,443
    
    
    $
    (1,805,430
    )
  Thirteen
    
    
    Thirteen
    
    
    Thirty-nine
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedOctober 29, 2005
    
    
    October 28, 2006
    
    
    October 29, 2005
    
    
    October 28, 2006Federal income tax at statutory rate
    
    $
    (625,774
    )
    
    $
    (1,474,204
    )
    
    $
    1,116,584
    
    
    $
    (1,667,865
    )Impact of graduated Federal rates
    
    
    17,879
    
    
    
    42,537
    
    
    
    (31,902
    )
    
    
    47,653State and local taxes, net of federal
income taxes
    
    
    (71,517
    )
    
    
    (188,642
    )
    
    
    127,610
    
    
    
    (210,774
    )Permanent differences
    
    
    (58,532
    )
    
    
    10,054
    
    
    
    (46,849
    )
    
    
    25,556Total income tax expense (benefit)
    
    $
    (737,944
    )
    
    $
    (1,610,255
    )
    
    $
    1,165,443
    
    
    $
    (1,805,430
    )
    October 29, 2005
    
    
    January 28, 2006
    
    
    October 28, 2006Deferred tax assets:Vacation accrual
    
    $
    407,530
    
    
    $
    387,344
    
    
    $
    422,444Inventory
    
    
    1,291,720
    
    
    
    1,593,904
    
    
    
    1,641,356Stock-based compensation
    
    
    276,129
    
    
    
    267,835
    
    
    
    423,882Accrued rent
    
    
    2,138,973
    
    
    
    2,380,024
    
    
    
    3,448,694Total deferred tax assets
    
    
    4,114,352
    
    
    
    4,629,107
    
    
    
    5,936,376Deferred tax liabilities:Prepaid expenses
    
    
    161,937
    
    
    
    160,152
    
    
    
    163,548Property and equipment
    
    
    2,623,503
    
    
    
    2,836,902
    
    
    
    3,467,658Total deferred tax liabilities
    
    
    2,785,440
    
    
    
    2,997,054
    
    
    
    3,631,206Net deferred tax assets
    
    $
    1,328,912
    
    
    $
    1,632,053
    
    
    $
    2,305,170
 8




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##### Table of Contents



Recent Accounting Pronouncement
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 4. Stock-Based Compensation
 Adoption of SFAS 123R
 Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees
  Thirteen
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks EndedOctober 29, 2005
    
    
    October 29, 2005Net income (loss) as reported
    
    $
    (1,049,982
    )
    
    $
    2,024,775Add: 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
    )
    
    
    (406,694
    )Pro forma net income (loss)
    
    $
    (1,201,558
    )
    
    $
    1,618,081Basic earnings (loss) per share:As reported
    
    $
    (0.17
    )
    
    $
    0.34Pro forma
    
    $
    (0.19
    )
    
    $
    0.27Diluted earnings (loss) per share:As reported
    
    $
    (0.17
    )
    
    $
    0.33Pro forma
    
    $
    (0.19
    )
    
    $
    0.26
 Stock Options
  9




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##### Table of Contents



Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks EndedOctober 29, 2005
    
    October 28, 2006Options granted
    
    
    205,200
    
    
    
    91,728Weighted-average fair value of options granted
    
    $
    6.92
    
    
    $
    10.48Assumptions:Dividends
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.0% - 3.5
    %
    
    
    4.75% - 5.0
    %Expected volatility
    
    
    64
    %
    
    
    50% - 55
    %Expected option life
    
    
    6 years
    
    

    5 - 6 years
  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
    
    
    
    
    
    
    
    
    
    
    91,728
    
    
    
    19.61
    
    
    
    91,728
    
    
    
    19.61Vested
    
    
    98,660
    
    
    
    9.21
    
    
    
    (98,660
    )
    
    
    9.21
    
    
    
    
    
    
    
    Exercised
    
    
    (121,190
    )
    
    
    3.79
    
    
    
    
    
    
    
    
    
    
    
    (121,190
    )
    
    
    3.79Forfeited
    
    
    (640
    )
    
    
    7.75
    
    
    
    (13,960
    )
    
    
    13.38
    
    
    
    (14,600
    )
    
    
    13.14Balance at October 28, 2006
    
    
    184,540
    
    
    
    4.24
    
    
    
    417,788
    
    
    
    11.57
    
    
    
    602,328
    
    
    
    9.32
   Weighted-Average
    
    Weighted-AverageNumber of
    
    Contractual Life
    
    Exercise
    
    AggregateRange of Exercise Prices
    
    Options
    
    (Years)
    
    Price
    
    Intrinsic Value$ 0.01
    
    
    98,540
    
    
    
    7.3
    
    
    $
    0.01
    
    
    $
    1,525,399$7.75
    
    
    53,960
    
    
    
    7.3
    
    
    
    7.75
    
    
    
    417,650$ 9.30$13.80
    
    
    32,040
    
    
    
    8.4
    
    
    
    11.31
    
    
    
    133,813$20.06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total ($0.01  $20.06)
    
    
    184,540
    
    
    
    7.5
    
    
    $
    4.24
    
    
    $
    2,076,862
  Weighted-Average
    
    Weighted-AverageNumber of
    
    Contractual Life
    
    Exercise
    
    AggregateRange of Exercise Prices
    
    Options
    
    (Years)
    
    Price
    
    Intrinsic Value$ 0.01
    
    
    98,540
    
    
    
    7.3
    
    
    $
    0.01
    
    
    $
    1,525,399$7.75
    
    
    221,200
    
    
    
    7.3
    
    
    
    7.75
    
    
    
    1,712,088$ 9.30  $13.80
    
    
    190,816
    
    
    
    8.4
    
    
    
    11.38
    
    
    
    785,001$20.06
    
    
    75,050
    
    
    
    9.4
    
    
    
    20.06
    
    
    
    Total ($0.01  $20.06)
    
    
    585,606
    
    
    
    7.9
    
    
    $
    9.21
    
    
    $
    4,022,488
 10




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##### Table of Contents



Restricted and Performance Shares
  5. Earnings (Loss) Per Share
   Thirteen
    
    
    Thirteen
    
    
    Thirty-nine
    
    
    Thirty-nineWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedOctober 29, 2005
    
    
    October 28, 2006
    
    
    October 29, 2005
    
    
    October 28, 2006Numerator:Numerator for basic
earnings per share  Net
income (loss)
    
    $
    (1,049,982
    )
    
    $
    (2,601,754
    )
    
    $
    2,024,775
    
    
    $
    (2,959,897
    )Numerator for diluted
earnings per share
    
    $
    (1,049,982
    )
    
    $
    (2,601,754
    )
    
    $
    2,024,775
    
    
    $
    (2,959,897
    )Denominator for basic
earnings per share -
weighted average shares
    
    
    6,198,305
    
    
    
    6,492,969
    
    
    
    5,896,052
    
    
    
    6,439,345Effect of dilutive securitiesStock options
    
    
    
    
    
    
    
    
    
    
    233,888
    
    
    
    Stock purchase warrants
    
    
    
    
    
    
    
    
    
    
    34,587
    
    
    
    Denominator for diluted
earnings per share -
adjusted weighted average
shares
    
    
    6,198,305
    
    
    
    6,492,969
    
    
    
    6,164,527
    
    
    
    6,439,345
  Thirteen
    
    Thirteen
    
    Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks Ended
    
    Weeks Ended
    
    Weeks EndedOctober 29, 2005
    
    October 28, 2006
    
    October 29, 2005
    
    October 28, 2006Stock options
    
    
    235,449
    
    
    
    114,206
    
    
    
    
    
    
    
    222,323Stock purchase warrants
    
    
    118,990
    
    
    
    42,376
    
    
    
    
    
    
    
    113,698
 11




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##### Table of Contents



6. Revolving Credit Facility
  12




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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. 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




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##### 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




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##### Table of Contents



Deferred income taxes
 Accounting for Income Taxes
 Results of Operations
  Thirteen
    
    Thirteen
    
    Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks Ended
    
    Weeks Ended
    
    Weeks EndedOctober 29, 2005
    
    October 28, 2006
    
    October 29, 2005
    
    October 28, 2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of merchandise sold, occupancy and
buying expense
    
    
    72.6
    
    
    
    74.0
    
    
    
    68.4
    
    
    
    70.8Gross profit
    
    
    27.4
    
    
    
    26.0
    
    
    
    31.6
    
    
    
    29.2Selling expense
    
    
    21.6
    
    
    
    23.6
    
    
    
    20.3
    
    
    
    22.3General and administrative expense
    
    
    9.2
    
    
    
    10.7
    
    
    
    8.5
    
    
    
    9.7Loss on disposal or impairment of
property and equipment
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2Operating income (loss)
    
    
    (3.9
    )
    
    
    (8.5
    )
    
    
    2.5
    
    
    
    (3.0
    )Other income (expense), net
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (0.4
    )Income (loss) before income taxes
    
    
    (4.1
    )
    
    
    (9.1
    )
    
    
    2.4
    
    
    
    (3.3
    )Provision for (benefit from) income taxes
    
    
    (1.7
    )
    
    
    (3.5
    )
    
    
    0.9
    
    
    
    (1.3
    )Net income (loss)
    
    
    (2.4
    )%
    
    
    (5.6
    )%
    
    
    1.5
    %
    
    
    (2.0
    )%
  Thirteen
    
    Thirteen
    
    Thirty-nine
    
    Thirty-nineWeeks Ended
    
    Weeks Ended
    
    Weeks Ended
    
    Weeks EndedOctober 29, 2005
    
    October 28, 2006
    
    October 29, 2005
    
    October 28, 2006Number of stores at beginning of period
    
    
    225
    
    
    
    247
    
    
    
    218
    
    
    
    235Stores opened during period
    
    
    11
    
    
    
    15
    
    
    
    24
    
    
    
    31Stores closed during period
    
    
    (2
    )
    
    
    (1
    )
    
    
    (8
    )
    
    
    (5
    )Number of stores at end of period
    
    
    234
    
    
    
    261
    
    
    
    234
    
    
    
    261
 Thirteen Weeks Ended October 28, 2006 Compared to Thirteen Weeks Ended October 29, 2005
 Net sales.
 Gross profit.
 15




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##### Table of Contents



Selling expense.
 General and administrative expense.
 Loss on disposal or impairment of property and equipment
 Interest expense.
 Income tax benefit.
 Net loss
 Thirty-nine Weeks Ended October 28, 2006 Compared to Thirty-nine Weeks Ended October 29, 2005
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 16




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##### Table of Contents



Interest expense.
 Income tax expense (benefit).
 Net income (loss)
 Seasonality and Quarterly Fluctuations
    Liquidity and Capital Resources
   October 29, 2005
    
    January 28, 2006
    
    October 28, 2006Cash
    
    $
    128,314
    
    
    $
    3,924,970
    
    
    $
    180,341Inventories
    
    
    24,950,807
    
    
    
    25,997,859
    
    
    
    27,499,098Total current assets
    
    
    32,117,579
    
    
    
    35,366,487
    
    
    
    35,602,032Revolving credit facility
    
    
    5,077,992
    
    
    
    
    
    
    
    19,806,713Total current liabilities
    
    
    25,645,490
    
    
    
    27,599,760
    
    
    
    38,283,146Net working capital
    
    
    6,472,089
    
    
    
    7,766,727
    
    
    
    (2,681,114
    )Property and equipment, net
    
    
    34,596,070
    
    
    
    38,701,362
    
    
    
    50,192,784Total assets
    
    
    67,266,665
    
    
    
    74,754,684
    
    
    
    87,118,989Total shareholders equity
    
    
    35,111,656
    
    
    
    40,390,584
    
    
    
    39,698,889Unused borrowing capacity*
    
    
    13,885,016
    
    
    
    19,220,644
    
    
    
    4,461,921
 
 *
    
    - as calculated under the terms of our revolving credit facility 17




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##### Table of Contents



Operating activities
    Investing activities
    Financing activities
  18




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19




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##### 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
   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)
    
    $
    429,608
    
    
    $
    305,211
    
    
    $
    124,398
    
    
    $
    
    
    
    $
    Operating lease obligations (2)
    
    
    194,925,199
    
    
    
    24,495,882
    
    
    
    48,554,549
    
    
    
    44,947,785
    
    
    
    76,926,983Purchase obligations (3)
    
    
    27,396,984
    
    
    
    27,388,621
    
    
    
    8,364
    
    
    
    
    
    
    
    Total
    
    $
    222,751,791
    
    
    $
    52,189,713
    
    
    $
    48,687,310
    
    
    $
    44,947,785
    
    
    $
    76,926,983
 
 (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. 20




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##### Table of Contents



Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Effect of Inflation
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 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 6. EXHIBITS
  21




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##### 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.Executive Vice President, Chief Financial Officer, Treasurer,

and Secretary

(As principal financial officer) 22




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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)).10.1
    
    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).10.2
    
    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).10.3
    
    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).10.4
    
    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