##### 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 2, 2008
 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,
    
    63103St. Louis, Missouri
    
    (Zip Code)(Address of principal executive offices)
 (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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 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
    
    13-23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    24Item 4. Controls and Procedures
    
    24Part II Other InformationItem 1. Legal Proceedings
    
    25Item 1A. Risk Factors
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    25Item 6. Exhibits
    
    25Signatures
    
    26Exhibit Index
    
    27302 Certification by Chief Executive Officer302 Certification by Principal Financial Officer906 Certifications
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED BALANCE SHEETS
 August 4,
    
    
    February 2,
    
    
    August 2,2007
    
    
    2008
    
    
    2008(Unaudited)
    
    
    
    
    
    
    (Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    192,576
    
    
    $
    159,671
    
    
    $
    145,075Accounts receivable
    
    
    1,223,857
    
    
    
    1,192,674
    
    
    
    1,177,205Other receivables
    
    
    789,365
    
    
    
    182,999
    
    
    
    183,610Inventories
    
    
    22,920,714
    
    
    
    18,061,941
    
    
    
    21,559,866Prepaid expenses and other current assets
    
    
    4,228,172
    
    
    
    697,174
    
    
    
    971,396Prepaid income taxes
    
    
    2,251,523
    
    
    
    1,987,621
    
    
    
    106,415Total current assets
    
    
    31,606,207
    
    
    
    22,282,080
    
    
    
    24,143,567Property and equipment, net
    
    
    49,245,995
    
    
    
    43,810,776
    
    
    
    40,165,809Other assets
    
    
    1,270,730
    
    
    
    1,466,095
    
    
    
    1,156,665Total assets
    
    $
    82,122,932
    
    
    $
    67,558,951
    
    
    $
    65,466,041Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    10,822,480
    
    
    $
    7,082,214
    
    
    $
    6,694,455Accrued expenses
    
    
    7,442,081
    
    
    
    9,162,561
    
    
    
    8,130,141Subordinated secured term loan
    
    
    
    
    
    
    
    
    
    
    5,876,590Subordinated convertible debentures
    
    
    
    
    
    
    
    
    
    
    4,000,000Sales tax payable
    
    
    457,958
    
    
    
    498,510
    
    
    
    573,989Deferred income
    
    
    1,194,489
    
    
    
    1,362,563
    
    
    
    1,179,666Revolving credit facility
    
    
    16,056,368
    
    
    
    11,184,379
    
    
    
    10,923,753Current maturities of capital lease obligations
    
    
    116,998
    
    
    
    57,863
    
    
    
    10,734Total current liabilities
    
    
    36,090,374
    
    
    
    29,348,090
    
    
    
    37,389,328Subordinated convertible debentures
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    Obligations under capital leases, less current maturities
    
    
    10,734
    
    
    
    
    
    
    
    Accrued rent liabilities
    
    
    10,233,227
    
    
    
    10,170,761
    
    
    
    10,070,474Shareholders 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, 6,493,035 shares outstanding at August 4,
2007, 6,655,856 shares outstanding at February 2,
2008 and 7,055,856 shares outstanding at August 2,
2008
    
    
    649
    
    
    
    665
    
    
    
    705Additional paid-in capital
    
    
    36,903,127
    
    
    
    37,101,923
    
    
    
    38,203,800Accumulated deficit
    
    
    (5,115,179
    )
    
    
    (13,062,488
    )
    
    
    (20,198,266
    )Total shareholders equity
    
    
    31,788,597
    
    
    
    24,040,100
    
    
    
    18,006,239Total liabilities and shareholders equity
    
    $
    82,122,932
    
    
    $
    67,558,951
    
    
    $
    65,466,041
  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
    
    
    EndedAugust 4, 2007
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 2, 2008Net sales
    
    $
    41,984,658
    
    
    $
    43,568,099
    
    
    $
    91,240,475
    
    
    $
    87,105,602Cost of merchandise sold, occupancy, and buying expenses
    
    
    32,708,564
    
    
    
    30,688,934
    
    
    
    66,676,340
    
    
    
    62,976,464Gross profit
    
    
    9,276,094
    
    
    
    12,879,165
    
    
    
    24,564,135
    
    
    
    24,129,138Operating expenses:Selling
    
    
    11,213,164
    
    
    
    10,195,159
    
    
    
    23,105,104
    
    
    
    20,907,132General and administrative
    
    
    4,385,807
    
    
    
    4,009,702
    
    
    
    8,950,562
    
    
    
    8,394,968Loss on disposal of property and equipment
    
    
    8,448
    
    
    
    31,740
    
    
    
    44,752
    
    
    
    253,600Impairment of long-lived assets
    
    
    755,672
    
    
    
    
    
    
    
    755,672
    
    
    
    Operating loss
    
    
    (7,086,997
    )
    
    
    (1,357,436
    )
    
    
    (8,291,955
    )
    
    
    (5,426,562
    )Other income (expense):Interest expense
    
    
    (402,294
    )
    
    
    (723,034
    )
    
    
    (764,418
    )
    
    
    (1,529,782
    )Other, net
    
    
    25,348
    
    
    
    41,258
    
    
    
    37,784
    
    
    
    43,064Loss before income taxes
    
    
    (7,463,943
    )
    
    
    (2,039,212
    )
    
    
    (9,018,589
    )
    
    
    (6,913,280
    )Provision for income taxes
    
    
    1,280,839
    
    
    
    222,498
    
    
    
    691,367
    
    
    
    222,498Net loss
    
    $
    (8,744,782
    )
    
    $
    (2,261,710
    )
    
    $
    (9,709,956
    )
    
    $
    (7,135,778
    )Basic loss per share
    
    $
    (1.35
    )
    
    $
    (0.32
    )
    
    $
    (1.50
    )
    
    $
    (1.02
    )Diluted loss per share
    
    $
    (1.35
    )
    
    $
    (0.32
    )
    
    $
    (1.50
    )
    
    $
    (1.02
    )
  4




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
 Common StockShares
    
    
    
    
    
    
    AdditionalIssued and
    
    
    
    
    
    
    Paid-In
    
    
    AccumulatedOutstanding
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance at February 2, 2008
    
    
    6,655,856
    
    
    $
    665
    
    
    $
    37,101,923
    
    
    $
    (13,062,488
    )
    
    $
    24,040,100Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    301,917
    
    
    
    
    
    
    
    301,917Issuance of common stock
    
    
    400,000
    
    
    
    40
    
    
    
    799,960
    
    
    
    
    
    
    
    800,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,135,778
    )
    
    
    (7,135,778
    )Balance at August 2, 2008
    
    
    7,055,856
    
    
    $
    705
    
    
    $
    38,203,800
    
    
    $
    (20,198,266
    )
    
    $
    18,006,239
  5




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks EndedAugust 4, 2007
    
    
    August 2, 2008Operating activitiesNet loss
    
    $
    (9,709,956
    )
    
    $
    (7,135,778
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    4,330,394
    
    
    
    4,029,245Deferred income taxes
    
    
    2,387,809
    
    
    
    Accretion of debt discount
    
    
    
    
    
    
    351,590Stock-based compensation expense
    
    
    331,704
    
    
    
    301,917Loss on disposal of property and equipment
    
    
    44,752
    
    
    
    253,600Impairment of long-lived assets
    
    
    755,672
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    479,882
    
    
    
    14,858Inventories
    
    
    1,181,292
    
    
    
    (3,497,925
    )Prepaid expenses and other current assets
    
    
    (3,514,362
    )
    
    
    (274,222
    )Prepaid income taxes
    
    
    (1,121,886
    )
    
    
    1,881,206Other assets
    
    
    45,870
    
    
    
    559,972Accounts payable
    
    
    2,687,838
    
    
    
    (387,759
    )Accrued expenses and deferred income
    
    
    (2,000,249
    )
    
    
    (1,139,838
    )Accrued rent liabilities
    
    
    817,610
    
    
    
    (100,287
    )Net cash used in operating activities
    
    
    (3,283,630
    )
    
    
    (5,143,421
    )Investing activitiesPurchase of property and equipment
    
    
    (3,367,602
    )
    
    
    (638,589
    )Proceeds from sale of property and equipment
    
    
    19,783
    
    
    
    711Net cash used in investing activities
    
    
    (3,347,819
    )
    
    
    (637,878
    )Financing activitiesNet advances under revolving credit facility
    
    
    2,957,064
    
    
    
    (260,626
    )Proceeds from issuance of convertible debentures
    
    
    4,000,000
    
    
    
    Debt issuance costs
    
    
    (420,447
    )
    
    
    Proceeds from issuance of subordinated secured term loan and common stock
    
    
    
    
    
    
    7,025,000Costs of issuing subordinated term loan and common stock
    
    
    
    
    
    
    (325,542
    )Principal payments on subordinated secured term loan
    
    
    
    
    
    
    (625,000
    )Principal payments under capital lease obligations
    
    
    (119,938
    )
    
    
    (47,129
    )Net cash provided by financing activities
    
    
    6,416,679
    
    
    
    5,766,703Net decrease in cash and cash equivalents
    
    
    (214,770
    )
    
    
    (14,596
    )Cash and cash equivalents at beginning of period
    
    
    407,346
    
    
    
    159,671Cash and cash equivalents at end of period
    
    $
    192,576
    
    
    $
    145,075Supplemental disclosures of cash flow informationCash paid for income taxes
    
    $
    71,011
    
    
    $
    Cash paid for interest
    
    $
    687,869
    
    
    $
    1,534,120
  6




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##### Table of Contents



BAKERS FOOTWEAR GROUP, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
 1. Basis of Presentation
  2. Liquidity
      7




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##### Table of Contents



3. Issuance of Debt and Common Stock
      8




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##### Table of Contents



Accounting for
Contingencies
 4. Revolving Credit Facility
  9




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##### Table of Contents



5. Subordinated Convertible Debentures
   6. Income Taxes
     10




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##### Table of Contents



Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedAugust 4, 2007
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 2, 2008Current:Federal
    
    $
    (1,609,858
    )
    
    $
    (52,723
    )
    
    $
    (1,831,569
    )
    
    $
    (1,383,104
    )State and local
    
    
    189,743
    
    
    
    (54,856
    )
    
    
    135,127
    
    
    
    (342,002
    )Total current
    
    
    (1,420,115
    )
    
    
    (107,579
    )
    
    
    (1,696,442
    )
    
    
    (1,725,106
    )Deferred:Federal
    
    
    (752,613
    )
    
    
    (368,731
    )
    
    
    (1,017,582
    )
    
    
    (578,178
    )State and local
    
    
    (688,720
    )
    
    
    (81,153
    )
    
    
    (736,896
    )
    
    
    (119,234
    )Total deferred
    
    
    (1,441,333
    )
    
    
    (449,884
    )
    
    
    (1,754,478
    )
    
    
    (697,412
    )Valuation allowance
    
    
    4,142,287
    
    
    
    779,961
    
    
    
    4,142,287
    
    
    
    2,645,016Total income tax expense
    
    $
    1,280,839
    
    
    $
    222,498
    
    
    $
    691,367
    
    
    $
    222,498
  Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks Ended
    
    
    Weeks Ended
    
    
    Weeks Ended
    
    
    Weeks EndedAugust 4, 2007
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 2, 2008Federal income tax at statutory rate
    
    $
    (2,612,380
    )
    
    $
    (713,724
    )
    
    $
    (3,156,506
    )
    
    $
    (2,419,648
    )Impact of federal alternative minimum tax
    
    
    
    
    
    
    222,498
    
    
    
    
    
    
    
    222,498Impact of graduated Federal rates
    
    
    74,639
    
    
    
    20,392
    
    
    
    90,186
    
    
    
    69,133State and local taxes, net of federal income taxes
    
    
    (330,068
    )
    
    
    (90,181
    )
    
    
    (398,831
    )
    
    
    (305,728
    )Permanent differences
    
    
    6,361
    
    
    
    3,552
    
    
    
    14,231
    
    
    
    11,227Valuation allowance
    
    
    4,142,287
    
    
    
    779,961
    
    
    
    4,142,287
    
    
    
    2,645,016Total income tax expense
    
    $
    1,280,839
    
    
    $
    222,498
    
    
    $
    691,367
    
    
    $
    222,498
   August 4, 2007
    
    
    February 2, 2008
    
    
    August 2, 2008Deferred tax assets:Net operating loss carryforward
    
    $
    1,144,058
    
    
    $
    3,048,240
    
    
    $
    5,450,787Vacation accrual
    
    
    444,313
    
    
    
    392,994
    
    
    
    377,004Inventory
    
    
    1,514,078
    
    
    
    1,379,621
    
    
    
    1,439,736Stock-based compensation
    
    
    573,205
    
    
    
    650,373
    
    
    
    768,121Accrued rent
    
    
    3,990,959
    
    
    
    4,049,924
    
    
    
    3,952,312Total deferred tax assets
    
    
    7,666,613
    
    
    
    9,521,152
    
    
    
    11,987,960Deferred tax liabilities:Prepaid expenses
    
    
    233,000
    
    
    
    184,606
    
    
    
    216,705Property and equipment
    
    
    3,291,326
    
    
    
    2,150,157
    
    
    
    1,939,850Total deferred tax liabilities
    
    
    3,524,326
    
    
    
    2,334,763
    
    
    
    2,156,555Valuation allowance
    
    
    (4,142,287
    )
    
    
    (7,186,389
    )
    
    
    (9,831,405
    )Net deferred tax assets
    
    $
    
    
    
    $
    
    
    
    $
    
 11




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##### Table of Contents



7. Stock-Based Compensation
  Twenty-six
    
    Twenty-sixWeeks Ended
    
    Weeks EndedAugust 4, 2007
    
    August 2, 2008Options granted
    
    
    132,613
    
    
    
    310,500Weighted-average fair value of options granted
    
    $
    4.99
    
    
    $
    0.86AssumptionsDividends
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    2.83.7
    %Expected volatility
    
    
    43%46
    %
    
    
    46
    %Expected option life
    
    56 years
    
    6 years
 8. Earnings (Loss) Per Share
   Thirteen
    
    
    Thirteen
    
    
    Twenty-six
    
    
    Twenty-sixWeeks
    
    
    Weeks
    
    
    Weeks
    
    
    WeeksEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedAugust 4, 2007
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 2, 2008Numerator:Net loss
    
    $
    (8,744,782
    )
    
    $
    (2,261,710
    )
    
    $
    (9,709,956
    )
    
    $
    (7,135,778
    )Numerator for loss per share
    
    
    (8,744,782
    )
    
    
    (2,261,710
    )
    
    
    (9,709,956
    )
    
    
    (7,135,778
    )Interest expense related to convertible debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted loss per share
    
    $
    (8,744,782
    )
    
    $
    (2,261,710
    )
    
    $
    (9,709,956
    )
    
    $
    (7,135,778
    )Denominator:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for basic earnings per share 
weighted average shares
    
    
    6,493,035
    
    
    
    7,052,559
    
    
    
    6,493,035
    
    
    
    7,025,361Effect of dilutive securitiesStock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock purchase warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings (loss) per share
 adjusted weighted average shares and assumed
conversions
    
    
    6,493,035
    
    
    
    7,052,559
    
    
    
    6,493,035
    
    
    
    7,025,361
  9. Fair Value Measurements
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115
 10. Contingencies
  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 related notes thereto and elsewhere in this quarterly report.
 Overview
       13




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Critical Accounting Policies
   Merchandise inventories
  Store closing and impairment charges
 Accounting for
the Disposal of Long-Lived Assets
  Stock-based compensation expense
 Share-Based Payment
 14




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##### Table of Contents



Deferred income taxes
 Accounting for Income Taxes
    Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109
 15




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##### Table of Contents



Results of Operations
  Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedAugust 4,
    
    August 2,
    
    August 4,
    
    August 2,2007
    
    2008
    
    2007
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of merchandise sold, occupancy and buying expense
    
    
    77.9
    
    
    
    70.4
    
    
    
    73.1
    
    
    
    72.3Gross profit
    
    
    22.1
    
    
    
    29.6
    
    
    
    26.9
    
    
    
    27.7Selling expense
    
    
    26.7
    
    
    
    23.4
    
    
    
    25.3
    
    
    
    24.0General and administrative expense
    
    
    10.5
    
    
    
    9.2
    
    
    
    9.8
    
    
    
    9.6Loss on disposal of property and equipment
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.3Impairment of long-lived assets
    
    
    1.8
    
    
    
    
    
    
    
    0.8
    
    
    
    Operating loss
    
    
    (16.9
    )
    
    
    (3.1
    )
    
    
    (9.1
    )
    
    
    (6.2
    )Other income, net
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Interest expense
    
    
    (1.0
    )
    
    
    (1.7
    )
    
    
    (0.8
    )
    
    
    (1.8
    )Loss before income taxes
    
    
    (17.8
    )
    
    
    (4.7
    )
    
    
    (9.8
    )
    
    
    (7.9
    )Provision for income taxes
    
    
    3.0
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    0.3Net loss
    
    
    (20.8
    )%
    
    
    (5.2
    )%
    
    
    (10.6
    )%
    
    
    (8.2
    )%
  Thirteen
    
    Thirteen
    
    Twenty-
    
    Twenty-Weeks
    
    Weeks
    
    six Weeks
    
    six WeeksEnded
    
    Ended
    
    Ended
    
    EndedAugust 4,
    
    August 2,
    
    August 4,
    
    August 2,2007
    
    2008
    
    2007
    
    2008Number of stores at beginning of period
    
    
    258
    
    
    
    249
    
    
    
    257
    
    
    
    249Stores opened during period
    
    
    0
    
    
    
    0
    
    
    
    6
    
    
    
    1Stores closed during period
    
    
    (1
    )
    
    
    (6
    )
    
    
    (6
    )
    
    
    (7
    )Number of stores at end of period
    
    
    257
    
    
    
    243
    
    
    
    257
    
    
    
    243
 Thirteen Weeks Ended August 2, 2008 Compared to Thirteen Weeks Ended August 4, 2007
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 16




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##### Table of Contents



Impairment of long-lived assets Accounting for the
Disposal of Long-Lived Assets
 Interest expense.
 Income tax expense.
 Net loss
 Twenty-six Weeks Ended August 2, 2008 Compared to Twenty-six Weeks Ended August 4, 2007
 Net sales.
 Gross profit.
 Selling expense.
 General and administrative expense.
 Impairment of long-lived assets Accounting for the
Disposal of Long-Lived Assets
 17




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##### Table of Contents



Interest expense.
 Income tax expense.
 Net loss
 Seasonality and Quarterly Fluctuations
  Liquidity and Capital Resources
      18




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##### Table of Contents



August 4, 2007
    
    February 2, 2008
    
    August 2, 2008Cash
    
    $
    192,576
    
    
    $
    159,671
    
    
    $
    145,075Inventories
    
    
    22,920,714
    
    
    
    18,061,941
    
    
    
    21,559,866Total current assets
    
    
    31,606,207
    
    
    
    22,282,080
    
    
    
    24,143,567Property and equipment, net
    
    
    49,245,995
    
    
    
    43,810,776
    
    
    
    40,165,809Total assets
    
    
    82,122,932
    
    
    
    67,558,951
    
    
    
    65,466,041Revolving credit facility
    
    
    16,056,368
    
    
    
    11,184,379
    
    
    
    10,923,753Subordinated convertible debentures
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    4,000,000Subordinated secured term loan
    
    
    
    
    
    
    
    
    
    
    5,876,590Total current liabilities
    
    
    36,090,374
    
    
    
    29,348,090
    
    
    
    37,389,328Total shareholders equity
    
    
    31,788,597
    
    
    
    24,040,100
    
    
    
    18,006,239Net working capital
    
    
    (4,484,167
    )
    
    
    (7,066,010
    )
    
    
    (13,245,761
    )Unused borrowing capacity*
    
    
    789,734
    
    
    
    1,455,865
    
    
    
    1,737,378
 
 *
    
    as calculated under the terms of our revolving credit facility Operating activities
   19




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##### Table of Contents



Investing activities
   Financing activities
  Issuance of Debt and Common Stock
      20




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##### Table of Contents



Accounting for Contingencies
 Revolving Credit Facility
  21




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##### Table of Contents



Subordinated Convertible Debentures
     22




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##### Table of Contents



2005 Private Placement of Common Stock and Warrants
    IPO Warrants
  Off-Balance Sheet Arrangements
  23




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##### Table of Contents



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)
    
    $
    13,770,014
    
    
    $
    3,993,507
    
    
    $
    5,390,174
    
    
    $
    4,386,333
    
    
    $
    Capital lease obligations (2)
    
    
    17,338
    
    
    
    17,338
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations (3)
    
    
    164,857,799
    
    
    
    24,862,423
    
    
    
    46,491,291
    
    
    
    40,920,813
    
    
    
    52,583,272Purchase obligations (4)
    
    
    30,682,674
    
    
    
    30,277,774
    
    
    
    285,233
    
    
    
    119,667
    
    
    
    Total
    
    $
    209,327,825
    
    
    $
    59,151,042
    
    
    $
    52,166,698
    
    
    $
    45,426,813
    
    
    $
    52,583,272
 
 (1)
    
    Includes payment obligations relating to our subordinated convertible debentures and to our
subordinated secured term loan. These instruments are classified as current liabilities on our
balance sheet.(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. 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.
 24




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Purchase of Equity Securities by the Issuer and Affiliated Purchasers
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
 ITEM 6. EXHIBITS
  25




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##### Table of Contents



SIGNATURES
   BAKERS FOOTWEAR GROUP, INC.
(Registrant)By:
    /s/ Peter A. EdisonPeter A. EdisonChairman of the Board, Chief Executive Officer
and President (Principal Executive Officer)
Bakers Footwear Group, Inc.
(On behalf of the Registrant)By:
    /s/ Charles R. Daniel, IIICharles R. Daniel, IIIVice President - Finance,
Controller, Treasurer, and Secretary (Principal Financial Officer and Principal Accounting Officer) 26




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##### Table of Contents



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)).4.1
    
    Second Lien Credit Agreement dated February 1, 2008 (Loan
Agreement) by and among the Company, and Private Equity
Management Group, Inc. and the Lender named therein
(incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K dated February 1, 2008 (File No.
000-50563)).4.2
    
    Note evidencing amounts borrowed by the Company under the Loan
Agreement (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K dated February 1, 2008
(File No. 000-50563)).4.3
    
    Security Agreement dated February 1, 2008 by and among the
Company, Private Equity Management Group, Inc. and the Lender
named therein (incorporated by reference to Exhibit 4.3 to the
Companys Current Report on Form 8-K dated February 1, 2008
(File No. 000-50563)).4.4
    
    Subordination Agreement dated February 1, 2008 by and among
the Company, Bank of America, N.A. and Private Equity
Management Group, Inc., in its capacity as administrative
agent for the Lender named therein (incorporated by reference
to Exhibit 4.4 to the Companys Current Report on Form 8-K
dated February 1, 2008 (File No. 000-50563)).4.5
    
    Subordination Agreement dated February 1, 2008 by and among
the Company, Private Equity Management Group, Inc., in its
capacity as administrative agent for the Lender named therein,
and the subordinated creditors named therein (incorporated by
reference to Exhibit 4.5 to the Companys Current Report on
Form 8-K dated February 1, 2008 (File No. 000-50563)).4.6
    
    Registration Rights Agreement dated February 1, 2008 by and
among the Company and Private Equity Management Group, Inc.
(incorporated by reference to Exhibit 4.6 to the Companys
Current Report on Form 8-K dated February 1, 2008 (File No.
000-50563)).4.7
    
    Fee Letter dated February 1, 2008 between Private Equity
Management Group, Inc. and the Company (incorporated by
reference to Exhibit 4.7 to the Companys Current Report on
Form 8-K dated February 1, 2008 (File No. 000-50563)).4.8
    
    Amendment Number 1 to Loan Documents dated May 9, 2008 by and
among the Company, Private Equity Management Group, Inc. and
the Lender named therein (incorporated by reference to Exhibit
4.8 to the Companys Quarterly Report on Form 10-Q for the
quarter year ended May 3, 2008 filed on June 17, 2008 (File
No. 000-50563)).4.9
    
    Letter of Consent delivered to the Company and Private Equity
Management Group, Inc. by Bank of America, N.A. (incorporated
by reference to Exhibit 4.3 to the Companys Current Report on
Form 8-K dated May 8, 2008 (File No. 000-50563)).11.1
    
    Statement regarding computation of per share earnings
(incorporated by reference from Note 8 to the 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 Principal
Financial Officer).32.1
    
    Section 1350 Certifications (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by Chief Executive
Officer and the Principal Financial Officer).
 27