##### 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 August 4, 2007
 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
    
    43-0577980(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)2815 Scott Avenue,St. Louis, Missouri
    
    63103(Address of principal executive offices)
    
    (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
    
    7-10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    11-20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    20Item 4. Controls and Procedures
    
    20Part II Other InformationItem 1A. Risk Factors
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    20-21Item 6. Exhibits
    
    21Signatures
    
    22Exhibit Index
    
    23302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of 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
 July 29,
    
    
    February 3,
    
    
    August 4,2006
    
    
    2007
    
    
    2007(Unaudited)
    
    
    
    
    
    
    (Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    191,747
    
    
    $
    407,346
    
    
    $
    192,576Accounts receivable
    
    
    1,067,429
    
    
    
    1,352,936
    
    
    
    1,223,857Other receivables
    
    
    1,070,911
    
    
    
    1,140,168
    
    
    
    789,365Inventories
    
    
    26,268,341
    
    
    
    24,102,006
    
    
    
    22,920,714Prepaid expenses and other current assets
    
    
    927,486
    
    
    
    713,810
    
    
    
    4,228,172Prepaid income taxes
    
    
    530,190
    
    
    
    1,129,637
    
    
    
    2,251,523Deferred income taxes
    
    
    1,676,852
    
    
    
    1,963,670
    
    
    
    Total current assets
    
    
    31,732,956
    
    
    
    30,809,573
    
    
    
    31,606,207Property and equipment, net
    
    
    45,772,551
    
    
    
    51,021,077
    
    
    
    49,245,995Deferred income taxes
    
    
    251,801
    
    
    
    424,139
    
    
    
    Other assets
    
    
    1,134,858
    
    
    
    904,070
    
    
    
    1,270,730Total assets
    
    $
    78,892,166
    
    
    $
    83,158,859
    
    
    $
    82,122,932Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    9,107,153
    
    
    $
    8,134,642
    
    
    $
    10,822,480Accrued expenses
    
    
    10,262,268
    
    
    
    9,004,436
    
    
    
    7,442,081Sales tax payable
    
    
    251,936
    
    
    
    757,868
    
    
    
    457,958Deferred income
    
    
    1,093,467
    
    
    
    1,332,473
    
    
    
    1,194,489Revolving credit facility
    
    
    7,960,653
    
    
    
    13,099,304
    
    
    
    16,056,368Current maturities of capital lease obligations
    
    
    283,838
    
    
    
    189,807
    
    
    
    116,998Total current liabilities
    
    
    28,959,315
    
    
    
    32,518,530
    
    
    
    36,090,374Subordinated
convertible debentures
    
    
    
    
    
    
    
    
    
    
    4,000,000Obligations under capital leases, less current maturities
    
    
    127,732
    
    
    
    57,863
    
    
    
    10,734Accrued rent liabilities
    
    
    7,755,678
    
    
    
    9,415,617
    
    
    
    10,233,227Shareholders 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, 6,492,955 shares outstanding at July 29,
2006 and 6,493,035 shares outstanding at February 3,
2007 and August 4, 2007
    
    
    649
    
    
    
    649
    
    
    
    649Additional paid-in capital
    
    
    36,269,047
    
    
    
    36,571,423
    
    
    
    36,903,127Retained earnings (accumulated deficit)
    
    
    5,779,745
    
    
    
    4,594,777
    
    
    
    (5,115,179
    )Total shareholders equity
    
    
    42,049,441
    
    
    
    41,166,849
    
    
    
    31,788,597Total liabilities and shareholders equity
    
    $
    78,892,166
    
    
    $
    83,158,859
    
    
    $
    82,122,932
  3




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (Unaudited)
 Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks
    
    
    Weeks
    
    
    Weeks
    
    
    WeeksEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 29, 2006
    
    
    August 4, 2007
    
    
    July 29, 2006
    
    
    August 4, 2007Net sales
    
    $
    47,184,870
    
    
    $
    41,984,658
    
    
    $
    96,989,783
    
    
    $
    91,240,475Cost of merchandise sold, occupancy, and buying expenses
    
    
    33,673,554
    
    
    
    32,708,564
    
    
    
    67,181,316
    
    
    
    66,676,340Gross profit
    
    
    13,511,316
    
    
    
    9,276,094
    
    
    
    29,808,467
    
    
    
    24,564,135Operating expenses:Selling
    
    
    10,675,399
    
    
    
    11,213,164
    
    
    
    21,073,767
    
    
    
    23,105,104General and administrative
    
    
    4,197,764
    
    
    
    4,385,807
    
    
    
    8,896,804
    
    
    
    8,950,562Loss on disposal of property and equipment
    
    
    113,491
    
    
    
    8,448
    
    
    
    128,103
    
    
    
    44,752Impairment of long-lived assets
    
    
    
    
    
    
    755,672
    
    
    
    
    
    
    
    755,672Operating loss
    
    
    (1,475,338
    )
    
    
    (7,086,997
    )
    
    
    (290,207
    )
    
    
    (8,291,955
    )Other income (expense):Interest expense
    
    
    (183,954
    )
    
    
    (402,294
    )
    
    
    (296,892
    )
    
    
    (764,418
    )Other, net
    
    
    10,944
    
    
    
    25,348
    
    
    
    33,781
    
    
    
    37,784Loss before income taxes
    
    
    (1,648,348
    )
    
    
    (7,463,943
    )
    
    
    (553,318
    )
    
    
    (9,018,589
    )Provision for (benefit from) income taxes
    
    
    (621,850
    )
    
    
    1,280,839
    
    
    
    (195,175
    )
    
    
    691,367Net loss
    
    $
    (1,026,498
    )
    
    $
    (8,744,782
    )
    
    $
    (358,143
    )
    
    $
    (9,709,956
    )Basic loss per share
    
    $
    (0.16
    )
    
    $
    (1.35
    )
    
    $
    (0.06
    )
    
    $
    (1.50
    )Diluted loss per share
    
    $
    (0.16
    )
    
    $
    (1.35
    )
    
    $
    (0.06
    )
    
    $
    (1.50
    )
  4




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 Common StockRetainedShares
    
    
    
    
    
    
    Additional
    
    
    EarningsIssued and
    
    
    
    
    
    
    Paid-In
    
    
    (AccumulatedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    TotalBalance at February 3, 2007
    
    
    6,493,035
    
    
    $
    649
    
    
    $
    36,571,423
    
    
    $
    4,594,777
    
    
    $
    41,166,849Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    331,704
    
    
    
    
    
    
    
    331,704Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,709,956
    )
    
    
    (9,709,956
    )Balance at August 4, 2007
    
    
    6,493,035
    
    
    $
    649
    
    
    $
    36,903,127
    
    
    $
    (5,115,179
    )
    
    $
    31,788,597
  5




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks EndedJuly 29, 2006
    
    
    August 4, 2007Operating activitiesNet loss
    
    $
    (358,143
    )
    
    $
    (9,709,956
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,519,864
    
    
    
    4,330,394Deferred income taxes
    
    
    (296,600
    )
    
    
    2,387,809Stock-based compensation expense
    
    
    442,816
    
    
    
    331,704Excess income tax benefit from exercise of stock options
    
    
    (614,392
    )
    
    
    Loss on disposal of property and equipment
    
    
    128,103
    
    
    
    44,752Impairment of long-lived assets
    
    
    
    
    
    
    755,672Changes in operating assets and liabilities:Accounts receivable
    
    
    232,640
    
    
    
    479,882Inventories
    
    
    (270,482
    )
    
    
    1,181,292Prepaid expenses and other current assets
    
    
    324,095
    
    
    
    (3,514,362
    )Prepaid income taxes
    
    
    (530,190
    )
    
    
    (1,121,886
    )Other assets
    
    
    (448,023
    )
    
    
    45,870Accounts payable
    
    
    (2,952,581
    )
    
    
    2,687,838Accrued expenses and deferred income
    
    
    (2,247,648
    )
    
    
    (2,000,249
    )Accrued income taxes
    
    
    (683,572
    )
    
    
    Accrued rent liabilities
    
    
    1,428,053
    
    
    
    817,610Net cash used in operating activities
    
    
    (2,326,060
    )
    
    
    (3,283,630
    )Investing activitiesPurchase of property and equipment
    
    
    (10,733,819
    )
    
    
    (3,367,602
    )Proceeds from sale of property and equipment
    
    
    14,663
    
    
    
    19,783Net cash used in investing activities
    
    
    (10,719,156
    )
    
    
    (3,347,819
    )Financing activitiesNet advances under revolving credit facility
    
    
    7,960,653
    
    
    
    2,957,064Proceeds
from issuance of subordinated convertible debentures
    
    
    
    
    
    
    4,000,000Debt issuance costs
    
    
    
    
    
    
    (420,447
    )Proceeds from exercise of stock warrants
    
    
    508,990
    
    
    
    Proceeds from exercise of stock options
    
    
    450,802
    
    
    
    Excess income tax benefit from exercise of stock options
    
    
    614,392
    
    
    
    Principal payments under capital lease obligations
    
    
    (222,844
    )
    
    
    (119,938
    )Net cash provided by financing activities
    
    
    9,311,993
    
    
    
    6,416,679Net decrease in cash and cash equivalents
    
    
    (3,733,223
    )
    
    
    (214,770
    )Cash and cash equivalents at beginning of period
    
    
    3,924,970
    
    
    
    407,346Cash and cash equivalents at end of period
    
    $
    191,747
    
    
    $
    192,576Supplemental disclosures of cash flow informationCash paid for income taxes
    
    $
    1,481,896
    
    
    $
    71,011Cash paid for interest
    
    $
    251,008
    
    
    $
    687,869
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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 Unaudited
 1. Basis of Presentation
  2. Income Taxes
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for Income Taxes
   7




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##### Table of Contents



Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedJuly 29, 2006
    
    
    August 4, 2007
    
    
    July 29, 2006
    
    
    August 4, 2007Current:Federal
    
    $
    (376,659
    )
    
    $
    (1,609,858
    )
    
    $
    86,530
    
    
    $
    (1,831,569
    )State and local
    
    
    (71,154
    )
    
    
    189,743
    
    
    
    14,895
    
    
    
    135,127Total current
    
    
    (447,813
    )
    
    
    (1,420,115
    )
    
    
    101,425
    
    
    
    (1,696,442
    )Deferred:Federal
    
    
    (147,262
    )
    
    
    (752,613
    )
    
    
    (250,969
    )
    
    
    (1,017,582
    )State and local
    
    
    (26,775
    )
    
    
    (688,720
    )
    
    
    (45,631
    )
    
    
    (736,896
    )Total deferred
    
    
    (174,037
    )
    
    
    (1,441,333
    )
    
    
    (296,600
    )
    
    
    (1,754,478
    )Valuation allowance
    
    
    
    
    
    
    4,142,287
    
    
    
    
    
    
    
    4,142,287Total income tax expense (benefit)
    
    $
    (621,850
    )
    
    $
    1,280,839
    
    
    $
    (195,175
    )
    
    $
    691,367
  Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedJuly 29, 2006
    
    
    August 4, 2007
    
    
    July 29, 2006
    
    
    August 4, 2007Federal income tax at statutory rate
    
    $
    (576,922
    )
    
    $
    (2,612,380
    )
    
    $
    (193,661
    )
    
    $
    (3,156,506
    )Impact of graduated Federal rates
    
    
    14,912
    
    
    
    74,639
    
    
    
    5,117
    
    
    
    90,186State and local taxes, net of federal income taxes
    
    
    (65,934
    )
    
    
    (330,068
    )
    
    
    (22,133
    )
    
    
    (398,831
    )Permanent differences
    
    
    6,094
    
    
    
    6,361
    
    
    
    15,502
    
    
    
    14,231Valuation allowance
    
    
    
    
    
    
    4,142,287
    
    
    
    
    
    
    
    4,142,287Total income tax expense (benefit)
    
    $
    (621,850
    )
    
    $
    1,280,839
    
    
    $
    (195,175
    )
    
    $
    691,367
   July 29, 2006
    
    
    February 3, 2007
    
    
    August 4, 2007Deferred tax assets:Net operating loss carryforward
    
    $
    
    
    
    $
    
    
    
    $
    1,144,058Vacation accrual
    
    
    410,744
    
    
    
    426,763
    
    
    
    444,313Inventory
    
    
    1,495,419
    
    
    
    1,712,111
    
    
    
    1,514,078Stock-based compensation
    
    
    326,299
    
    
    
    443,840
    
    
    
    573,205Accrued rent
    
    
    2,878,465
    
    
    
    3,646,741
    
    
    
    3,990,959Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (4,142,287
    )Total deferred tax assets
    
    
    5,110,857
    
    
    
    6,229,455
    
    
    
    3,524,326Deferred tax liabilities:Prepaid expenses
    
    
    229,311
    
    
    
    175,204
    
    
    
    233,000Property and equipment
    
    
    2,952,893
    
    
    
    3,666,442
    
    
    
    3,291,326Total deferred tax liabilities
    
    
    3,182,204
    
    
    
    3,841,646
    
    
    
    3,524,326Net deferred tax assets
    
    $
    1,928,653
    
    
    $
    2,387,809
    
    
    $
    
 8




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##### Table of Contents



3. Stock-Based Compensation
  Twenty-six
    
    Twenty-sixWeeks Ended
    
    Weeks EndedJuly 29, 2006
    
    August 4, 2007Options granted
    
    
    79,228
    
    
    
    132,613Weighted-average fair value of options granted
    
    $
    10.68
    
    
    $
    4.99AssumptionsDividends
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.75% - 5.0
    %
    
    
    4.5
    %Expected volatility
    
    
    50% - 55
    %
    
    
    43% - 46
    %Expected option life
    
    
    5  6 years
    
    
    
    5  6 years
  4. Earnings (Loss) Per Share
   Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks
    
    
    Weeks
    
    
    Weeks
    
    
    WeeksEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 29, 2006
    
    
    August 4, 2007
    
    
    July 29, 2006
    
    
    August 4, 2007Numerator:Numerator for basic earnings per share  Net income (loss)
    
    $
    (1,026,498
    )
    
    $
    (8,744,782
    )
    
    $
    (358,143
    )
    
    $
    (9,709,956
    )Numerator for diluted earnings per share
    
    $
    (1,026,498
    )
    
    $
    (8,744,782
    )
    
    $
    (358,143
    )
    
    $
    (9,709,956
    )Denominator for basic earnings per share  weighted
average shares
    
    
    6,492,955
    
    
    
    6,493,035
    
    
    
    6,412,533
    
    
    
    6,493,035Effect of dilutive securitiesStock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock purchase warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings per share  adjusted
weighted average shares and assumed conversions
    
    
    6,492,955
    
    
    
    6,493,035
    
    
    
    6,412,533
    
    
    
    6,493,035
 9




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##### Table of Contents



Thirteen
    
    Thirteen
    
    Twenty-six
    
    Twenty-sixWeeks
    
    Weeks
    
    Weeks
    
    WeeksEnded
    
    Ended
    
    Ended
    
    EndedJuly 29, 2006
    
    August 4, 2007
    
    July 29, 2006
    
    August 4, 2007Stock options
    
    
    123,806
    
    
    
    82,713
    
    
    
    181,051
    
    
    
    98,770Convertible securities (1)
    
    
    
    
    
    
    190,476
    
    
    
    
    
    
    
    95,238Stock purchase warrants (2)
    
    
    72,263
    
    
    
    
    
    
    
    150,161
    
    
    
    
 
 (1)
    
    Interest expense related to shares underlying subordinated convertible debentures was not
added back to the diluted earnings per share calculation for the thirteen and twenty-six
weeks ended August 4, 2007 because the shares underlying the convertible debentures were
antidilutive.(2)
    
    The 384,000 outstanding stock purchase warrants were excluded from the diluted earnings
per share calculation for the thirteen and twenty-six weeks ended August 4, 2007 because
they had exercise prices that were greater than the average closing price of the Companys
common stock for those periods. 5. Revolving Credit Facility
  6. Private Placement of Subordinated Convertible Debentures
  7. Impairment of Long-Lived assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets.
 10




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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
  Deferred Income
    Critical Accounting Policies
  11




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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
 Deferred income taxes
 Accounting for Income Taxes
 Accounting for Income Taxes
 12




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Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Results of Operations
  Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedJuly 29,
    
    August 4,
    
    July 29,
    
    August 4,2006
    
    2007
    
    2006
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of merchandise sold, occupancy and buying expense
    
    
    71.4
    
    
    
    77.9
    
    
    
    69.3
    
    
    
    73.1Gross profit
    
    
    28.6
    
    
    
    22.1
    
    
    
    30.7
    
    
    
    26.9Selling expense
    
    
    22.6
    
    
    
    26.7
    
    
    
    21.7
    
    
    
    25.3General and administrative expense
    
    
    8.9
    
    
    
    10.5
    
    
    
    9.2
    
    
    
    9.8Loss on disposal of property and equipment
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Impairment of long-lived assets
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    0.8Operating income (loss)
    
    
    (3.1
    )
    
    
    (16.9
    )
    
    
    (0.3
    )
    
    
    (9.1
    )Other income (expense)
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Interest expense
    
    
    (0.4
    )
    
    
    (1.0
    )
    
    
    (0.3
    )
    
    
    (0.8
    )Loss before income taxes
    
    
    (3.5
    )
    
    
    (17.8
    )
    
    
    (0.6
    )
    
    
    (9.8
    )Income tax expense (benefit)
    
    
    (1.3
    )
    
    
    3.0
    
    
    
    (0.2
    )
    
    
    0.8Net loss
    
    
    (2.2
    )%
    
    
    (20.8
    )%
    
    
    (0.4
    )%
    
    
    (10.6
    )%
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Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedJuly 29,
    
    August 4,
    
    July 29,
    
    August 4,2006
    
    2007
    
    2006
    
    2007Number of stores at beginning of period
    
    
    245
    
    
    
    258
    
    
    
    235
    
    
    
    257Stores opened during period
    
    
    4
    
    
    
    0
    
    
    
    16
    
    
    
    6Stores closed during period
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (6
    )Number of stores at end of period
    
    
    247
    
    
    
    257
    
    
    
    247
    
    
    
    257
 Thirteen Weeks Ended August 4, 2007 Compared to Thirteen Weeks Ended July 29, 2006
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 Impairment of long-lived assets Accounting for the
Disposal of Long-Lived Assets
 Interest expense.
 Income tax expense (benefit). Deferred Income Taxes
 Net loss
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Twenty-six Weeks Ended August 4, 2007 Compared to Twenty-six Weeks Ended July 29, 2006
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 Impairment of long-lived assets Accounting for the
Disposal of Long-Lived Assets
 Interest expense.
 Income tax expense (benefit). Deferred Income Taxes
 Net loss
 Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
  15




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July 29, 2006
    
    February 3, 2007
    
    August 4, 2007Cash
    
    $
    191,747
    
    
    $
    407,346
    
    
    $
    192,576Inventories
    
    
    26,268,341
    
    
    
    24,102,006
    
    
    
    22,920,714Total current assets
    
    
    31,732,956
    
    
    
    30,809,573
    
    
    
    31,606,207Revolving Credit Facility
    
    
    7,960,653
    
    
    
    13,099,304
    
    
    
    16,056,368Total current liabilities
    
    
    28,959,315
    
    
    
    32,518,530
    
    
    
    36,090,374Net working capital
    
    
    2,773,641
    
    
    
    (1,708,957
    )
    
    
    (4,484,167
    )Property and equipment, net
    
    
    45,772,551
    
    
    
    51,021,077
    
    
    
    49,245,995Total assets
    
    
    78,892,166
    
    
    
    83,158,859
    
    
    
    82,122,932Total shareholders equity
    
    
    42,049,441
    
    
    
    41,166,849
    
    
    
    31,788,597Unused borrowing capacity*
    
    
    10,605,184
    
    
    
    6,100,178
    
    
    
    789,734
 
 *
    
    as calculated under the terms of our revolving credit facility Operating activities
   16




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Investing activities
   Financing activities
     17




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18




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Accounting
for Contingencies
   Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments due by PeriodLess thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 -5 Years
    
    
    More than 5 YearsLong-term debt obligations (1)
    
    $
    5,993,779
    
    
    $
    392,667
    
    
    $
    771,084
    
    
    $
    4,770,028
    
    
    $
    Capital lease obligations (2)
    
    
    152,229
    
    
    
    140,990
    
    
    
    11,239
    
    
    
    
    
    
    
    Operating lease obligations (3)
    
    
    215,344,681
    
    
    
    23,869,101
    
    
    
    51,414,819
    
    
    
    48,304,668
    
    
    
    91,756,093Purchase obligations (4)
    
    
    25,554,970
    
    
    
    25,236,329
    
    
    
    309,493
    
    
    
    9,148
    
    
    
    Total
    
    $
    246,985,659
    
    
    $
    49,639,087
    
    
    $
    52,506,635
    
    
    $
    53,083,844
    
    
    $
    91,756,093
 
 (1)
    
    Includes principal and interest payments.(2)
    
    Includes payment obligations relating to our point of sale hardware and software leases.(3
    
    Includes minimum payment obligations related to our store leases.(4)
    
    Includes merchandise on order and payment obligations relating to store construction and miscellaneous service contracts. 19




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Recent Accounting Pronouncements
  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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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ITEM 6. EXHIBITS
  21




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




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EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit3.1
    
    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
    
    Subordinated Convertible Debenture Purchase Agreement dated
June 13, 2007 by and among the Company and the Investors named
therein (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated June 26, 2007 (File
No. 000-50563)).10.2
    
    9.5% Subordinated Convertible Debentures issued by the Company
to Investors on June 26, 2007 (incorporated by reference to
Exhibit 4.2 to the Companys Current Report on Form 8-K dated
June 26, 2007 (File No. 000-50563)).10.3
    
    Subordination Agreement dated June 26, 2007 by and among the
Company, the Investors named therein and Bank of America, N.A.
(incorporated by reference to Exhibit 4.3 to the Companys
Current Report on Form 8-K dated June 26, 2007 (File No.
000-50563)).10.4
    
    Extension Agreement dated June 26, 2007 between the Company
and Bank of America, N.A. (incorporated by reference to
Exhibit 4.4 to the Companys Current Report on Form 8-K dated
June 26, 2007 (File No. 000-50563)).10.5
    
    Registration Rights Agreement dated June 26, 2007 by and among
the Company and the Investors named therein (incorporated by
reference to Exhibit 4.5 to the Companys Current Report on
Form 8-K dated June 26, 2007 (File No. 000-50563)).10.6
    
    First Amendment to Second Amended and Restated Loan and
Security Agreement dated as of May 17, 2007 by and between the
Company and Bank of America, N.A. (incorporated by reference
to Exhibit 10.4 to the Companys Current Report on Form 8-K
dated May 18, 2007 (File No. 000-50563)).11.1
    
    Statement regarding computation of per share earnings
(incorporated by reference from Note 4 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